Beyond that, the CARES Act includes incentives for contractors to keep paying workers, even if they’re unable to work on-site or telecommute, in addition to other tax relief measures.
Construction companies and contractors can take advantage of the Paycheck Protection Program to help cover current payroll and certain other costs. To qualify, construction companies must have been in business before February 15, 2020, and have fewer than 500 employees OR meet the SBA’s alternative size standard as of March 27, 2020. The alternative size standard states that the company’s total tangible net worth is not more than $15 million and the average net income after federal income taxes (minus any carry-over losses) for two fiscal years before the loan application does not exceed $5 million.
The Paycheck Protection Program (“PPP”) issues loans that can turn into grants. Funds are primarily intended to cover payroll but can also be used for utilities, rent, and interest on debt instruments in place prior to February 15, 2020. To the extent loan proceeds are used for approved purposes, the debt can be forgiven. Loan amounts are limited to the lesser of 250% of average payroll costs or $10 million. For more details, see [insert article link to PPP article here]
The repayment period is limited to two years, and interest rates will not be more than one percent. Loans payments will automatically be deferred for six months.
The definition of payroll costs is fairly inclusive – comprising wages, vacation and leave paid, group health insurance benefits, retirement benefits, etc. However, payroll costs to not include:
- Individual employee compensation (wages, commissions, etc.) of more than an annual salary of $100,000
- Payroll taxes
- Compensation for employees whose primary residence is outside the U.S.
- Qualified sick leave for family medical leave under the Families First Act, for which businesses receive a federal tax credit
The PPP’s loan forgiveness provision is the highlight of this provision. Contractors can apply for tax-free loan forgiveness for the amounts they pay in payroll, mortgage, rent, and utility payments in the first eight weeks the loan is disbursed. Loan forgiveness will be diminished if the contractor (1) reduces its workforce or (2) lowers salaries or wages by 25 percent or more for employees who earned less than $100,000. To the extent businesses have already furloughed or laid off employees, there are exemptions for re-hires.
Economic Injury Disaster Loans are available to real estate companies and other businesses with fewer than 500 employees and need funds to pay working capital such as fixed debts, payroll, accounts payable, and other bills. Unlike Paycheck Protection loans that require a business to be in operation longer, EIDL loans are available to businesses that have been in operation for less than a year. EIDL loans, which are administered through the SBA, can be taken out for up to $2 million with a 3.75 percent interest rate. Loans below $200,000 do not require personal guarantees. These loans are not forgivable.
Immediate funds might be available under EIDL grants. EIDL grants max out at $10,000, do not have to be repaid, and are available immediately, before the rest of the loan is disbursed. Note that the amount of the grant reduces the amount of eligible loan forgiveness of a PPP loan.
Payroll Tax Relief
Contractors who do not take a PPP loan are eligible to defer the payment of the employers’ portion of Social Security taxes for 2020. Section 2302 of the CARES Act allows for businesses share of social security taxes to be split over two years. Half must be paid by December 31, 2021 and the remaining 50 percent by December 31, 2022.
Employee Retention Credit
Finally, the Employee Retention Credit fully refunds the business portion of employment taxes for half the wages paid during the coronavirus crisis. Contractors are eligible if:
- Their operations area suspended due to government orders or regulations OR
- They experienced at least a 50 percent reduction compared to the previous year’s quarter
Qualified wages depend on the number of full-time or full-time equivalent (FTE) employees.
- Employers with ≥ 100 employees: eligible wages are those paid when an employee is not working due to business shutdown.
- Employers with ≤ 100 employees: eligible wages are those paid during any period described above, even if the business is operational.
The Employee Retention Credit is limited to the first $10,000 of compensation per eligible employee, including health benefits. The timeframe is after March 12, 2020 and before January 1, 2021, calculated by quarter. The credit is fully refundable against employment taxes.
Potential 2018 and 2019 Amendments
There are also carryback provisions for Net Operating Losses, modifications to pass-through losses, and several other business provisions that contractors should know about. Read more in our previous post on the CARES Act.
Relief for Large Contractors
$500 billion in the CARES Act is earmarked for large corporations such as airlines, but aid could also be extended to construction. Large construction companies that maintain workers may be eligible for a tax credit; other relief measures include the ability to defer tax payments and make immediate construction cost expense deductions.
Mid-size construction companies with 500 to 10,000 employees are eligible for government-funded loans with annualized interest rates of 2% or less. To assist construction companies with cash flow in the short term, no interest or principal payments will be due for the first 6 months of the loans.
Also remember that construction workers may benefit from the individual recovery rebate checks and, if they’re laid off, extended and expanded unemployment benefits. Additionally, there is money earmarked for community organizations to provide training on digital processes, which could be useful to construction companies that need help transitioning away from paper and pen.
Phase IV coronavirus relief packages are likely, but not until Congress is back in session toward the end of April. For now, contractors can explore how the above relief measures can bridge the gap and keep critical projects, and employees, going. PBMares is here to help answer your questions about how the CARES Act can provide financial and tax relief for your construction business.
If you have any questions, contact PBMares today.
The CARES Act: What Employers Need to Know About Its Impact on the Families First Coronavirus Response Act
CARES Act Provides Funds and Broadened Authority for Federal Government Contracts
What’s in the $2 Trillion Coronavirus Stimulus Bill For Construction Businesses & Their Workers?