Friday, July 24 Update:

As of July 22, 2020, Congress has begun negotiations on a new COVID-19 aid bill. While there is some pressure to address this week’s expiration deadline of additional unemployment benefits, at this point there is no clear timeline on when a bill will be signed, or even what will be included. ABMP will be sure to let you know of any updated benefits as soon as they happen.

ABMP continues to stay on top of small business administration programs, unemployment benefits, and disaster relief aid to help you stay financially afloat during the COVID-19 pandemic. Below is the best information we have as of July 23, 2020, to help you make decisions, but please know that this information can quickly change. We will continue to provide updates as we receive them.

The Paycheck Protection Program (PPP) resumed accepting applications July 6, 2020. The PPP is open through August 8, 2020. As many states are now allowing our members to open, others may be shutting down again due to regional surges, so it may be a good time to apply for the PPP to help you with payroll and other expenses as you open up and get back on your financial feet.

There are three main federal financial options for you. In addition to these options, there may be financial assistance coming from your state in the form of other small business loans or assistance with utilities.

Here are the three main options through the CARES Act:

1. Expanded Unemployment Benefits & Pandemic Unemployment Assistance
2. Paycheck Protection Program (PPP)—must apply by August 8, 2020           
3. Economic Injury Disaster Loan and Loan Advance (EIDL)—open for small businesses again as of June 15, 2020

In addition, other Small Business Association (SBA), local, and state financial assistance may be available.

1. Expanded Unemployment Benefits

Federal Pandemic Unemployment Compensation ($600 per week) expires the last week of payment before July 31, 2020 (July 25 or 26, 2020, in most states)

The additional $600 from Federal Pandemic Unemployment Compensation (FPUC) expires in July 2020. The date typically given is July 31, 2020, but the weekly unemployment calendar in most states ends on Saturday or Sunday, which means the additional $600 payment will end July 25 or July 26, depending on whether the state’s weekly unemployment calendar ends on Saturday or Sunday. The House and the Senate are working together to extend this benefit, although it may be a bit less than $600 in the end.

Regular unemployment benefits and Pandemic Unemployment Assistance (PUA) are still available to apply for. PUA provides unemployment benefits to those who are self-employed. We know that while many of you were able to receive benefits, many others were not able to access benefits or are still waiting for the state to let them know about benefits. Unfortunately, this has not been a perfect process, and the success of implementation varies on a state-by-state basis.

One can still apply and receive benefits backdated to their closure dates. Unemployment and PUA will be available after July 31, 2020, but will not include the additional $600 per week from FPUC.

Here is what we know about the PUA process.

Individuals need to apply for regular unemployment first, and states look at W-2 income before self-employment income. So, unfortunately, if you are an employee in a second job in addition to being self-employed, your unemployment benefits will be based on your W-2 earnings as an employee. And if you are able to still work the second job, you will most likely not be able to apply for unemployment at all. If you don’t have employment income and your income is solely from self-employment, the system will push you over to the PUA program. PUA benefits are equal to half of the state’s average weekly unemployment benefits. For example, if you were eligible to receive $300 per week under regular unemployment, your PUA benefits would be $150 per week. That is the minimum; you might receive more. Documents you will need to apply for PUA will most likely be 1040-C forms, K-1 forms if you are an LLC or PC, and/or possibly accounting documents regarding payments you earned.

The CARES Act extended state unemployment an additional 13 weeks, so applicants are now eligible to receive 39 weeks of unemployment benefits. Once you are accepted, your benefits, in most states, will be backdated to the date you left work. In addition, the CARES Act added $600 per week to all individuals receiving assistance through unemployment or PUA from March 29, 2020, through July 31, 2020.

We have also been curious about whether one can receive unemployment if they choose not to return to work due to risk of contracting the virus. This link provides the following guidance:

“COVID-19/Coronavirus update: In March 2020, new federal law greatly expanded unemployment insurance. Many workers who were not previously covered are now eligible. You may now be eligible if any of the following are true:

• Your employer permanently or temporarily laid you off due to coronavirus measures
• Your employer reduced your work hours due to coronavirus measures
• You are self-employed and have lost income due to coronavirus measures
• You’re quarantined and can’t work due to coronavirus
• You’re unable to work due to a risk of exposure to coronavirus
• You can’t work because you’re caring for a family member due to coronavirus.”

States differ when it comes to addressing whether someone who chooses not to return to work due to a risk of exposure is eligible to continue to receive unemployment benefits. Some states require people to return to work if a job is available. Others have allowed for people who are “vulnerable” to remain home, though the definition of vulnerable changes depending on the state. Check your state unemployment website to learn how your state is handling this issue. 

In most states, you will be required to apply for regular unemployment before applying for PUA. If you are deemed ineligible for regular unemployment, you may then apply for PUA.

Unemployment benefit amounts vary from state to state, and not all individuals are eligible for the maximum amount of benefits. However, in addition to your state benefits, the federal government is issuing $600 per week from March 29, 2020, through July 31, 2020. Let’s say, for example, your state allows for $500 of unemployment benefits a week. The total financial aid you would receive in this scenario is $1,100 a week through the end of July. In addition, it appears that self-employed applicants will be entitled to “minimum benefits equal to ½ the state’s average weekly unemployment insurance amount.” Note that this is just the minimum—it can go up from there.

Benefits for the self-employed are available up until December 31, 2020; however, if we find ourselves in a similar state by the end of 2020, we suspect the ability to apply for these benefits may be extended.

To help you feel more secure in this unstable time, unemployment benefits will be extended an additional 13 weeks beyond what is routinely available in your state, which is typically 26 weeks, for a total of 39 weeks. After July 31, your unemployment benefits will go back to whatever your state is offering, as the $600 from the federal government will drop off. 

Under regular unemployment rules, a participant must continue to look for work. Many states have modified or suspended the requirement to seek work while on unemployment. If a state has not yet modified and the old rules apply, once work is found, the unemployment benefits may stop, depending on how much you are making in your new job.

As with everything else immediate-post-CARES Act, what we are learning about unemployment for the self-employed changes multiple times a day. This New York Times article, “Here’s What the Relief Packages Give Self Employed Workers,” provides information on financial assistance across the board for self-employed individuals.

2. Paycheck Protection Program—APPLY BY MARCH 31, 2021

Congress passed a second COVID Relief Act December 21, 2020. The Paycheck Protection Program (PPP) was funded again and is open for small businesses, the self-employed, and sole proprietors as of January 11, 2021. To apply, a business must have been in business as of February 15, 2020. In addition to first-time applicants (first draw), the new PPP allows people who have applied and received funds before to apply again (second draw). This PDF provides a helpful summary of the modifications to the PPP. Applicants applying for their second PPP loan must prove that their business revenue declined by at least 25% in any quarter in 2020 compared to the same quarter in 2019. The PPP is open for applications through March 31, 2021, and the White House has announced special accommodations for small businesses and sole proprietors starting February 24, 2021.

As 2020 was such an anomaly in income, the PPP allows the borrower to identify a base period in 2020 or in 2019. Some key features of the program include 24 weeks of loan forgiveness or the original eight weeks of forgiveness. A borrower may still elect to stay with the original eight weeks of payroll protection. Another modification from the June update is that if 60% (originally 75%) of the loan is used for payroll in the 24 weeks after the loan is funded, and 40% (originally 25%) is used to pay non-payroll expenses, the loan can be forgiven.

The rule from the June 11 amendment allows for partial forgiveness if the 60%/40% ratio of payroll/non-payroll expenses cannot be met. The amount that is not forgiven must be paid back. An applicant who submits the loan forgiveness application within 10 months after the end of the covered loan period does not have to pay principal or interest on their PPP loan.  

Use of Funds

The PPP can be used for payroll of employees of the business. This includes sole practitioners, as the sole practitioner is considered both the owner and the employee of the business.

PPP funds can also include payroll costs, health and leave benefits, mortgage, rent, utility payments, and interest on debt obligations incurred prior to February 15, 2020.

If you received an EIDL grant, then you must deduct that from the portion of the PPP loan that is forgiven. The portion of your EIDL that you are making loan payments for does not need to be deducted from the PPP.

To apply, contact a bank with whom you already have a lending record. This should be a bank that you have more than a checking account with, and that is an approved Small Business Administration (SBA) lender. 

When you contact your lender, tell them you are interested in applying for a PPP loan with the SBA. These loans are going to be based on credit. If you do not have a lending relationship with a bank, you can seek one out, but you may be sent to the back of the line as a new customer. Banks will originate the loans and the SBA will guarantee the loans 100%. The SBA is partnering with the banks to get this money out to the public.

Required documentation includes 2020 or 2019 payroll records or your most recent 12 months of payroll records. Identify a monthly average based on the last 12 months of the 2019 records. One can multiply this average by 2.5 for the total amount of the loan related to payroll.

The PPP loan amount can also cover monthly rent/mortgage, health benefits, insurance, utilities for your business office, and other fixed existing debts that otherwise cannot be paid due to COVID-19. The term of the loan can be up to 10 years. Interest rates start at 1% for businesses and non-profits.

The maximum loan amount is 2.5 times the average monthly payroll, plus the other costs identified above, if one includes those.

The benefit of a PPP loan is that eight weeks, or 24 weeks, of expenses can be forgiven—that is to say you do not have to repay it—so long as at least 60% of expenses relate to payroll and the balance (at least 40%) is used for approved non-payroll expenses. If you subsequently fire or cut pay of any employees, the amount of loan forgiveness will be reduced. Accountants suggest that if you aim to have the loan forgiven, be prepared to provide an accounting showing that the funds were disbursed according to the program requirements. The loan period begins the moment you receive your payment. For loans opened after June 5, 2020, you may elect to have 24 weeks of payroll payments, or you can stay with the original eight weeks. You have to apply for your forgiveness within 10 months after the end of the covered period (eight or 24 weeks). The eight-week or 24-week timeline begins the moment you receive the funds. This means you have eight weeks or 24 weeks to spend the money and to keep employees on the payroll. This may not work with your return to work timing. If you apply and get the money, you can always decline the money if the timing doesn’t work for you, or you can keep the loan and pay all of it back within the next five years.

Here is the SBA webpage regarding this financial assistance option, updated as of January 8, 2021. It provides more information about the PPP and EIDL.

3. Economic Injury Disaster Loan

An Economic Injury Disaster Loan (EIDL) was also available from the SBA. As of June 15, 2020, the EIDL was open again to all qualified independent contractors and small businesses. These loans take some time to process. 

EIDL loans are long-term, low-interest loans, some of which must be paid back. There is a $1,000 grant available that does not need to be repaid. In addition, you can apply for a $10,000 advance to help keep you on your feet that does not have to be paid back.

Individual EIDL loans are capped at $2M. The covered period is January 1, 2020, through December 31, 2020. All states have been declared a disaster due to COVID-19, although some counties may not have been included. EIDL loans are available for small businesses (500 or fewer employees) sole proprietors/self-employed individuals, C corporations, S corporations, LLCs, partnerships, and non-profit companies. The interest rate is 3.75% for businesses and 2.75% for non-profits. The term of the loan is up to 30 years. One can obtain up to a $10,000 advance on the loan by checking a box on the application. This advance does not have to be paid back if the loan isn’t approved. The purported time period for loan payout is three days for the advance and three weeks or more for the first loan disbursement. However, as the SBA is approving all of these applications, it is taking time to process them. If you have not been specifically denied for an EIDL loan, wait to hear from the SBA. It is possible they just haven’t yet reviewed your loan.

Business and personal assets will be required as collateral for owners with more than a 20% interest in the business; however, a loan will not be denied solely due to lack of collateral. No personal guarantees are needed for loans of less than $200,000. For loans greater than $200,000, 20% owners must issue guarantees.

EIDL funds may be used to pay for expenses that cannot be paid due to COVID-19, including existing debts, rent, mortgage interest payments, salaries, health benefits, insurance, payroll, sick leave and medical leave, and accounts payable.

If you already applied for an EIDL loan prior to May 4, 2020, and haven’t received a response from the SBA, it’s possible that they haven’t had a chance to review your application yet, and you may still be up for consideration. As of May 4, only agricultural businesses can apply for an EIDL loan.

Here is some helpful guidance from the SBA if you have applied for the PPP or an EIDL loan.

Potential State and Local Loans and Financial Assistance

We encourage our members to also review your state economic development and small business departments or your local chamber of commerce to see if there are local loans or financial assistance available. We’ve heard that in some states there are lists of chambers of commerce loans that are available. In addition, some counties are offering assistance with utility bills or prohibiting evictions or mortgage defaults. Check with your county and state COVID-19 pages to stay on top of orders that will help with financial considerations.

The Synopsis of the SBA Programs and Loans and Unemployment

Each of these programs has plusses and minuses. You need to decide which one best meets your personal needs in your unique situation. We encourage you to carefully sort through which option might be most helpful to you and may provide the quickest relief.

Take, for example, the fact that one cannot apply for payroll relief through the PPP and receive unemployment benefits at the same time because one cannot be paid for work and paid for unemployment simultaneously. Another consideration is that one can only apply for PPP through June 30, 2020, and the additional $600 per week in unemployment ends July 31, 2020. In addition, consider whether it benefits you to apply for two loans through the SBA (PPP and EIDL) at the same time, and how that could impact your credit. Keep in mind that the PPP forgiveness period of eight or 24 weeks starts ticking the moment the funds are disbursed, so if you are still unable to go back to work or open your doors, this might not be the program for you.

Additional assistance may come from your state economic development program with local loans from chambers of commerce or your state’s small business development programs for help with utilities. We encourage you to review both these programs on your state websites to see whether this local assistance is available to you.

Other benefits have come from the financial relief packages for self-employed workers.

Financial Aid Loan Payments

If you have a federal student loan (through the government, not a private agency like Sallie Mae), your student loan payments have been suspended through September 30, 2020.

If you have a loan with another company, it doesn’t hurt to contact them and ask if you can suspend your loan payments.

Paid Sick Leave and Paid Family Leave—Tax Credit

There is now a tax credit for the unemployed for sick leave and family leave. This credit needs to be claimed on your income tax return for 2020 (the one you file next year) and can be taken from April 1, 2020, through December 31, 2020. A tax credit can reduce the amount you owe in taxes or even push you over into a refund.

One can claim up to 10 sick days, and the credit applies if you’ve been ordered to stay at home by a governmental agency (state, city) or if a health-care provider suggests isolation. 

To calculate your sick leave credit, per the New York Times article, determine your average daily income. “Take your net earnings (earnings after expenses) and divide that by 260. Then multiply the number of sick days by that figure or $511, whichever is less.”

There is also a smaller sick leave tax credit for those who left work to care for someone else—this credit covers 67% of percent of your average daily earnings (earnings after expenses divided by 260) for up to $200 per day. This credit is available for those who are caring for someone who is isolating or has been ordered into general isolation. This includes caring for children whose school has been closed.

Finally, there is caregiver leave for self-employed individuals if your child’s school or day care is closed due to the pandemic. Similar to the sick leave outlined above, this is 67% of your daily earnings for up to $200 per day, but it can be used for 50 days in 2020.

Reminder: all of these sick leaves and caregiver leaves can be used on your 2020 taxes (next year’s filing) from April 1, 2020–December 31, 2020.

Taxes for Self-Employed

Social Security and Medicaid Tax Payment

Most businesses with employees split the cost of payroll taxes (Social Security and Medicaid). Self-employed workers have to pay the full amount, as there is no one else to split with. New tax rules allow self-employed individuals to pay in two installments: one payment at the end of 2021 and the second at the end of 2022. The caveat is that if one obtains a PPP loan that is forgiven, one cannot defer tax payments.

In addition, typically those who are self-employed have to estimate quarterly income tax payments. The April 15, 2020, and June 15, 2020, deadlines have been pushed to July 15, 2020.

Health Insurance

For those who would like to purchase health insurance, some states have reopened the enrollment window for the state health insurance exchange. Find out if your state has reopened enrollment windows here.

If you lost your health insurance as a result of this pandemic, you may be eligible to apply for Medicaid in your state. Thirty-eight states and DC expanded their Medicaid programs in the run up to the Affordable Care Act 10 years ago. Find out here if your state expanded Medicaid. This expanded Medicaid allows residents to qualify if their monthly income is roughly below $1,400 per month for a single person or $2,950 for a family of four. This calculation includes the unemployment benefits you may be receiving, but not the additional $600 from the federal government or the stimulus payment you may be receiving.

If you already have insurance through the state exchange and your enrollment window is open now, perhaps look at re-enrolling and see if you can get better subsidies if your income has fallen.

ABMP is hopeful that we will all be able to return to work in some form sooner rather than later, even though it will most likely look a bit different than our work in the past. We hope the financial relief programs will help get you through these trying times until we can all rejoice in the reprieve. If you hear that your state is officially online with unemployment for the self-employed or that any of the stay-at-home orders are modified, please let us know. We appreciate your membership—stay safe and stay well.

Please contact gr@abmp.com with questions.