Federal and Pennsylvania Stimulus and Loan Packages 
The Tax Foundation and State of Pennsylvania 

Marty McCarthy, CPA, CCIFP
Focused on You. Dedicated to Your Success.
March 26, 2020

Federal Coronavirus Aid, Relief and Economic Security (CARES) Act
As you know, the Coronavirus Aid, Relief and Economic Security (CARES) Act has been passed by the Senate but not the House of Representatives. The Senate debated pieces of this legislation before it was approved late last night. Here is an update from the Tax Foundation with information on what the CARES Act looks like now.

The CARES Act builds on two former pieces of legislation by providing more robust support to both individuals and businesses, including changes to tax policy.
The bill includes:

Expanded unemployment insurance (UI) for workers, including a $600 per week increase in benefits for up to four months and federal funding of UI benefits provided to those not usually eligible for UI, such as the self-employed, independent contractors, and those with limited work history.

$350 billion allocated for the Paycheck Protection Program, which is meant to help small businesses (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30. Notably, small businesses may take out loans up to $10 million—limited to a formula tied to payroll costs—and can cover employees making up to $100,000 per year.

Recovery Rebate for individual taxpayers. The bill would provide a $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers). Additionally, taxpayers with children will receive a flat $500 for each child. The rebates would not be counted as taxable income for recipients, as the rebate is a credit against tax liability and is refundable for taxpayers with no tax liability to offset.

The rebate phases out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers with no children and $198,000 for joint taxpayers with no children.

2019 or 2018 tax returns will be used to calculate the rebate advanced to taxpayers, but taxpayers eligible for a larger rebate based on 2020 income will receive it in the 2020 tax season.
According to the Tax Foundation, the rebate will decrease federal revenue by about $301 billion in 2020.

We estimate that the average rebate will be about $1,523 and rebates would increase taxpayer after-tax income by about 2.59 percent on average.

Other notable tax provisions include changes to the early withdrawal penalty on retirement account distributions, the ability to exclude certain employer student loan payments from taxable income, and business tax provisions like a refundable payroll tax credit and net operating loss carrybacks, among others.

Pennsylvania COVID-19 Working Capital Access Program (CWCA)
In other news, Governor Wolf announced the passage of the COVID-19 Working Capital Access Program (CWCA ) that the state of Pennsylvania approved $60 millions of dollars in aid to help small businesses in the commonwealth impacted by COVID-19. CWCA will provide up to $100,000 in loans to small businesses.

A network of nonprofit economic development organizations, known as CEDOs, partnered  with the Department of Community and Economic Development to administer the Pennsylvania Industrial Development Authority (PIDA)  and First Industries (FIF) loan programs.

Working capital, which for purposes of this program is considered capital used by a small business for operations, excluding fixed assets and production machinery and equipment.

An eligible small business enterprise is a for-profit corporation, limited liability company, partnership, proprietorship or other legal business entity located in the Commonwealth of Pennsylvania and having 100 or fewer full-time employees worldwide at the time of submission of the application.

For purposes of this program a retail/service enterprise is defined as a for-profit business entity that is involved in the business-to-business service, business-to-public service, mercantile, commercial, or point of sale retail sectors. An agricultural producer is defined as a business involved in the management and use of a normal agricultural operation for the production of a farm commodity. A “farm commodity” is any Pennsylvania-grown agricultural, horticultural, aquacultural, vegetable, fruit, and floricultural product of the soil, livestock and meats, wools, hides, furs, poultry, eggs, dairy products, nuts, mushrooms, honey products, and forest products.

Loan terms are three years with a 12-year amortization. In addition, no payments will be due and payable during the first year, The principal and if applicable, interest payments will be due monthly for years two and three. A balloon payment will be due and payable at the end of the third year.

The interest rate for the program is 0% except for agricultural producers in which case the interest rate is 2% fixed for the life of the loan.

All CWCA loan applications must be submitted through a Certified Economic Development Organization (CEDO) . For the list of CEDO’s operating within Pennsylvania, please refer to the CEDO webpage.  

We will share more details as they become available. Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at Richard.Higgins@MCC-CPAs.com . I can be reached at Marty.McCarthy@MCC-CPAs.com . As always, we are happy to help.

Stay safe,

Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company

Source: The Tax Foundation and State of Pennsylvania. March 26, 2020.

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).