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The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help churches and small businesses keep  workers employed amid the pandemic and economic downturn.

Known as the Paycheck Protection Program, the initiative provides 100% federally guaranteed loans to small businesses.

Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.

The administration soon will release more details including the list of lenders offering loans under the program. In the meantime, the U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals prepare to file for a loan.

Am I eligible?

You are eligible if you are:
• A church or small business with fewer than 500 employees
• A church or small business that otherwise meets the SBA’s size standard
• A 501(c)(3) with fewer than 500 employees
• An individual who operates as a sole proprietor
• An individual who operates as an independent contractor
• An individual who is self-employed who regularly carries on any trade or business
• A Tribal business concern that meets the SBA size standard
• A 501(c)(19) Veterans Organization that meets the SBA size standard
In addition, some special rules may make you eligible:
• If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
• If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply

REMEMBER: The 500-employee threshold includes all employees: full-time, part-time, and any other status.

What will lenders be looking for?

In evaluating eligibility, lenders are directed to consider whether the borrower was in operation before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.

Lenders will also ask you for a good faith certification that:
1. The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
2. The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
3. Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
4. From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)

If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.

How much can we borrow?

Loans can be up to 2.5 x the borrower’s
average monthly payroll costs, not to
exceed $10 million.

Payroll Cost Include:

For churches: The sum of payments of any compensation with
respect to employees that is a:

• salary, wage, commission, or similar compensation;
• payment of cash tip or equivalent;
• payment for vacation, parental, family, medical, or sick leave
• allowance for dismissal or separation
• payment required for the provisions of group health care benefits,
including insurance premiums
• payment of any retirement benefit
• payment of state or local tax assessed on the compensation
of the employee

For Sole Proprietors, Independent Contractors, and Self-Employed
Individuals: The sum of payments of any compensation to or
income of a sole proprietor or independent contractor that is a
wage, commission, income, net earnings from self-employment, or
similar compensation and that is in an amount that is not more than
$100,000 in one year, as pro-rated for the covered period.

Excludes Payroll Cost:

  • Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020.
  • Payroll taxes, railroad retirement taxes, and income taxes
  • Any compensation of an employee whose principal place of
    residence is outside of the United States
  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

Will this loan be forgiven?

A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:

• Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
• Interest on the mortgage obligation incurred in the ordinary
course of business
• Rent on a leasing agreement
• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
• For borrowers with tipped employees, additional wages
paid to those employees

Loan forgiveness cannot exceed the principal.

The CARES Act also recognizes how important churches and local community organizations are to providing food and other needs during this crisis. To increase state grants for these types of services, this bill provides an additional $1 billion for the Community Services Block Grant (CSBG). This grant is given to the states so they can partner with local community organizations to lower poverty, address homelessness, and provide services addressing unemployment, education, nutrition, and health. This is a grant program that churches and religious organizations can access, as the law explicitly states religious organizations must be treated the same as other nongovernmental organizations when applying for these grants. Churches in several states have partnered with community organizations or received these grants themselves to operate food banks and other key services.

Churches and other nonprofit organizations have played a critical role in meeting the spiritual and physical needs of Americans affected by the coronavirus. During Senate negotiations over how best to respond to the economic hardships our country is facing, the FRC team worked to ensure that churches and other religious groups were not left behind and were instead recognized as organizations vital to the coronavirus relief effort—and we will continue to do so going forward.

 

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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