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Coronavirus Aid, Relief, and Economic Security Act "CARES Act"

Details on how the CARES Act Impacts your Pharmacy

 

The information provided below is based on our initial review and consultation with advisers. As any additional or clarifying information becomes available it will be communicated.

The purpose of this communication is to outline more specific details of the small business relief available through the CARES Act.

The relief is available in various forms including loans (PPP and/or EIDL), current SBA Loan (deferment), and tax provisions - all of which are outlined below.

At this time, IRx Accounting recommends that you apply for the Paycheck Protection Plan (PPP) and in some cases pharmacies may also want to apply for the Economic Injury Disaster Loan (EDL) programs. There are restrictions when enrolled in both programs which are outlined and highlighted below.

Paycheck Protection Program (PPP)

General Provisions
  • Loans available to small business in operation on February 15, 2020
  • Businesses with up to 500 employees are eligible to apply
  • Applicants can apply for 2.5 times monthly payroll up to $10 million
  • Approval and lending is carried out by SBA approved lenders
  • No credit underwriting, personal guarantees, or collateral requirements
  • 4% interest rate, no payments for 6-12 months, no prepayment penalties
  • Applicants must certify (i) “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient; (ii) acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments”; (iii) that there is no pending application for a 7(a) loan for the same purpose and amounts and no proceeds have or will be received from such a loan
Loan Forgiveness
  • Loan forgiveness is possible for 8 weeks of actual payments of approved expenses
  • Funds must be expended on eligible expenses
  • Forgiveness amount is reduced if the number of employees (FTE’s) is less than the count for the prior year or from the period 1/1/2020 thru 2/29/2020
  • Forgiveness amount is reduced if an individual employee has wages reduced by more than 25%
  • Re-hiring of employees (FTE) is allowed
  • Forgiveness will require documentation:
    • Pre and post detailed payroll documentation
    • Canceled checks to lenders, landlords, utility vendors, etc
    • Certification from recipients of the above funds paid
  • Unforgiven debt will be financed max at 2 years 1%
  • No taxation on forgiven debt
Approved Use of Funds
Approved Payroll Expenses
  • Employee pay, vacation, sick, severance, benefits including premiums, retirement plans, and state and local employment taxes
  • Rent
  • Utilities
  • Interest on debt obligations existing prior to 2/15/2020 (excludes principal payments)
Unapproved Payroll Expenses
  • Individual compensation exceeding $100,000 annually (exclude excess - prorated for the 8 week period)
  • Individuals covered under the separate Families First Coronavirus Response Act

Economic Injury Disaster Loan (EIDL)

General Provisions
  • Loans at 3.75% interest with 30 year amortization periods
  • Business must be in operation on January 31, 2020 but does not need to meet the standard requirement to be in business for at least one year
  • Covered period January 1, 2020 to December 31, 2020
  • Reduced requirements for determining creditworthiness
  • Waived the requirement for personal guarantees for loans under $200,000
  • Waived the requirement for applicant to be unable to obtain credit elsewhere
  • Emergency Grant
    • Applicant may request an advance of up to $10,000 (paid upon approval by the administrator within 3 days of application.)
    • If the advance is granted there is no requirement to repay even if the final loan itself is not approved.
  • Cannot use funds for the same purpose as the Paycheck Protection Program funds (For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April)
Loan Forgiveness

No forgiveness provisions

Current SBA Loan Payment Relief

  • The government will pay principal and interest for 6 months on existing SBA 7(a) loans (loans made prior to the enactment of the Act)
  • No application required
  • Beginning with the next payment due after the enactment of the Act

Small Business Tax Provisions

Employee Retention Credit for Employers Subject to Closure or Experiencing Economic Hardship
  • Refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis
  • Available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings
  • The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis
  • The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee
  • The credit is provided through December 31, 2020

The credit is not available to employers receiving assistance through the Paycheck Protection Program (PPP)

Delay of Payment of Employer Payroll Taxes
  • Allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022
  • Payroll taxes that can be deferred include the employer portion of FICA taxes

Deferral is not provided to employers receiving assistance through the Paycheck Protection Program

Net Operating Loss (NOL) Rule Relaxation
  • Losses arising in 2018, 2019 and 2020 can be carried back to the five preceding years
  • Companies with unused losses arising in 2018, 2019 or 2020 that paid tax in one or more of the five preceding tax years will be able to immediately file amended returns seeking a refund of taxes paid, which can help such companies make payroll and rent
Increase of Interest Expense Deduction Limitation
  • The CARES Act will increase the limit to 50 percent of the company’s adjusted taxable income just for 2019 and 2020.
  • Additionally, it will also allow corporations to elect to use their 2019 adjusted taxable income for 2020, ensuring that even though their earnings may be harmed by the COVID-19 outbreak, their otherwise increased business interest deduction will not be