Benefits for Independent Contractors under the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Families First Coronavirus Response Act (FFCRA)

What these laws do

The massive Coronavirus Aid, Relief and Economic Security (CARES) Act provides over $2 trillion in relief to American families and businesses. Under this act, businesses (including ICs) may qualify for a wide variety of relief options, such as loans (that may be forgiven in whole or in part), deferred taxes and more. In a notable departure from previous legislations, ICs also gain access to unemployment benefits. At the same time, the Families First Coronavirus Response Act (FFCRA) enables independent workers to access emergency paid leave in the form of tax credits.

Keep reading for a breakdown of these benefits and how they might affect your business.

Benefits guide

Paycheck Protection Program (PPP) loans

 

How it works
As one of two new loan programs, the PPP loans are designed specifically to provide small businesses and the self-employed (like independent contractors) with cash support. The loan amount you are eligible for is 2.5 times your average monthly payroll expenses—which can include payroll and health insurance premiums for W-2 employees, but not payments to ICs (more on this below). ICs can apply in their own right for up to 2.5 times their monthly “payroll” expenses—which includes their average “salary” and health insurance premiums.

Importantly, almost the entire amount of the PPP loan may be forgiven (no payback requirement) when applied toward qualifying expenses. These qualified expenses include items such as payroll costs and other designated business expenses listed in the CARES Act.

Because these loans will be available through a list of approved lenders, some terms may vary but the interest rate will be 1% on the portion of the loan that is not forgiven.

Things to consider
As of the guidelines released by the Small Business Administration (SBA) on April 3, contracting companies cannot use payments made to or on behalf of ICs as part of their “payroll” costs. This directly impacts the maximum loan amount, the authorized use, and the eligibility for loan forgiveness. ICs also do not count as employees for determining the size limits for PPP relief (500 or fewer employees). The rationale for this appears to be that independent contractors can apply for their own PPP loan and other relief. As a result, much of the language in the CARES Act appears to only be applicable to employees (not contractors), so we encourage you to discuss these matters with your own legal counsel.

Additional resources
SBA’s PPP Interim Final Rule (clarifies guidelines in relation to independent workforces)
Treasury Department’s borrower fact sheet
Sample application (learn what information to provide to your bank or credit union)

Economic Injury Disaster Loans (EIDLs) and advances

How it works
EIDLs are the second of the two loan options available to small businesses and self-employed individuals through the CARES Act. These low-interest, flat-rate loans can be used to cover expenses like paid leave, payroll or lost revenue due to the pandemic.

When you apply through the SBA website, you may be able to obtain an advance of up to $10,000 and receive it in as little as three days. When used on covered expenses, this advance does not have to be paid back, even if you end up being denied for the loan itself.

Things to consider
Once again, ICs are small businesses, meaning they can apply for EIDLs by entering their own information in the business section of the application. This, however, raises additional questions: What if ICs incorrectly list a contracting company as their employer? Could such documentation have future ramifications on potential misclassification claims? These are matters to discuss with your legal counsel.

Additional resources
Chamber of Commerce step-by-step application guide
EIDL terms and conditions

Unemployment benefits

 

How it works
Self-employed individuals such as ICs do not usually qualify for unemployment benefits, but the CARES Act for the first time broadens the eligibility guidelines to include them—meaning qualifying ICs have a direct claim for unemployment benefits under their own tax ID. The expanded program runs through December 31, 2020, and provides retroactive benefits from January 27, 2020.

The revised benefits add 13 weeks of unemployment payments to most states’ usual 26, increasing availability from six to nine months. States are required to use the Disaster Unemployment Assistance Program formula to determine the amount received. An additional flat weekly sum will be added on top of that for the first 4 months someone collects unemployment.

Things to consider
ICs can apply for these benefits if they can prove they are either partially or fully unemployed, or unable and unavailable to work because of circumstances related to COVID-19. To do so, they will provide their own EIN or SSN when asked for their employer’s tax ID number.

The CARES Act as it pertains to ICs does not reference contributions by an employer or contracting company of an IC-claimant, suggesting that it intends to offer federally funded unemployment coverage directly to the ICs (rather than employer-contribution funded). However, several possible concerns exist related to this process, including a lack of clarity related to the mechanisms a state unemployment agency will use to process such a claim and what happens if an IC incorrectly lists a contracting company as their “employer.” In addition, what happens to the supply chain if unemployment benefits exceed an ICs’ normal pay, causing ICs to opt for unemployment coverage over performing their usual services? Once again, these are questions to discuss with your legal counsel.

Paid sick and family leave tax credits

 

How it works
Although independent contractors are not usually included in paid sick leave benefits (though some states may have laws that include them), the FFCRA entitles eligible self-employed individuals to a paid sick or family leave tax credit.

The paid sick leave credit is available to an IC if they are unable to work or telework while under quarantine or are experiencing symptoms of coronavirus and seeking medical attention. They may receive a credit of up to $511 per day (up to $5,110 for 10 days) or 100% of their average daily income for up to 10 days—whichever is less.

A paid family leave credit is available if the leave is taken to care for a sick individual or child at home due to a school closure. The credit amount is either $200 per day or 67% of their average daily income for up to 50 days.

Note: Under this act, daily average self-employment income is calculated as self-employment net earnings for the taxable year divided by 260.

Things to consider
If an IC meets the criteria, they can claim the credit on their returns for the 2020 tax year—this tax credit comes directly from the IRS, meaning it is independent of any connection to a specific contracting company. However, keep in mind that it also means ICs may take leave for up to 50 days for reasons related to coronavirus.

Additional resources
IRS paid sick leave FAQs for the self-employed

Tax filing deadline extensions

 

How it works
The IRS has moved the tax filing deadline for individuals and businesses from April 15 to July 15, 2020, which includes first-quarter tax payments (second-quarter payments are still due on June 15). Although anyone can take advantage of the extension, those who choose to file early will receive expedited tax refunds.

Things to consider
You don’t need to take any specific actions, but you should check with your tax preparer to see if you’ll need to adjust quarterly payments based on projected income.

Additional resources
IRS Filing and Payment FAQs
IRS Tax Resources (see the Tax Help section)

Payroll tax deferments

 

How it works
The CARES act allows employers to delay certain types of payroll taxes, including Social Security and Medicare. These deferred taxes are required to be repaid over the next two calendar years—one half by December 31, 2021, and the other by December 31, 2022. Self-employed individuals such as ICs can also defer half of their self-employment taxes.

Things to consider
Specific requirements for tax filings are still pending from the IRS. For more information, check the IRS Coronavirus page below and contact your accountant or tax preparer to discuss the options available.

Additional resources
IRS coronavirus tax guidance

Tax refunds for business losses

 

How it works
Under the CARES Act, businesses can now carryback up to five years of net operating losses (NOLs) for tax years 2018, 2019 and 2020. In short, this means some taxpayers will be able to receive additional refunds on taxes previously paid.

Things to consider
Consult with your tax preparer to estimate your business losses for 2020 and file amended returns to potentially receive refunds for previous years.

We want to help, so keep checking back

As difficult as things are right now, the current crisis has made the vital role you play in the economy more visible. That means more relief for your business and independent contractors alike, but this relief does raise questions worth discussing with your legal counsel.

Over the next few weeks, we will continue to update this page as the government releases new guidelines about each of these programs, so keep checking back. We’re committed to making sure you have the information you need.

Source: Independent Contractor Services and Software | Openforce – JDSupra