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The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

CARES Act: Opportunities for Independent Schools

By CHRISTOPHER S. MAYNARD, CPA

March 31, 2020

Since the arrival of the Coronavirus (COVID-19) to the U.S., there have been a series of escalating changes impacting virtually every aspect of life. It slowly started with the issuance of new personal health guidelines and social distancing, but as the number of cases grew, so came more abrupt changes such as stay at home orders, school cancellations, and forced business closures. For independent schools, these necessary prevention efforts have created significant concerns both in managing student educational needs and maintaining operations and a robust financial position. The federal government responded with two important pieces of legislation, including the Families First Coronavirus Response Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act They both provide significant compliance changes, but more importantly, outline various tax changes, loan options, and additional assistance for independent schools. To help clients, prospects, and others, Klatzkin has provided a summary of key details from each below.

Families First Coronavirus Response Act (FFCRA)

Emergency Paid Sick Leave – The FFCRA requires companies with less than 500 employees to provide two weeks of paid sick leave time, at regular pay rate, limited to $511 per day and $5,110 in the aggregate (over a two-week period), to those seeking a diagnosis, care, or quarantine. Also, employers will be required to pay the two-thirds regular rate, up to $200 per day and $2,000 in the aggregate (over a two-week period), for time off due to care for an affected family member, or to care for a child whose school or childcare provider is closed. Full-time employees are entitled to 80 hours of paid time off and part-time employees the number of hours typically worked in two weeks. It also ensures that those who work under a multiemployer collective agreement and whose employer pays into a multiemployer plan can receive access to the benefits.

Payroll Credit for Paid Sick Leave – There is a refundable tax credit equal to 100% of qualified sick leave wages paid by the employer. The credit can be taken against the employer portion of Social Security taxes due to the required wages paid for emergency sick leave. For wages paid to full-time employees that obtain a diagnosis, care, or are subject to isolation and take sick leave, the credit is limited to $511 per day. For amounts paid to employees caring for sick relatives or caring for a child whose school has been closed, the credit is limited to $200 per day. If the credit exceeds the employer liability, then the balance is refundable.

Emergency and Family Medical Leave – Any company with less than 500 employees is required to offer those with at least 30 days of service, the right to take up to 12 weeks of job-protected leave if they experience a Coronavirus-related event. This includes the time needed to adhere to isolation orders, care for an at-risk family member or a child when their school or care provider is closed. It’s important to note that after two weeks of paid leave, employees will receive compensation that is no less than 2/3 of their usual pay, limited to $200 per day.

Payroll Credit for Required Family Leave – There is a 100% refundable tax credit of qualified family leave wages paid. The credit is designed to be used against the employer’s Social Security portion of payroll taxes. Qualified wages are those required to be paid in accordance with the Family Leave Act changes. The amount of wages considered for each employee is limited to $200 per day and capped at $10,000. If the credit exceeds the employer’s total liability, then it can be refunded.

CARES Act (The Act)

Paycheck Protection Program – The Act creates a new loan program to provide companies with needed funding. These loans would be allowed to cover costs of payroll, payroll-related costs (i.e., health), mortgage interest payments, rent, and utilities. Loans have 10-year maturity with interest not to exceed 4%. The loans are eligible for forgiveness based on the retention of the workforce. There is a reduction in the amount that can be forgiven based on the decrease in the number of employees.

Economic Injury Disaster Loans – The Act temporarily expanded SBA disaster lending to those harmed by COVID-19.  Loans of up to $2 million can be used to cover payroll, fixed debts, accounts payable, as well as other expenses.  Loans have up to a 30-year maturity with a 3.75% interest rate.  These loans are not eligible for forgiveness, but you can get up to a $10,000 emergency advance within 3 days of applying that does not need to be repaid.  This emergency advance does impact the amount that can be forgiven under the paycheck protection program.

Delay of Payment of Employer Payroll Taxes – Independent schools can defer payment of the employer portion of payroll taxes beginning on March 27, 2020, through the end of the year. The initial 50% must be remitted by December 31, 2021, with the remaining 50% due by December 31, 2022. This change is designed to boost cash flow during the emergency. It’s important to note that this option is not available for those receiving loan forgiveness through the payroll protection program.

Single-Employer Plan Funding – The Act also provides funding relief for single-employer plans to delay making required contributions until January 1, 2021. It’s important to note that each delayed contribution is subject to interest accrued during the delay period.

Employer Payroll Tax Credit – Employers who retain employees during the pandemic would be eligible for a refundable payroll tax credit. The 50% credit would offset the employer’s share of Social Security taxes up to $10,000 of qualified wages per employee. For employers with more than 100 full-time employees, qualified wages are wages paid when they are not providing services due to the COVID-19 crisis. For eligible employers with fewer than 100 full-time employees, all employee wages qualify for the credit.  It’s important to note that this option is not available for those receiving loan forgiveness through the payroll protection program.

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There are several opportunities available for independent schools, including tax, funding, and deferred payment of various liabilities. Our team can provide additional guidance on how your school can leverage these opportunities. If you have questions about the information outlined above or need assistance with another challenge facing your independent school, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

About the Author

Chris is a Partner and divides his time between Klatzkin’s Newtown and Hamilton offices. He focuses on serving the audit, tax, and compliance needs of independent schools and nonprofit organizations. Chris works with schools and organizations in New Jersey and Pennsylvania to navigate compliance issues, audit concerns, and tax planning matters. He has experience with...

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