Cares Act and FFCRA: Impact on Independent Contractors, Self-Employed Individuals and Sole Proprietors

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An overview of the benefits available to independent contractors and the like through the recent CARES Act and FFCRA legislation.

We are living in unprecedented times. The last time an event of this significance and scale happened was the Spanish Flu pandemic in 1918. In order for us to fully recover from the long-range implications of this pandemic requires significant support from leaders, and two packages have just passed to provide essential relief to businesses and contingent workers.

The Families First Coronavirus Response Act ("FFCRA") and the roughly $2 trillion aid package in The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") are intended to provide emergency financial assistance to individuals, families and businesses affected by the COVID-19 outbreak. The CARES Act also includes relief for independent contractors, self-employed individuals, and sole proprietors who are unable to work or whose businesses have been negatively affected by the unprecedented COVID-19 world health emergency. Below is a breakdown of the benefits and what they mean for you.

CARES and FFCRA Provides Small Business Support

Businesses across the globe have been significantly impacted by the pandemic. Stay-at-home orders have forced layoffs of millions of employees and workers as businesses fight to survive with dramatic losses of income. To help businesses stay afloat, the CARES act allows for several benefits:

Paycheck protection program, or PPP, provides federally guaranteed, low-percentage loans through the Small Business Administration (SBA) for small businesses, sole proprietors, independent contractors and other self-employed individuals. These are available to any self-employed individual or small business affected by the COVID-19 pandemic between February 15, 2020, and June 30, 2020 and certain portions of the loan will be forgivable, including certain payroll expenses, mortgage and/or rent, and utilities.

Emergency Economic Injury Disaster Loan Program (EIDL) is also backed by the SBA and expands the availability of economic injury disaster loans. These loans will be available for individuals affected between January 31, 2020, and December 31, 2020, and can be used for payroll costs, paid sick leaves, cost of materials, rent and/or mortgage or other obligations that would have been met had COVID-19 not caused the damages. Portions of the EIDL will not need to be repaid as businesses can request that up to $10,000 of the loan amount be given as a grant, which the SBA must pay within three days of the request.

Unemployment Benefits Made Available to Contingent Workers and Sole Proprietors (Available April 10, 2020)

Title II of the CARES Act makes unemployment benefits available to independent contractors and sole proprietors and extends the duration of benefits from 26 weeks (available in most states) to 39 weeks. The Act also provides an additional $600 per week in benefits for the first four months. These are:

Pandemic Unemployment Assistance Program (PUA) - this program will run through December 31, 2020, and expands state-based unemployment insurance to cover independent contractors and sole proprietors who are unable to work due to COVID-19. The benefits will be calculated on the rules of your specific state, with the exception that the individuals must be covered by no less than one-half of the state's average weekly unemployment insurance and the benefits will extend to 39 weeks of coverage, an additional 13 weeks more than the standard coverage. Additionally, the CARES Act provides for an emergency increase to unemployment compensation benefits, allowing eligible recipients to receive an additional $600 per week in benefits through July 31, 2020.

Rebates and Tax Benefits Extended to Help Small Businesses and Contingent Workers Weather the Storm

The CARES Act also provides various rebates and tax benefits to individuals and small businesses, including a $1,200 direct payment to covered adults, and certain employee retention and payroll tax benefits. The benefits include the following:

Rebates for individuals of $1,200 to adults and $500 per child, and this grant will be phased out for individuals making more than $75,000.

Deferred payment of employer payroll taxes will enable self-employed individuals to defer paying 50% of the social security portion of their self-employment tax for the period of March 27, 2020 through December 31, 2020. Contingent workers who take advantage of this benefit will be required to pay 50% of what was owed by December 31, 2021, and the remaining 50% by December 31, 2022.

Modifications for net operating losses. Under the law before the passage of the CARES Act, a post-2017 net operating loss (NOL) could be carried forward and then used to offset no more than 80% of the taxable income of the carryforward year. The CARES Act allows NOLs from the years 2018, 2019 or 2020 to be carried back 5 years or carried forward indefinitely. It also expanded the 80% income offset limitation rules, allowing taxable income for the taxable years before January 1, 2021, to be fully offset with NOL carrybacks or carryforwards.

Modifications to Limitations on Losses for Individuals Net Business Loss - previously, the amount of an individual's net business loss available to be used to offset income was capped at $250,000 (or $500,000 for married taxpayers filing jointly). This cap has been removed per the CARES Act for the taxable years of 2018, 2019 or 2020.

Modifications to the Limitation on Business Interest - other than certain small businesses, the amount that a business was able to deduct each year was limited to 30% of the taxpayer's adjusted taxable income. The CARES Act increases this limitation to 50% of the adjusted income for the years beginning in 2019 or 2020 and allows the taxpayer to elect to use the 2019 adjusted taxable income to determine the limitation for the year beginning in 2020.

Hope in Troubled Times

You are not alone in your fear and concern for how you will weather the storm that the COVID-19 pandemic has created. Businesses, big and small, contingent workers, gig workers, independent contractors, employees — we all are in this together.

The team at WorkMarket, an ADP Company, compiled this benefits overview in hopes that the information is helpful to you during this challenging time.

Visit the ADP Employer Preparedness Toolkit for critical information and helpful resources on the CARES Act, FFCRA, PPP and much more.

The information provided by ADP is for general informational purposes only and is not legal, accounting or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of such professionals who can better address your specific concern and situation. Any information provided here is by nature subject to revision and may not be the most current information available on the subject matter discussed.