On March 27, 2020 President Trump signed the Coronavirus Aid, Relief, and Economic Security Act. The CARES Act, as it’s commonly known, is a $2 trillion bill that offers financial support to unemployed persons, small businesses, and large businesses in particular. But how is this bill going to affect the trucking and transportation industry?
How CARES Affects Owner Operators
For those who would be able to work, but are no longer able due to the coronavirus outbreak, Unemployment Insurance Provisions include an additional $600 per week payment to each recipient for up to four months, and extend benefits to self-employed workers, independent contractors, and those with limited work history. “That means, in trucking terms, any leased or independent owner-operators who loses work can draw the new federal unemployment benefits through the end of July.”
While the wording of the law is designed to be generous, it will depend on whether the government believes that many truck drivers are rendered unable to work while the coronavirus is continuing to spread. In general, truckers are working longer hours than ever, and there’s an increasingly high demand for truckers that are available to move freight. The majority of Americans will receive the $1,200 Economic Impact Payment, regardless of their current employment status.
Another bill helping owner operators, the Families First Coronavirus Response Act (passed prior to the CARES Act) – requires trucking companies to provide two weeks of paid sick leave to employees who contract COVID-19. “They don’t have to test positive for the virus. Rather, if they experience symptoms and are seeking a medical diagnosis, employers are required by the law to provide two weeks of paid sick leave, up to $511 a day, or $5,110 for a two-week period.”
What is the Economic Impact Payment?
According to the CARES Act and well-described by an e-book by ATBS, The Economic Impact Payment is designed as a 2020 refundable tax credit claimed on a taxpayer’s 2020 tax filings. The checks going out are effectively an advanced payment of a tax credit for 2020.The tax credit will be reconciled to the payment received when filing your 2020 tax return. If you file your tax return as a single citizen, your credit will be $1,200. If you are Married Filing Jointly, your credit will be $2,400. Additionally, each Qualifying Dependent Under Age 17 that is on your tax return will net an additional credit of $500. In order to receive the payment, you must be an American citizen or resident alien, you must have a Social Security Number (includes children), and you cannot be eligible to be claimed as a dependent.
For many taxpayers, this credit will make a significant impact on their immediate earnings and help them through the extra expenses that may arise from surviving the pandemic. As mentioned above, Unemployment Insurance has been bolstered, which means that truckers who lost their jobs due to the outbreak will be better able to live their lives with income closer to that of their previous wage before their job was lost.
How the Bill Affects Businesses
The CARES Act brings great news for small and large businesses, offering between $350 – $500 billion to help keep businesses of different sizes afloat. America is currently at over 10% unemployment, so these new provisions have come in just in time, making it easier for businesses of different sizes to continue paying their employees while their storefronts may be closed. For companies with under 500 employees, the federal government is offering tax credits and $350 billion for small businesses to apply for loans that can be partially or fully forgiven. For businesses that employ more than 500 people, a separate $500 billion is available.
How Fleets Should Operate Around the Loans
There are two types of loans available. The first is called the Paycheck Protection program, and it’s a loan available to smaller businesses, that delivers 2.5 times the amount of a business’ monthly payroll. These loans can be fully forgiven, if spent correctly— on payroll, rent, utilities, and Mortgage Interest. This is a great loan option for independent owner-operators, who in effect need to pay their own salaries. Best practice for sole proprietor owner-operators would be to use the loan to pay their own payroll and keep strict documentation so that the loan can be fully forgiven in the future.
The second type of loan is called an Economic Injury Disaster Loan, which offers loans of up to $2 million with a fixed low interest rate of 3.75%, coupled with a longer repayment period of up to 10 years. This loan requires collateral if the requested amount exceeds $25,000. If you’re looking to borrow a small amount of money for your business, Paycheck Protection Program Loans are superior in every way, as they always have the potential to be entirely forgiven, whereas Economic Injury Disaster Loans can only be forgiven for up to the first $10,000 borrowed, for the rest of the amount to be repaid over the loan period.
What Does This Mean For Trucking?
All of this is good news. Many freight companies have been able to continue operation throughout the pandemic, which means that financial losses will likely not exceed their cost of operation. With loans being available for all businesses at competitive interest rates, we shouldn’t see many freight companies going under any time soon. There are plenty of resources available for how to secure a loan for your business. If these new government opportunities aren’t enough, or you don’t apply, you can always look to a private financial service company like Mission Financial to help your business see it through these difficult times.
With the additional income from the Economic Impact Payment, truckers should be able to stay on the road long enough to deliver the vital food and supplies that the country is relying on. With one of the stipulations to loan forgiveness being that businesses need to keep their payroll at maximum capacity, semi-truck drivers working for freight companies as standard W-2 employees shouldn’t be worried about getting laid off any time soon.
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