Here’s an update on the various financial resources available to family child care providers.
- Stimulus checks
- SBA forgivable loan programs
- Other help on the way?
Taxpayers who used direct deposit with the IRS are now receiving the federal stimulus checks of $1,200 per person or $2,400 per couple. If you paid or received refunds by check, you will receive a check in the mail over the next few months. See my article on this.
The stimulus checks are not taxable income and will not affect your 2020 tax return. They won’t reduce your refund or add to any amount you might owe. I misspoke about this on a webinar I did for the National Association for Family Child Care on April 6th. On the webinar I said the stimulus checks would affect your 2020 tax return. This was not true. I apologize for this mistake. Here’s the link to that recorded webinar: https://attendee.gotowebinar.com/recording/6663575233045394951
If you haven’t filed your 2019 or 2018 tax return, the IRS has set up a process for how you can get your stimulus check.
Here’s what you can do if the check went to the wrong account or a closed account.
SBA forgivable loan programs
There are two SBA loan programs: the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP).
The Economic Injury Disaster Loan
Update: As of April 15th, this program has run out of money!
This program offers up to $10,000 for employee payroll, and mortgage and lease payments. Recent changes by the SBA has set a limit of $1,000 per employee. This was the result of so many people applying for this loan. It is not clear if family child care providers who don’t have employees can apply for the $1,000 for themselves. If you don’t have employees I would recommend entering “1” in the box that asks for “Number of Employees.”
What if you have hired your spouse or your own children? Can you count them as employees and get $1,000 for each one? There is no guidance from the SBA on this. If you have not treated your family members as employees, then I wouldn’t try to claim them as employees on this application. Treating them as employees means you have paid payroll taxes for your spouse and children age 18 or older and filed regular payroll tax forms. See my article about the EIDL program.
The recent changes in this program have not answered the questions of whether providers can still claim mortgage and lease payments. I would recommend continuing to apply for this when filling out the online application form.
The online application form asks for “cost of goods.” Normally, family child care providers do not have any cost of goods to report because they don’t sell anything. It’s not clear if this question is meant to ask about your operating expenses. I have tried to get an answer to this question, but so far without success. I would leave this line blank.
Paycheck Protection Program
This week the PPP program ran out of money! It looks like Congress will add more money to this program soon. I believe it makes sense to continue to apply now because of the possibility of future funding.
If you do apply, here are some recent developments concerning the PPP:
- Many providers have experienced roadblocks in their effort to get their bank to approve this forgivable loan. See my article about this. If your bank won’t help you, other lenders such as PayPal or Square or Intuit Quickbooks are all qualified to process PPP loans. However, none of them are accepting applications now because the program is out of money! When new money comes into the program, it may be easier to get your application accepted through one of these lenders than through your bank.
- PPP loans are not taxable income! We have not heard if the EIDL loans are taxable or not.
- There has been a lot of confusion on how to fill out the application form. The top of the form asks for “Average Monthly Payroll.” If you have employees you can enter an amount for them. But, whether you have employees or not, you can enter your lost profit. This is determined by looking at your 2019 IRS Schedule C Form, line 31 which represents your profit from last year. Take this number and divide it by 12 and enter the amount under “Average Monthly Payroll.” The form will tell you to multiply this by 2.5 and enter into the second box with a “$” next to it. Finally, you can claim other expenses as described in my previous article about the PPP. Add these other expenses to the second box with a “$” next to it. This will represent the amount you are applying for under the PPP program. Don’t worry if you didn’t calculate this number correctly. You will later sort this out with your bank or lender.
- Your lender may ask you for documents before processing your loan. Many of these documents refer to hiring employees (IRS Form 940, 941, etc.) which you do not have. Instead, show them your Schedule C.
- If you show a loss or zero profit on line 31 of Schedule C, you are not eligible for the PPP loan.
- The PPP law says you can also claim for “interest on any other debt obligations that were incurred before the covered period.” Although it’s not clear if this includes credit card debt or car loan debt, I believe it does. Add it to your claim and ask your lender.
- If you apply for and receive money under the EIDL loan, this amount will be subtracted from any amount you receive from the PPP loan.
- If you have a partnership, only one person can apply for this loan.
- The PPP loan is for eligible expenses for eight weeks. If you do get this loan, when can you spend it? Must you spend it as soon as you are approved for the loan or can you decide when the eight weeks will start? There is no federal guidance on this point. Some banks have allowed providers to spend it anytime up to June 30, 2020 which is the last day you can apply for this loan. Ask your bank about this.
If your child care program is shut down or you have lost a substantial amount of income, you are probably eligible for unemployment benefits. This is true even if you close voluntarily and perhaps even if you are still earning some money.
The unemployment system varies state by state and can be very confusing and complicated to navigate. Each state has its own eligibility rules to determine if you qualify. You may not qualify if you earn too much money or work too many days in a week. There is no one national standard.
The federal program that allows family child care providers and other self-employed people to claim unemployment benefits is called Pandemic Unemployment Assistance (PUA). States must enroll with this federal program before they can pay out benefits to the self-employed. Many states have not yet enrolled, so if you apply for unemployment benefits you will be turned down. Some states have signed onto the PUA making providers now eligible for unemployment benefits.
Look for the PUA program on your state’s unemployment website to see if they are ready to accept your application. If you don’t see it, check back every few days until you do. If you have already submitted an unemployment application and haven’t heard back, be patient. It may take weeks before you will get a response. Once you are eligible for state unemployment benefits, they will be retroactive to the day you closed or lost a substantial amount of income. Once the PUA program is in place you will then start to receive an additional $600 per week.
If you receive money from the EIDL or PPP program, this will probably have a negative effect on your unemployment benefits. But, since the PPP program is shut down for now, this is less of a problem.
Most state unemployment application forms will ask if you are willing and able to look for work and accept another job. This is a typical question in normal times. But, during the pandemic is unrealistic to expect a family child care provider to take on another job (mostly because there aren’t any!) or to try to reopen when it’s not safe. So, go ahead and answer “yes” to these questions.
You may have heard of the Pandemic Emergency Unemployment Compensation (PEUC) program. This extends state unemployment benefits for an extra 13 weeks. The PUA allows self-employed people to apply for unemployment benefits.
Other help on the way?
As part of the CARES Act passed last month, Congress sent billions of dollars to the states for them to use to support the child care system. States may use this money in a variety of ways. You may want to contact your state family child care association or state department that oversees child care to find out what your state is doing. Some states are also offering grant programs or other support services to help family child care providers.
Congress is now debating about adding more money into the PPP program. They may also make changes in the EIDL program or unemployment. I’ve recommended to national child care advocates that they reimburse all providers who are on the USDA Food Program at the higher Tier I rate. I’ve also recommended that they make all reimbursements tax free.
I wish there was more financial support available to family child care providers on both the federal and state level. Ultimately, this will come only if there is enough political pressure brought by the child care community to our federal and state elected officials.
When I get more information to update news about these programs I will write about them on my blog.
Tom Copeland – www.tomcopelandblog.com
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