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Congress has decided that the economic cure for COVID-19 is to hand out money to everyone by the bushel, although everyone may be paying for it with future taxes or deflated dollars. This article summarizes all the ways that Hollywood can tap into this largesse, including talent, loan-outs, crew, agents, producers, independent contractors, and film companies.
1. Initial Checks. One immediate benefit for individuals is a refundable credit in 2020 of $1,200 if single and $2,400 if married filing jointly, plus $500 for each child under the age of 17. The credit is phased out by 5% of adjusted gross income above $75,000 if single and $150,000 if married filing jointly. The IRS will be sending advance checks to taxpayers for this credit based on their last reported adjusted gross income, so no further action is needed to obtain this benefit unless you don’t receive the check, in which case you can claim the credit on your 2020 tax return.
2. Unemployment Payments. Another benefit is vastly expanded payments available for unemployment coverage. In order for workers to receive unemployment benefits, they must be unable to “telework” with pay. Workers will be paid an additional $600 per week on top of what they would normally receive for up to four months until July 31, 2020. Workers will also receive benefits beyond what their state provides for an additional thirteen weeks, providing up to thirty-nine weeks (or nearly ten months) of financial assistance in total. Remarkably, these unemployment benefits now also apply to self-employed persons for the first time, including independent contractors (e.g., producers), partners (e.g., talent agents), and sole proprietors. The states are tasked with implementing this new coverage, and they will no doubt struggle to figure out how to fit a square peg (the self-employed) into a round hole (the entire existing system of unemployment, which has applied up to now only to employees). To get unemployment benefits, you need to apply for unemployment benefits with the state of your tax residence. California has a simple on-line system for applications here.
3. Dischargeable Payroll Loans. Employers with not more than 500 employees can qualify for an SBA guaranteed loan of 2.5 times their average monthly payroll costs, up to $10 million. Far more importantly, the loan is eligible to be discharged in an amount that the employer spends on payroll costs, rent, and utilities in the eight weeks following the loan origination. Thus, the “loan” is really a grant to the extent it is discharged. Loan forgiveness may be reduced if the employer reduces its full-time staff or reduce individual employee wages by more than 25% during those eight weeks and fails to correct the reductions by June 30, 2020. Given the high demand for these loans, the SBA has clarified that only 25% of the loan amount may be used on non-payroll costs (e.g., rent and utilities) and still be eligible for forgiveness. The law appears to include loan-out corporations as employers, since there isn’t a prohibition on the owner being an employee. Even more remarkably, and consistent with protecting the self-employed with unemployment benefits, the law applies to the self-employed and defines “payroll” as including the “income” of the self-employed, so it appears that the self-employed can benefit from this dischargeable loan program to the extent they pay themselves income (up to a max of $15,384) during the eight-week period. However, only partnerships, and not the partners, can apply for this loan. You apply for the loan through your own bank (most banks are participating) by submitting an application found here.
4. 100% Credit for Sick/Absent Leave. The new law requires employers to pay certain amounts of sick/absent leave to employees due to COVID-19 (the details of which are beyond the scope of this article). To cover the cost of this requirement, the employer is entitled to an 100% immediate credit against all payroll taxes for all such additional sick/absent leave pay. The law appears to include loan-out corporations as employers, since there isn’t a prohibition on the owner being an employee.
A similar credit is available for self-employed persons (including partners) that would have qualified for the new mandatory sick/absent leave pay if they were employees. In particular, people who are self-employed that take time off due to COVID-19 will be eligible for a tax credit of up to two weeks of sick pay at their average pay and ten weeks of family leave pay at two-thirds their normal rate. The benefit will be limited to either $200 or $511 per day for paid sick leave (depending on the reason for the sick leave) and at $200 per day for family leave (or the average daily self-employment income the person usually receives if it is less than those amounts).
5. EIDL “Loan” Program. The SBA has an Economic Injury Disaster Loan (EIDL) program that permits businesses with no more than 500 employees, sole proprietorships, and independent contractors to apply for emergency loans up to $2 million, and the remarkable aspect is that the SBA outright grants the applicant $10,000 (but limited to $1000 per employee) within three business days just for applying! Once again, the law appears to include loan-out corporations as employers, since there isn’t a prohibition on the owner being an employee. Although the law refers to “sole proprietorships and independent contractors,” the SBA website states that it also applies to all “self-employed persons,” which is consistent with the other provisions discussed above. To apply, go here.
6. Distributions and Loans from Retirement Plans. If an individual (or their spouse or dependent) is diagnosed with COVID-19, or the individual experiences adverse financial consequences as a result of the COVID-19 crisis, the individual is allowed to take disbursements and loans of up to $100,000 from 401k and other qualified retirement plans, waiving the normal 10% early withdrawal penalty. Any withdrawal amount required to be included in gross income may be spread out over a three-year period for purposes of the regular income tax.
One of the most difficult open issues is how this all fits together for the self-employed. For example, can they benefit from the dischargeable loan program while also receiving other sources of service income, and how will the government monitor sick leave or unemployment periods for the self-employed? In any event, Hollywood is one of the hardest hit industries due to COVID-19, resulting in a larger economic hit than even the depression (since movies were an affordable escape throughout the depression), so Hollywood should not let these benefits slip by.
