Updated on April 1, 2020
The Coronavirus Aid, Relief, and Economic Security Act (H.R. 748, "CARES Act") was signed into law on March 27, 2020. The CARES Act is the third stimulus bill aimed at providing relief to employers and individuals affected by COVID-19. Below is a high-level summary of the provisions related to small business assistance, tax, retirement, paid leave, unemployment insurance, and direct payment to individuals. Small businesses should work with an experienced financial advisor to carefully assess available assistance programs to determine the interplay and best option for their specific circumstances.
Paycheck Protection Program (Sections 1102 & 1106)
Businesses and nonprofit organizations with 500 or fewer employees, as well as sole proprietors, independent contractors and self-employed individuals, may be eligible for a new loan program from February 15, 2020 to June 30, 2020. This program will provide federally guaranteed loans, in amounts determined by a formula, with a maximum loan amount of $10,000,000. Loan proceeds can be used for payroll, mortgage interest or rent, health-care benefits payments, utility payments, and certain other costs, and are forgivable in an amount equal to the sum of such costs incurred or payments made during the eight weeks after loan disbursement, if employers maintain employment and wage levels.
NOTE: For eligibility, restrictions, and other details about the PPP visit the Small Business Loans section of our Resource Center here.
Expanded Economic Injury Disaster Loans and Emergency Grants (Section 1110)
The CARES Act also expanded access to the SBA's existing Economic Injury Disaster Loans (EIDL) program to businesses with fewer than 500 employees, sole proprietorships and independent contractors. EIDLs are low interest loans of up to $2,000,000, with principal and interest deferment at the SBA's discretion. Eligible businesses that suffer substantial economic injury, as a result of a disaster or emergency (which now includes COVID-19), can apply for an EIDL through December 31, 2020. EIDL proceeds can be used to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. Under the CARES Act, the SBA will relax or waive certain rules and requirements for loan eligibility. The loan will bear a low rate of interest, but is not eligible for forgiveness.
An eligible business that applies for an EIDL can also obtain an emergency advance of up to $10,000 within three days of when the SBA receives the EIDL application. To access the advance, businesses must first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
Interplay with PPP:
An employer that applies for an EIDL (regardless of whether related to COVID-19) may also apply for a PPP loan, so long as both loans are not used for the same purpose. An employer can also refinance an existing EIDL into a PPP loan by adding the amount of an EIDL to the sum of the payroll costs. However, any advance amount received under the EIDL Grant Program would be subtracted from the amount forgiven of the PPP loan.
NOTE: For eligibility, restrictions, and other details about the EIDL program visit the Small Business Loans section of our Resource Center here.
Expanded SBA Express Loans (Section 1102)
Businesses and nonprofit organizations with fewer than 500 employees, sole proprietorships and independent contractors that have suffered economic injury due to COVID-19 may also be eligible for a loan under the existing SBA "Express" Loans program. The SBA Express Loans program helps small businesses obtain loans in a faster and easier way (usually within 36 hours). These loans provide businesses with revolving lines of credit for working capital purposes.
The CARES Act expands the allowable uses for loans under this program to permit payroll support, including paid sick leave, supply chain disruptions, employee salaries, mortgage payments and other debt obligations, to provide immediate access to funds for affected small businesses. The CARES Act increases the maximum loan amount for SBA Express loans from $350,000 to $1,000,000, until December 31, 2020. The CARES Act also reduces the cost of participation in the program by providing fee waivers, an automatic deferment of payments for up to one year, and no prepayment penalties.
NOTE: For more details, visit the Small Business Loans section of our Resource Center here.
Small Business Debt Relief Programs
For small businesses with current non-disaster SBA loans, under the CARES Act, the SBA will cover all loan payments on these loans, including principal, interest and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of March 27, 2020. PPP Loans and EIDLs are not eligible for this debt-relief program.
The loans eligible for this relief include those guaranteed by the SBA, such as the SBA Business Loan Program (including the Community Advantage Pilot Program, but excluding PPP Loans) or Title V of the Small Business Investment Act. Loans made by an intermediary to a small business using loans or grants received under the SBA’s Microloan Program are also eligible.
NOTE: For more details, visit the Small Business Loans section of our Resource Center here.
Employee Retention Credit for Employers Subject to Closure Due to COVID-19 (Section 2301)
Private-sector employers are allowed a refundable tax credit against employer Social Security tax equal to 50 percent of wages paid by employers to employees during the COVID-19 crisis, up to $10,000 per employee. The credit is available to employers whose operation is fully or partially suspended due to orders from a governmental authority limiting commerce, travel, or meetings due to COVID-19, or who experienced a 50 percent decline in gross receipts when compared to the same quarter of the prior year. The credit may be increased by the proportionate share of the employer's health costs related to such wages.
· For employers with more than 100 full-time employees (as defined under the Affordable Care Act Section 4980H), this credit is available for wages paid to employees that provided no services during the shutdown.
· For employers with fewer than 100 full-time employees, all wages qualify for the credit, without regard to whether the employer was in operation.
Wages paid may not exceed the amount such employee would have been paid for working an equivalent duration during the 30 days immediately preceding such period. Wages also do not include paid family and/or sick leave under the Families First Coronavirus Response Act for which a credit is taken. This section applies to wages paid after March 12, 2020, and before January 1, 2021.
· Credit applied during the quarter may not exceed the total employer Social Security tax, but excess amounts may be refunded.
· Employers that obtain PPP loans (CARES Act Section 1102, summarized above) are not eligible for the Employee Retention Credit. Conversely, employers that receive this credit are not eligible for PPP loans.
· Credit is reduced by any Paid Family and Medical Leave Credit under IRC § 45S.
· Excludes paid sick leave or paid family leave wages paid under the FFCRA, however, this credit may apply to wages paid to the same employee once they return to work.
· Excludes wages paid for which the employer receives a Work Opportunity Tax Credit (WOTC).
Deferral of Employer Social Security Taxes (Section 2302)
Employers may defer payment of the employer share of the Social Security tax, beginning after the effective date of the CARES Act through December 31, 2020. Deferred tax amounts would be paid over two years, in equal amounts due on December 31, 2021 and December 31, 2022.
· Deferral is not available to employers receiving loan forgiveness through the PPP (Section 1102 of the CARES Act, summarized above.)
· The tax credits addressed elsewhere generally apply to employer Social Security taxes, potentially reducing or even eliminating such taxes for the balance of 2020. As a deferral, these taxes will become collectible by the IRS starting in December 2021. Employers should keep careful track of amounts accrued and be prepared to pay the amounts when due.
Tax Exclusion for Employer Student Loan Repayment Benefits (Section 2206)
Employers are permitted to provide a student loan repayment benefit to employees, contributing up to $5,250 annually toward an employee's student loans. Such payments would be excluded from the employee's income. The $5,250 cap applies to both the new student loan repayment benefit and educational assistance under Section 127 of the Internal Revenue Code (IRC). The provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before January 1, 2021.
Retirement Provisions — Defined Contribution Plan Changes
Distributions (Section 2202):
A new distribution option is available from retirement plans or IRAs to "impacted" individuals of up to $100,000 not subject to the 10 percent early-withdrawal penalty from January 1, 2020 and through the end of the 2020 calendar year.
· The distribution may be taxed over three years instead of 100 percent in 2020.
· The standard 20 percent federal tax withholding is not required.
· These distributions can also be repaid at any time during the three years after they took the distributions.
Loans (Section 2202):
For anyone who is diagnosed with SARS or COVID-19, has a spouse or dependent test positive, or who experiences adverse financial consequences because of SARS or COVID-19, an increased loan amount from $50,000 to $100,000 is available for the 180-day period beginning on the date of enactment of the CARES Act.
Required Minimum Distributions are not required for 403(b), 401(k), and IRAs for calendar year 2020.
Paid Leave and Department of Labor Filing Provisions
Paid Leave for Rehired Employees (Section 3605):
Under the FFCRA, employees who have been employed by the employer for at least 30 calendar days are eligible for PHEL/expanded FMLA. The CARES Act amends the law to extend paid leave to employees who (1) were laid off after March 1, 2020; (2) had worked for the employer for at least 30 of the last 60 days; and (3) were rehired by the employer.
Advance Refunding of Payroll Credit Required for Paid Sick Leave (Section 3606):
The FFCRA allows an employer to claim a refundable tax credit for paid leave granted under the expanded FMLA requirement. The CARES Act expands those provisions by: (1) providing for an advance of the payroll tax credit; (2) requiring the Secretary of the Treasury to prescribe regulations necessary to permit the advancement of the credit; and (3) requiring the Secretary of Treasury to waive penalties associated with the failure to deposit certain payroll taxes.
Unemployment Insurance Provisions
Pandemic Unemployment Assistance (Section 2102):
Certain individuals who are not eligible for benefits under other state or federal laws (such as self-employed workers, part-time workers and those with limited work histories) who are unable to work as a result of COVID-19 are eligible for temporary unemployment benefits assistance during their period of unemployment ending on or before December 31, 2020. Benefits are limited to 39 weeks. The provision allows for a partnership between the federal government and states for purposes of paying out benefits.
Emergency Increase in Unemployment Compensation Benefits (Section 2104):
This section provides for a federal-state partnership to make payments of regular compensation to individuals in amounts determined under state law plus $600. States will be fully reimbursed by the federal government for the extra payments.
Temporary Full Federal Funding of the First Week of Compensable Regular Unemployment for States With No Waiting Week (Section 2105):
States that do not impose a waiting week for unemployment benefits will be fully reimbursed by the federal government.
Pandemic Emergency Unemployment Compensation (Section 2107):
States may enter into a partnership with the federal government for an additional 13 weeks of federally funded unemployment compensation to individuals who have exhausted all rights to unemployment benefits under state and federal law for that benefit year (excluding benefits that ended before July 1, 2019) and are not otherwise receiving unemployment compensation under any state, federal, or Canadian law. Individuals must be able to, and be actively seeking, work.
2020 Recovery Rebates for Individuals (Section 6428)
The CARE Act provides for direct financial assistance to Americans in the form of a one-time direct payment in the amount of $1,200 for individuals earning $75,000 or less, $2,400 for individuals filing a joint return earning $150,000 or less, $1,200 for heads of household earning $112,500 or less, and $500 per child. The amount of the payment is reduced by 5 percent for earnings over those dollar amounts and would go away at $99,000 for individuals and $198,000 for married people. Treasury Secretary Steven Mnuchin stated that the administration expects to begin direct payments to individuals within three weeks of the CARE Act being signed into law.