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Coronavirus Aid, Relief, and Economic Security (CARES) Act

Key components of the bill
applying to businesses

Signed into law on March 27, the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act includes, in addition to extended unemployment benefits and stimulus payments, several components designed specifically to help businesses through this crisis. Key regulations and initiatives are outlined below.

Paycheck Protection Program (PPP)

UPDATE: Click here for answers to Frequently Asked Questions, posted by the Small Business Administration (5/13/20)

UPDATE: Click here for the IRS notice regarding tax deductions related to the Paycheck Protection Program.

• Businesses with 500 or fewer employees, as well as sole proprietors and independent contractors, are eligible for federally funded, partially forgivable loans to cover short-term operating expenses. (Eligible lenders began accepting PPP applications on April 3.)

• The maximum size of the loan is equivalent to 250 percent of an employer’s average monthly payroll costs (about 10 weeks) or $10 million, whichever amount is lower.

 • Business must have been operational on Feb. 15, 2020. The covered period runs from Feb. 15 through June 30, 2020.

• Payroll costs are defined broadly to include employee compensation (although not including salaries above $100,000), group health care benefits, retirement benefits, paid leave (vacation, parental, family, medical, or sick), allowance for dismissal or separation, and payment of state or local tax assessed on employee compensation.

• The program excludes any compensation of an employee whose principal residence is outside the United States. It also excludes qualified sick or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.

• Borrowers are eligible for loan forgiveness equivalent to the sum spent on covered expenses during the eight-week period after the loan is originated. Covered expenses include payroll costs (with similar inclusions/exclusions as those outlined above), rent, utilities, and interest on mortgages and other debt obligations. Not more than 25 percent of the loan can be used for non-payroll costs.

• To qualify for forgiveness, employers must maintain their pre-crisis level of full-time equivalent employees. If they don’t, the amount of forgiveness will be reduced in proportion to the reduction in employee headcount.

• The forgiveness will also be reduced by the amount of any reduction, during the covered period, in total employee salaries or wages that exceeds 25 percent of that total.

• If a business has already made staff reductions, the legislation allows them to qualify for loan forgiveness if they have re-hired back to pre-crisis levels by June 30, 2020.

• Any amounts not forgiven will be carried forward as an ongoing loan, with a maximum term of two years and a maximum interest rate of 1 percent. Principal and interest will be deferred for 6 months to a year after disbursement of the loan. There is no pre-payment penalty.

• Borrowers do not need to demonstrate actual economic harm to qualify. Instead, they simply need to make a series of good faith certifications that current conditions necessitate the loan to support the business’s ongoing operations.

• Businesses can apply for both a PPP loan and a SBA Economic Injury Disaster Loan (EIDL), but they both can’t be used for payroll costs. If, between Jan. 31 and April 3, a business received an EIDL that it put toward payroll, it must roll the amount of the EIDL into the PPP loan. Proceeds from any advance up to $10,000 on an EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.

Click here to find an eligible lender.

Click here for the SBA’s April 3 Interim Finace Guidance on the PPP.

Click here for a list of frequently asked questions about the PPP.

Click here for the U.S. Treasury PPP Fact Sheet

 To find a local SBA office, click here.

 

Employee Retention Credit

• Employers whose operations have been severely affected by the COVID-19 pandemic can apply for a 50 percent credit against the quarterly social security taxes they pay on qualified wages (including the value of health plan benefits) up to a maximum of $10,000 per employee.

• The credit can be applied only to wages paid after March 12, 2020, and before Jan. 1, 2021.

• To be eligible, a business must have fully or partially suspended its operations during any quarter of 2020 in response to orders from an appropriate governmental authority, or have suffered a reduction of at least 50 percent in year-over-year gross receipts. The business will be entitled to the quarterly credit until gross receipts for a quarter exceed 80 percent of receipts from the same quarter in the prior year.

• If a business had more than 100 employees in 2019, the qualified wages are limited to those employees being paid but not working.

• If a business had 100 or fewer employees in 2019, all paid wages qualify, as long as the business meets the eligibility criteria (above).

• Businesses that receive an SBA 7(a) covered loan (including a loan under the Paycheck Protection Program, above) are not eligible for the Employee Retention Credit.

 

Payroll Tax Delay

Employers can delay paying 50 percent of their portion of employees’ 2020 social security taxes until Dec. 31, 2021, with the remaining half due Dec. 31, 2022. This also applies to self-employment taxes.

• This isn’t applicable to any employer that has had a loan forgiven under the Payroll Protection Program (see above).

 

Payroll Tax Credit Refunds

• The CARES Act allows for advance refunding of the payroll tax credits enacted in the Families First Coronavirus Response Act.

 

Net Operating Loss Rules

 • Prior to 2018, any net operating loss (NOL) suffered by a business could be carried back two years and carried forward 20 years to offset its taxable income on a dollar-for-dollar basis. The Tax Cuts and Jobs Act changed that, eliminating the carryback years and limiting the NOL deduction to 80 percent of taxable income going forward. The CARES Act temporarily repeals that limitation and also allows for an NOL beginning in 2018, 2019, or 2020 to be carried back five years. (The 80 percent limitation will return for the taxable year beginning after Dec. 31, 2020.)

 

Corporate Alternative Minimum Tax (AMT)

• The CARES Act accelerates the ability of companies to recover refundable AMT credits.

 

For the full text of the CARES Act, click here.

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