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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: On June 5, H.R. 7010 (The Paycheck Protection Program Flexibility Act of 2020) became law. The changes it made to the original program are noted below.

UPDATE: Click here for the PPP Loan Forgiveness Application (5/16/20)

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.

 • A business must have been operational on Feb. 15, 2020. The covered period now runs from Feb. 15 through Dec. 31, 2020.  UPDATED JUNE 5.

• 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 24-week period after the loan is originated or Dec. 31, whichever comes first. 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 40 percent of the loan can be used for non-payroll costs. UPDATED JUNE 5.

• Eeligible employers that received a covered loan before the enactment of H.R. 7070 can elect to have the covered period still be be eight weeks after the loan origination. UPDATE JUNE 5.

• 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.

NOTE: H.R. 7010 makes an exemption to this proportional reduction requirement for employers that, in good faith, are able to document (1) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020, and (2) an inability to hire similarly qualified employees for unfilled posiitions on or before December 31, 2020." It also exempts an employer that "is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19." UPDATED JUNE 5.

• The forgiveness will also be reduced by the amount of any reduction, during the covered period, in total employee salaries or wages that exceeds 40 percent of that total. UPDATED JUNE 5.

• 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 Dec. 31, 2020. UPDATED JUNE 5.

• Any amounts not forgiven will be carried forward as an ongoing loan, with a minimum maturity of five 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. UPDATED JUNE 5.

• H.R. 7010 requires lenders to "provide complete payment deferment relief for impacted borrowers with covered loans, including payment of principal, interest, and fees, until the date on which the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender." The act previously granted a deferment of six months to a year. UPDATED JUNE 5.

• 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 Finance Guidance on 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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