The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Friday, March 27, 2020. The Act aims to provide economic relief through a multitude of provisions including tax breaks, unemployment benefits, loan forgiveness, and individual rebates. Below is an overview of some of the key provisions included in the bill.
OVERVIEW – TOP 6 CARES ACT PROVISIONS
- Provides stimulus to individuals, businesses, and hospitals in response to the economic distress caused by the coronavirus pandemic.
- Creates a $349 billion loan program for small businesses. These loans can be forgiven through a process that incentivizes companies to retain employees.
- Allocates $500 billion for assistance to businesses, states, and municipalities to support lending to eligible parties.
- Provides $1,200 to Americans making $75,000 or less ($150,000 in the case of joint returns and $112,500 for head of household) and $500 for each child.
- Expands eligibility for unemployment insurance and provides people with an additional $600 per week in addition to the unemployment amount determined by each state.
- Provides the Secretary of the Treasury with the authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens a variety of regulations.
SUMMARY – CARES ACT KEY PROVISIONS
1.Keeping American Workers Paid and Employed
Paycheck Protection Program (PPP) Loans
Greatly expands SBA loan eligibility and provides cash-flow assistance through federally guaranteed loans to employers with 500 or fewer employees who maintain their payroll during this emergency.
Loans can be used to cover payroll, health care costs, mortgage interest payments, rent and utility payments and interest on pre-existing debt obligations. PPP has several features, including:
- Forgiveness of up to 8 weeks of payroll based on employee retention and salary levels
- Waives the credit available elsewhere, personal guaranty and collateral requirements.
- At least six months of deferral with maximum deferrals of up to a year.
- Raises the maximum amount for such a loan by 2.5 x the average total monthly payroll costs, or up to $10 million. The interest rate may not exceed 4%.
- All or a portion of the loan may be forgivable and debt service payments may be deferred for up to 1 year.
Small businesses, nonprofits, veteran’s organizations, self-employed, sole proprietors and independent contractors with fewer than 500 employees, and businesses in the accommodation and food services sector with fewer than 500 employees per location will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program is retroactive to February 15, 2020 to help bring laid-off workers back onto payrolls. Loans are available through June 30, 2020. Loan forgiveness may not be combined with the Employee Retention Credit or the Payroll Tax Deferral.
- Establishes that the borrower under the Paycheck Protection Program shall be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date on rent, payroll costs for workers making less than $100K, interest on a mortgage, and utility payments. The amount forgiven may not exceed the principal of the loan.
- Incentivizes companies to retain employees by reducing the amount forgiven proportionally by any reduction in employees retained compared to the prior year.
- Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period
Economic Injury Disaster Loans & Emergency Economic Injury Grants
- Provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you 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.
2. Assistance for Workers, Families & Businesses
- Americans will be receiving one-time payments from the government of up to $1,200 for individuals whose income is $75,000 or less, and $2,400 for couples whose income is $150,000 or less plus $500 payment per child.
Unemployment Benefits and Gig Worker Protection
- Provides those receiving unemployment with an additional $600 per week for the next four months and extends unemployment benefits through December 31 for eligible workers. It also expands unemployment eligibility to cover self-employed, independent contractors and gig economy workers.
- The 2019 tax return filing and payment deadline has been extended to July 15, 2020. People who have filed or plan to can still expect to receive a refund if they are owed one.
- For individuals who withdraw up to $100,000 from their retirement plans, the 10% early withdrawal fee will be waived retroactive to Jan. 1 through the end of 2020. The amount withdrawn will be treated as a tax-exempt rollover contribution if repaid in the next three years. There is also pension funding relief for failures to meet contribution requirements to defined plans for the year 2020.
- The loan limit is increased from $50,000 to $100,000.
- In addition to federal student loan payments being suspended for 60 days without penalties and interest, employers can pay up to $5,250 of student loan interest of an employee on a tax-free basis. This means an employer can contribute to loan payments and workers won’t have to include that money as income.
- To encourage individuals to contribute to charitable organizations, the Act allows for an above the line charitable deduction of up to $300 for standard or itemized deductions.
- All private insurance plans are required to cover COVID-19 treatments and vaccines and all coronavirus testing is free.
3. Business-Specific Provisions
Employee Retention Credit for Employers Subject to Closure Due to COVID-19
- Provides a refundable payroll tax credit equal to 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is provided for first $10,000 of compensation, including health benefits.
- Eligible employers are those whose operations were fully or partially suspended due to COVID-19 related shutdown orders, or had gross receipts decline by more than 50% as compared to the same quarter in the prior year.
- For employers with more than 100 employees, qualified wages are wages paid to employees not providing services due to the COVID-19 related circumstances. For employers with 100 employees or less, all wages qualify for the credit. Credit applies to wages paid between March 13, 2020 and December 31, 2020.
Payroll Tax Deferral
- Applies to employers and self-employed individuals and is effective for payments now through December 31, 2020. Allows employers to defer the payment of the 6.2% employer portion of Social Security Tax for two years. Half will be due December 31, 2021 with the other half due December 31, 2022.
Small Business Debt Relief Program
- Provides immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA 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 the President signing the bill into law.
Net Operating Losses:
- The Tax Cuts and Jobs Act (TCJA) net operating loss rules are modified. The 80% rule is lifted, and losses can now be carried back five years.
Excess Loss Limitations:
- The excess loss limitation (ELL) rules for pass-through entities are suspended.
Qualified Improvement Property
- The CARES Act enables businesses, especially in the hospitality industry, to write off costs associated with improving facilities immediately instead of depreciating those improvements over the 39-year life of the building. The provision, which corrects an error in the Tax Cuts and Jobs Act, increases companies’ access to cash flow by allowing them to amend a prior year return, and incentivizes them to continue to invest in improvements.
RJI CPAs is continuing to monitor the latest developments as they relate to the government’s assistance programs. The funds described above are available immediately to affected companies. If you have questions or would like to apply to one of these programs, please contact us right away for assistance.