President passes CARES Act, bringing $2.2 trillion in aid to employers, workers & the unemployed
On March 27, the president signed into law a $2.2 trillion relief package—the largest in U.S. history—to provide aid to businesses, workers, and those unemployed as a result of the COVID-19 pandemic.
Among the key provisions of the new Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are:
- More than $350 billion in loans for small businesses impacted by the pandemic (some loans could be forgiven—see below for details)
- An extended unemployment insurance program for laid-off workers (including those who are self-employed or gig workers) that will amount to four months of full pay—raising the maximum unemployment insurance benefit by $600 per week and waiving the usual one-week waiting period
- More than $150 billion for the health care system—to include funding for hospitals, research, treatment and the Strategic National Stockpile to raise supplies of ventilators, masks and other equipment
- Direct checks of $1,200 or less delivered to most American adults in the middle class and lower income levels, among other payments
- $150 billion to state and local governments to address spending shortages related to the pandemic.
G&A’s legal partner firm, Littler Mendelson P.C., provided the following insight regarding the new law:
CARES Act Small Business Loan Provisions
Agencies like the Small Business Administration and the Department of the Treasury will establish the mechanisms for participation in the CARES Act's small business loans programs. Key provisions of these loan programs include:
- Increase the government guarantee of loans made for the Payment Protection Program under section 7(a) of the Small Business Act to 100% through December 31, 2020.
- Define eligible businesses to include nonprofits, sole proprietorships, self-employed individuals and firms with fewer than 500 employees per location.
- Include franchise businesses as eligible for relief.
- Specify allowable uses of the loan, including payroll support such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
- Set a maximum interest rate of 4% and waive various requirements (personal guarantees, etc.).
- Allow for six-month loan deferments.
Key features of loan forgiveness in the CARES Act:
- Borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on:
- Payroll costs
- Interest payment on any mortgage incurred prior to February 15, 2020
- Payment of rent on any lease in force prior to February 15, 2020
- Payment on any utility for which service began before February 15, 2020
- Amounts forgiven may not exceed the principal amount of the loan.
- Eligible payroll costs do not include compensation above $100,000 in wages.
- Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered eight-week period compared to the previous year or time period, proportionate to maintaining employees and wages: Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation and any covered utility payment.
Other changes include amendments to Chapter 11 of the Bankruptcy Code to address coronavirus-related issues such as excluding from income coronavirus-related payments from the federal government to the debtor.
The CARES Act offers both opportunities and potential pitfalls for employers. Among the pitfalls are the broadly applied unemployment benefits.
It remains to be seen how state unemployment agencies will process new claims under the expanded benefit provisions. Individuals are not eligible for benefits if they have the ability to telework with pay or are receiving paid sick leave or other paid leave benefits.
Pandemic Unemployment Assistance
According to Littler, the temporary Pandemic Unemployment Assistance program provided by the CARES Act will cover individuals for the period beginning January 27, 2020 through December 31, 2020. Those applying for assistance must self-certify “that they are able and available to work” but are unemployed or partially unemployed due to the following:
- They have been diagnosed with COVID-19 or are experiencing symptoms and seeking a medical diagnosis
- A member of the individual’s household has been diagnosed with COVID-19
- The individual is providing care for a family member or household member who has been diagnosed with COVID-19
- The individual is the primary caregiver for a child or other person in the household who is unable to attend school or another facility as a direct result of COVID-19
- The individual is unable to reach the place of employment because of a quarantine imposed as a direct result of COVID-19
- The individual is unable to work because a health care provider has advised the individual to self-quarantine due to COVID-19 concerns
- The individual was scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of COVID-19
- The individual has become the breadwinner or major support for a household because the head of household has died as a direct result of COVID-19
- The individual has to quit their job as a direct result of COVID-19
- The individual’s place of employment is closed as a direct result of COVID-19
Individuals are not eligible for benefits if they have the ability to telework with pay or are receiving paid sick leave or other paid leave benefits, Littler says. For those who are eligible, additional benefits may be available once these benefits are exhausted.
Payroll Tax Credit and Deferral
The CARES Act provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose:
- Operations were fully or partially suspended due to a shut-down order related to the pandemic
- Gross receipts declined by more than 50% when compared to the same quarter in the prior year
Littler says the credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020, through December 31, 2020.
Employers and self-employed individuals may also defer payment of the employer share of the Social Security tax on employee wages. Deferred employment tax must be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.
Individual Rebates and Retirement Accounts
All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work-eligible social security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable, means-tested benefit programs, such as SSI benefits.
For the vast majority of Americans, no action on their part will be required in order to receive a rebate check as the IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative, their 2018 return. This includes many low-income individuals who file a tax return in order to take advantage of the refundable Earned Income Tax Credit and Child Tax Credit. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased out for single filers with incomes exceeding $99,000, $146,500 for head-of-household filers with one child, and $198,000 for joint filers with no children.
Individuals may also be able to tap into retirement accounts. The provision waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.
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