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

by | Mar 30, 2020

On Friday March 27th, the House passed, and the President signed the Coronavirus Aid, Relief and Economic Security (CARES) Act. In addition to direct support for individuals, this massive relief bill includes a number of provisions which will be significant to nearly every business. 

Paycheck Protection Program

This is an SBA backed program intended to help businesses with cash flow during the pandemic. It differs substantially from typical SBA programs in several key aspects:

  • No collateral or personal guarantee required. 
  • No SBA loan fees. 
  • Interest and payments deferred for 6 – 12 months. 
  • Maximum interest of 4%.
  • Maximum loan amount is 2.5X average monthly payroll costs or $10,000,000 whichever is less. 
  • Offered through an expanded network of banks. 

Loan amounts used for certain qualifying expenses may be forgiven (subject to program requirements). Qualifying expenses include:

  • Payroll costs;
  • interest on mortgage obligations in existence before February 15, 2020 and incurred in the ordinary course;
  • rent under a lease agreement in force before February 15, 2020; 
  • utility payments for which service began before February 15, 2020; and
  • interest on any other debt obligations incurred before February 15, 2020. 

Eligibility

  • Businesses with fewer than 500 employees. This includes self-employed individuals. 
  • Some industries, such as hospitality may be eligible based on number of employees per location rather than the entire enterprise. 
  • Businesses must have been in operation on February 15, 2020 and had employees or independent contractors who were paid wages.
  • Businesses must make a good faith certification that they were impacted by the pandemic, will use the funds for a qualifying purpose and do not have a duplicate loan application pending. 

Business Tax Provisions

The CARES Act includes a variety of tax changes intended to improve business liquidity during the pandemic. Some highlights include:

  • Deferral of the employer share of Social Security taxes. 
  • Refundable payroll tax credit for up to 50% of qualifying wages paid by affected employers during the pandemic. 

Health Insurance Changes 

  • Expands upon COVID-19 testing rules that were part of the Families First Coronavirus Response Act (FFCRA) requiring insurance plans to cover all services performed in connection with a coronavirus test without cost to the plan participant. 
  • Modifies rules for qualifying High Deductible Health Plans (HDHP) to allow coverage of telehealth services without application of the deductible. 
  • Adds additional over-the-counter medical products as qualified expenses for reimbursement under FSA, HSA and HRA plans. 
  • Adds certain menstrual care products as qualified expenses for reimbursement under FSA, HSA and HRA plans. 

Retirement Plans

The CARES Act allows employers to amend qualifying retirement plans to provide additional flexibility during the pandemic. 

  • Permits affected individuals to withdraw up to $100,000 from a qualifying retirement plan without application of the normal 10% early withdrawal penalty. 
  • Extends the period to pay income tax on these early withdrawals to three years. 
  • Increases the maximum loan amount on qualifying plans to the lesser of $100,000 or 100% of the vested balance. 
  • Allows individuals with existing loans to delay payment for up to a year.  
  • Waives minimum distribution requirements for individuals who are 70 ½ or older.

Paid Leave 

The CARES Act makes modifications to the paid leave and tax credits created by the FFCRA. 

  • Allows employees who were laid off and reinstated to immediately qualify for the FFCRA paid family leave benefits without satisfying the 30-day waiting period. 
  • Allows employers to apply for an advanced tax credit to cover the cost of paid leave benefits under the FFCRA, reducing cash flow challenges if many workers are out. 

Unemployment Benefits

The CARES Act greatly expands the availability of unemployment benefits as well as increasing the amount unemployed individuals may receive. As is the case with all unemployment changes, states must choose how to adopt the expanded federal benefits. 

  • Expands eligibility for unemployment benefits to include self-employed individuals, those with limited work history and others not able to work because of the pandemic through December. 
  • Increases unemployment benefits by $600 per week for up to 4 months. 
  • Extends unemployment benefits to an additional 13 weeks. 
  • Funds the first week of unemployment benefits if states waive the normal one week waiting period. 

The final bill is nearly 900 pages and contains numerous provisions impacting almost every individual and business in the country. It will take time for the regulatory agencies to issue guidance and for programs to begin, but the agencies have committed to rapid implementation. 

We will discuss major provisions of the CARES Act as well as regulatory guidance on the FFCRA in our webinar on March 31st. 

If you know of a business that could also benefit from our updates and webinars during this time period, you may encourage them to sign up for our updates.