President Trump recently signed into law the $2 trillion stimulus package, titled the Coronavirus Aid, Relief and Economic Security Act, or “CARES Act.” This is a brief summary of that 854-page bill. This summary is not comprehensive. Excluded provisions include relief measures relevant to specific industries, including the airlines, and relief provisions specific to hospitals and coronavirus testing. Please contact JDSA if you have specific questions related to any of the provisions discussed below. All of these relief provisions have exclusions and limitations that must be carefully considered before determining eligibility.
Relief For Businesses
Paycheck Protection Loans for Small Businesses (eligible for forgiveness)
The CARES Act establishes Paycheck Protection Loans, to be administered by the Small Business Administration, to cover payroll costs and other expenses. These loans are only available to businesses with 500 or fewer employees. The loan provides 8 weeks of cash-flow assistance. If the employer maintains payroll for a requisite period, the portion of the loans used for qualified payroll costs, interest on mortgage obligations, rent and utilities are eligible for forgiveness. The loan amount is based on a formula, which is generally the lesser of: (1) the average monthly payroll costs during the prior year multiplied by 2.5 or (2) $10 million. There is no requirement for collateral or a personal guarantee by the borrower and the loan is non-recourse to the owners of the borrower. The amount of the loan that is forgiven may be excluded from the gross income of the borrower.
Businesses need to go through their lender to apply. Applications will be accepted as soon as this FRIDAY, April 3rd. While the deadline to apply is June 30, 2020, we expect the limited amount of funds allocated to this program to run out before that deadline, and encourage early application for the best chance of obtaining a loan. Helpful resources include:
- Small Business Administration, paycheck protection program overview, available here
- U.S. Chamber of Commerce – Coronavirus Emergency Loans Guide and Checklist, available here
- Applications are available here
Emergency Economic Injury Disaster Loans (EIDL) and Grants for Small Businesses (EIDL)
The CARES Act expands upon EIDLs, which are disaster relief loans made directly by the Small Business Administration to businesses that have suffered substantial economic injury from COVID-19. EIDLs are capped at $2 million with an interest rate cap of 3.75%. Repayment can be extended to 30 years. Loans over $200,000 require personal guarantees, and loans over $25,000 require collateral. These loans will not be forgiven. Applications for EIDSs may be made here.
In addition, certain businesses may qualify for grants related to the EIDL loans. An emergency grant in an amount equal to $10,000 can be obtained by an eligible recipient in a short timeframe. The $10,000 does not have to be repaid.
Emergency Relief Loans for Mid-Size Employers
The CARES Act establishes emergency relief loans for mid-size to large employers—those with 500 to 10,000 employees. These direct loans are not subject to forgiveness and require the borrower to make a number of “good-faith certifications,” which include, but are not limited to:
- (i) the uncertainty of economic conditions makes necessary the loan request to support the ongoing operations of the borrower;
- (ii) funds the borrower receives will be used to retain at least 90% of the borrower’s workforce, at full compensation and benefits, until September 30, 2020;
- (iii) the borrower intends to restore not less than 90% of its workforce that existed as of February 1, 2020, and to restore all compensation and benefits to its workers no later than 4 months after the termination date of the public health emergency;
- (iv) the borrower will not pay dividends with respect to the common stock of the eligible business, or repurchase an equity security that is listed on a national securities exchange of the borrower while the loan is outstanding;
- (v) the borrower will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan.
These loans may not exceed 5 years. They provide an annualized interest rate not to exceed 2% percent per annum. For the first 6 months after any such direct loan is made, or for such longer period as the Secretary may determine in his discretion, no principal or interest shall be due and payable.
Payroll Tax Credit
The CARES Act establishes a refundable payroll tax credit for 50% of certain wages paid during COVID-19. Eligible employers include those whose operations have been fully or partially suspended as a result of a government order, or a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. There are limitations on the wages which qualify for the credit based on the number of employees. This credit is not available to employers that receive a Paycheck Protection Program Loan, a separate benefit provided for in the CARES Act.
Payroll Tax Holiday
The CARES Act permits certain employers to delay their portion of 2020 payroll taxes until 2021 and 2022. This payroll tax holiday is not available to employers that receive a Paycheck Protection Program Loan, a separate benefit provided for in the CARES Act.
Net Operating Losses
The CARES Act temporarily removes the taxable income limitation to allow a net operating loss to fully offset income. This provision applies to tax years beginning after December 31, 2017.
The CARES Act also provides that net operating losses arising in a tax year beginning after December 31, 2018 and before January 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss.
Excess Loss Limitations
The CARES Act temporarily suspends the excess loss limitation rules for pass-through entities, so they can deduct excess business losses arising in 2018, 2019, and 2020.
Corporate Minimum Tax Credits
The CARES Act allows corporations to claim 100% of Alternative Minimum Tax (AMT) credits in 2019 and provides for an election to take the entire refundable credit amount in 2018.
Interest Expense Limitation
The CARES Act temporarily and retroactively increases the interest expense limitation from 30% to 50% for 2019 and 2020.
Changes to Corporate Charitable Contributions for 2020
The CARES Act provides that qualified contributions may be disregarded in applying the 10% limit on charitable contributions of corporations.
Relief For Individuals
Individual Tax Credits
The CARES Act provides a $1,200 refundable credit for eligible individuals ($2,400 for married couples), plus an additional $500 per child. The rebates are not taxable income to recipients.
Expansion of Unemployment Insurance Benefits
The CARES Act expands unemployment insurance for workers, including a $600 per week increase in benefits for up to 4 months and federal funding of unemployment insurance to those not usually eligible, such as the self-employed, independent contractors, and those with limited work history. Washington has already implemented some of these expansion benefits by emergency rule, including waiver of the one-week waiting period. For more information on how the CARES Act impacts Washington state unemployment benefits, click here.
Use of Retirement Funds
The CARES Act waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes. Withdrawals are still taxed, but taxes are spread over 3 years, or the taxpayer has 3 years to roll it back over.
Required Minimum Distributions Waived for 2020
The CARES Act waives required minimum distributions from their retirement plans or IRAs normally imposed on individuals 72 years of age and older.
$300 Above-the-Line Charitable-Deduction
The CARES Act adds a deduction to gross-income beginning in 2020 for certain charitable contributions.
Student Loan Payments
The CARES Act allows certain employer payments of student loans on behalf of employees to be excluded from taxable income. Employers may contribute up to $5,250 towards student loan payments, which are excluded from the employee’s income.