US CARES Act: How it helps you

Apr 20

American business and workers seeking financial assistance have access to funding, assistance programs, and deferrals from the CARES Act. The team at Acquire has put together a summary of the 883 page bill, which explores how the CARES Act helps affected individuals and business owners.

The global community is facing unprecedented and challenging times. As global citizens, it is imperative that we work through these hurdles together and share the resources we have.

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What is the CARES Act?

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) into law following the Act’s approval by both chambers of Congress.

The Act is aimed at reducing the economic impact of the novel Coronavirus 2019 (or “COVID-19”) pandemic and authorizes $2 trillion in aid to various sectors of the economy.

The CARES Act aims at providing aid in four primary areas:

Households;
Small Businesses;
Businesses and Markets; and
State and Local Governments.

Keep American Workers Paid and Employed Act

+ Paycheck Protection Program (PPP)

Overview

The Paycheck Protection Program (PPP), a $349 billion loan program available through the Small Business Administration (SBA), is aimed at providing critical funding needed to keep small businesses running.

For up to eight weeks after the loan is made, this program can be used to cover the cost of payroll and other eligible expenses.

If an employer maintains payroll for eight weeks, loan expenses related to payroll (up to $100,000 per employee), mortgage interest, rent, and utilities can be forgiven and can essentially turn into a non-taxable grant. The amount forgiven will depend on whether a business can keep all its employees during the covered period of the loan. The loan covers expenses for eight weeks starting from the loan origination date (if the obligations began before February 15, 2020).

What do I need to know about the PPP?

Eligibility

Small businesses with 500 or fewer employees or those that fall within the SBA’s size standards;
Restaurants, hotels, or businesses that fall within the North American Industry Classification System (NAICS) code 72, “Accommodation and Food Services,” and each location has 500 or fewer employees;
Tribal businesses;
501(c)(19) veteran organizations;
501(c)(3) non-profits;
Independently owned franchises with less than 500 employees; and
Sole proprietors, independent contractors, gig economy workers, and self-employed individuals.

Definition of Payroll Costs

Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
Employee benefits including costs for vacation, parental, family, medical, or sick leave allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
State and local taxes assessed on compensation; and
For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Use of Funds

At least 75% of the PPP loan is supposed to be used to fund payroll and employee benefits costs.

The remaining 25% can be spent on:

Mortgage interest payments;
Rent and lease payments; and
Utilities.

If a business sticks to these guidelines, it will be able to have 100% of the loan forgiven.

Terms

Rate	1% (Fixed)
Maturity	Two years
Loan payments	None for first six months
Security	No collateral or personal guarantees
Fees	None

How to Apply for the PPP

Application Process

The SBA itself does not lend the money, they just “back” the loan that the lender provides. Businesses must contact their financial institutions to learn more about the process.

Applications for sole proprietorships started April 3, 2020 whereas applications for independent contractors and self- employed individuals started on April 10, 2020.

What Businesses Need to Verify

That current economic uncertainty makes the loan necessary to support a business’ ongoing operations.
That the funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
That the business has not and will not receive another loan under this program.
Documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
That the business must acknowledge that the lender will calculate the eligible loan amount using the tax documents it submitted and affirms that the tax documents are identical to those it submitted to the IRS.

Documentation

Payroll/bookkeeping records to prove payroll expenses that could include:

Payroll processor records;
Payroll tax filings;
Payroll tax forms from 2019 (Forms 941, 940 and W-3);
Form 1099-MISC records; and
Income and expenses from a sole proprietorship.

Funding Size

The maximum amount a business can receive from its SBA-approved lender is its monthly average payroll cost in 2019, multiplied by 2.5x, up to a maximum of $10 million.

If a business is a seasonal employer, the monthly average cost will be calculated differently. The lender will use a 12-week period beginning either February 15, 2019 or March 1, 2019 and ending June 30, 2019.

If a business did not exist before June 30, 2019, the lender will look at its costs in January and February 2020.

Loan Forgiveness

In the eight weeks following the loan signing date, all expenses related to the following can be forgiven:

Payroll – Salary, wage, vacation, parental, family, medical, or sick leave, health benefits.
Mortgage interest – As long as the mortgage was signed before February 15, 2020.
Rent – As long as the lease agreement was in effect before February 15, 2020.
Utilities – As long as service began before February 15, 2020.

The lender must decide within 60 days of the submission of the forgiveness application.

Loan Forgiveness Conditions

A business must commit to maintaining an average monthly number of full-time equivalent employees equal or above the average monthly number of full-time equivalent employees during the previous one-year period. And it must spend 75% of the loan funds on payroll.

The amount that can be forgiven will be reduced

In proportion to any reduction in the number of employees retained.
If any wages were reduced by more than 25%.

If a business rehires employees that were previously laid off at the beginning of the period, or restore any decreases in wage or salary that were made at the beginning of the period, it will not be penalized for having a reduction in employees or wages, as long as it is done by June 30, 2020.

+ Emergency Economic Injury Disaster Loan Program

Overview

The Act would expand eligibility for entities suffering economic harm due to COVID-19 to access SBA’s Economic Injury Disaster Loans (EIDL), while also giving SBA more flexibility to process and disperse small dollar loans. Under the EIDL Program, eligible small business may borrow from participating banks and other financial institutions up to $2 million during the period January 31 through December 31, 2020. $10 billion would be provided to support the expanded EIDL program. An eligible business can seek the Emergency EIDL after the proceeds of its PPP loan are exhausted. The EIDL Program allows lenders to approve applicants based solely on credit scores (without the submission of a tax return) or alternative methods appropriate for determining an applicant’s ability to repay. Applicants for an Emergency EIDL based on COVID-19 can also request an emergency advance from the SBA of up to $10,000, which does not have to be repaid, even if the loan application is later denied. The SBA must verify an applicant’s eligibility for an advance by accepting a “self-certification.” Advances are to be awarded within three days of an application. If an applicant receiving an emergency advance subsequently borrows a PPP loan, the emergency advance amount will be reduced from any Payroll Cost forgiveness amounts.

What do I need to know about the EIDL?

Eligibility

Have no more than 500 employees;
An individual that operates under a sole proprietorship, with or without employees, or as an independent contractor;
A cooperative with not more than 500 employees;
An ESOP with not more than 500 employees;
A Small Business Concern;
A private non-profit organization; and/or
A small agriculture cooperative.

Use of Funds

The proceeds from an Emergency EIDL can be used for working capital, payroll and other expenses that the applicant could have paid had the disaster not occurred.

Funds cannot be used to replace lost profits or to finance business expansion. The proceeds must not be used to duplicate any cost or expense covered by a PPP loan.

How to Apply for the EIDL

Application Process

Businesses can apply for this loan through SBAs Disaster Loan Assistance Loan portal.

Streamlined Process

Businesses can borrow up to $200,000 without a personal guarantee.
First-year tax returns are not required, and approval can be based on credit score.
Businesses are not required to prove that they were unable to get credit elsewhere.
Loans of up to $25,000 do not require any collateral. For loans more than $25,000, general security interest in a business’ assets can be used.
Businesses must allow the SBA to review its business tax records.

Terms

Rate	3.75% (2.75% for non-profits)
Term	Up to 30 years
Loan Payments	Automatic one-year deferral on repayment but interest begins to accrue once the loan is disbursed

+ Other Programs

Entrepreneurial Development Program

The program would provide $265 million for grants to SBA resource partners, including Small Business Development Centers and Women’s Business Centers (WBC), to offer counseling, training, and related assistance to small businesses affected by COVID-19.

Fund allocation:

Education, Training, and Advising Grants – $240 million.

80% of the authorized funds in this program will be allocated towards Small Business Development Centers and the remaining 20% towards Women’s Business Centers. Matching funds will not be required for any grant under this program.

Resource Partner Association Grants – $25 million.

State Trade Expansion Program

This program extends the term of the Small Business Act State Trade Expansion Program to allow recipients of grant funding in fiscal years 2018 and 2019 to use the grant funding through the end of fiscal year 2021.

It also provides for reimbursement of losses suffered as a result of cancellation of foreign trade missions or shows due to COVID-19.

Waiver of Matching Funds under WBC

During the three-month period beginning on the date of enactment of the CARES Act, the requirement relating to obtaining cash contributions from non-Federal sources under section 29(c)(1) of the Small Business Act has been waived for any recipient of assistance.

Minority Business Development Agency

Similar to the WBCs, these agencies will have their matching fund requirements waived for three months.

Any fee-for-service requirements will also be waived until September 2021.

Small Business Debt Relief

Under this Act, the SBA will be required to pay all principal, interest, and fees on all existing SBA loan products, including 7(a), Community Advantage, 504, and microloan programs, for six months to provide relief to small businesses negatively affected by COVID-19.

$17 billion would be provided to implement this program.

Bankruptcy Provisions

Businesses have typically only been able to file for subchapter V Chapter 11 bankruptcy if they had debt up to $2.7 million. For the next year, businesses with up to $7.5 million will qualify. Subchapter V gives small businesses a cheaper and faster bankruptcy option.

Relief for Individuals, Families, and Businesses

+ Changes to Unemployment Assistance

Overview

Under the CARES Act, unemployment benefits are now available to self-employed individuals, independent contractors, and people with limited work history.

In addition, anyone who is unable to work because of COVID-19 will also qualify for unemployment benefits. That includes people who have been diagnosed with COVID-19, are providing care for someone who is diagnosed with COVID-19, are required to self-quarantine, need to stay home to care for their children, or someone who has quit their job because of COVID-19.

If an individual is receiving paid leave benefits, such as sick leave, that person will not qualify for unemployment.

Increase in Unemployment Benefits

An additional $600 per week will be provided for up to four months for anyone receiving unemployment benefits.

Reduced Waiting Time

This Act waives any waiting periods required by state law, which is usually one week.

The Federal government will provide funding to those states that choose to waive the waiting period and pay the recipients immediately.

Temporary Financing for Short-Term Compensation Programs

States are required to enact short-term compensation programs to assist with partial unemployment. Some states offer shared work arrangements, where they reduce an employee’s hours and pay, and the employees can offset their reduced pay with unemployment benefits.

States with programs already in place will get 100% of the costs of this program covered through December 31, 2020.

States that start a shared work program will get 50% of their program covered through December 31, 2020. Pandemic Emergency Unemployment Program.

Pandemic Emergency Unemployment Program

Once an individuals’ state unemployment benefits run out (usually 26 weeks), if still unemployed, that person can qualify for an additional 13 weeks of unemployment benefits at the state rate, plus the enhanced weekly benefit level.

+ Recovery Rebates for Individuals

Overview

If an individuals’ income is $75,000 or less (or $150,000 or less, if married), that person will be eligible for a $1,200 individual or $2,400 married couple rebate.

Couples/individuals with dependent children under the age of 17 will also be eligible for an additional $500 per child.

If an individual makes over $75,000 or $150,000 (for married couples), the rebate will be reduced by $5 for every $100 over $75,000. But if one makes over the following threshold amounts, there will be no rebate provided:

Individual – $99,000
Head of household with one child – $146,000
Joint filers with no children – $198,000

Application Process

No filing required to receive the rebate. The government will use 2019 tax returns (if filed) or 2018 returns to see if one qualifies.

Eligibility

Cannot be claimed as a dependent by someone else.
Must have a work eligible Social Security Number (SSN).
Individuals with no taxable income will still qualify for the rebate.

+ Other Rebates and Individual Provisions

Special Rules for Use of Retirement Funds

The 10% penalty fee for early withdrawals from one’s retirement plan has been waived for withdrawals of up to $100,000 that happen after January 1, 2020 for COVID-19 related purposes.

Individuals will have to pay income tax on the distribution, but this tax will be paid over three years.

Eligibility:

Either the individual, the spouse and/or the dependent is diagnosed with COVID-19.
An individual experiencing adverse financial consequences from being quarantined, furloughed, laid off, observing reduced work hours, being unable to work due to lack of childcare, or closing or reducing hours of a business that is owned by that individual.

Waiver of Required Minimum Distribution Rule

Individuals over age 72 (or turned 70.5 before January 1, 2020) are normally required to take minimum distributions from their retirement account. Those minimum distributions have been suspended for 2020.

Charitable Contributions

For charitable contributions this year, individuals can deduct up to $300 in cash donations without having to itemize deductions.

Limitations on the amount of deductions have been waived for this year.

Tax Deadline Delays

Due to COVID-19 federal tax returns will be due on July 15, 2020, the same day tax payments are due.

If individuals are unable to get documents together to file taxes by then, an extension request can be made to push the deadline to October 15, 2020.

The July 15, 2020 deadline only applies to Federal taxes. State tax deadlines vary by state. IRS will be waiving the penalty and interest charges this tax season.

Employer Payments of Student Loans

With the CARES Act, employer contributions toward principal or interest on an employee’s qualifying student loan of up to $5,250 per year are tax-free – for both employer for payroll purposes and the employee for income tax purposes – when these contributions are made any time after March 27, 2020, through December 31, 2020.

+ Business Provisions – Employee Retention Credit

Overview

The CARES Act provides payroll tax credit of up to $5,000 per employee for eligible employers.

The credit is equal to 50% of “qualifies wages” paid to employees during a quarter, capped at $10,000 of “qualified wages”. The credit is available for wages paid from March 13 to December 31, 2020.

Claiming Credit

Employers can deduct the amount of tax credit for paid sick and childcare leave from:

Federal income taxes withheld from all employees’ pay;
The employees’ share of Social Security and Medicare taxes; and
The employer’s share of Social Security and Medicare taxes.

Eligibility

Must be carrying on a trade or business during 2020.

During the calendar quarter, either:

Operations were fully or partially suspended as a result of government restrictions limiting commerce, travel, or group meetings due to COVID-19, or
Gross receipts for the quarter were less than 50% of the gross receipts for the same calendar quarter in the prior year. The employer will remain eligible for the credit until such calendar quarter as the gross receipts equal to 80% of the gross receipts for the same calendar quarter in 2019.

Qualifying Wages

Less than 100 employees – All wages.
More than 100 employees – Wages paid to employees when they are not working.

+ Other Business Provisions

Modifications of Limitations on NOLs

Net Operating Losses (NOLs) arising in a tax year beginning 2018, 2019, or 2020 can be carried back five years.

Previously NOLs could not be carried back to reduce income in a prior tax year.

The taxable income limitation of 80% has temporarily been removed to allow an NOL to fully offset income in any tax year beginning before January 1, 2021.

Modification to Interest Business Deductions

The amount of interest expense that businesses may deduct on their tax returns is temporarily increased from 30% to 50% of adjusted taxable income for any tax year beginning in 2019 or 2020. A taxpayer may make an election not to have these rules apply.

In the case of a partnership, 50% of any excess business interest that was allocated to a partner in 2019 instead can be deducted in 2020 without being subject to the 50% limitation for partnerships in 2020.

A taxpayer also can elect to use its 2019 adjusted taxable income in computing the 2020 excess business interest limitation for all businesses, including partnerships.

Delayed Payment of Payroll Taxes

Under the CARES Act employers will be able to delay payment of payroll taxes. Half of the deferred tax will be due by December 31, 2021 and the other half will be due by December 31, 2022.

Modifications for Non-Corporate Taxpayers

Usually passthrough businesses and sole proprietors can’t claim business losses of more than $250,000 for a single taxpayer and more than $500,000 for a married couple filing jointly. That limit has now been suspended for tax years 2018 and later.

Credit for Minimum Tax Liability

If a business has corporate Alternative Minimum Tax (AMT) credits, it can now accelerate those credits to claim them all at once and get a refund immediately.

Qualified Improvement Property

Due to an error in the Tax Cuts and Jobs Act, businesses couldn’t immediately write off costs related to improving facilities. The CARES Act corrects this and lets businesses go back and amend tax returns for 2018 and 2019 to claim the write off, potentially giving them a higher tax refund.

Economic Stabilization and Relief to Severely Distressed Sectors

Under the CARES Act, a $500 billion pool of money has been created to make loans, loan guarantees, and other investments for distressed businesses that do not qualify for the small business relief, including airlines, large non-profit companies, states, and municipalities.

The funds will be provided as follows:

Direct Lending through the Treasury Department:

$25 billion for passenger air carriers, aviation repair stations, and airline ticket agents;
$4 billion for air cargo carriers; and
$17 billion for businesses critical to maintaining national security.

Lending by the Treasury Department to support Federal Reserve programs, including:

$454 billion (plus any unused amounts from the direct lending programs) for loans, loan guarantees and other investments in support of the Federal Reserve’s lending facilities that support eligible businesses, states and municipalities.
This may be done through – purchasing obligations directly from issuers, purchasing obligations in secondary markets, and making loans, including securitized loans or other advances.

The Treasury Secretary has broad discretion to make loans, loan guarantees, and investments.

For the direct lending programs for airlines, air cargo and national security-related businesses, the Secretary is required to publish application procedures and requirements within 10 days of the law’s enactment. None of the loans issued under these Treasury or Federal Reserve programs will be eligible for loan forgiveness.

These loans should be treated as indebtedness for tax purposes. Eligible businesses must not participate in stock repurchase programs or pay out dividends or other capital distributions for a period of 12 months after the loan or loan guarantee is no longer outstanding.

There are substantial restrictions on executive compensation for borrowers under these programs and facilities that last for 12 months following repayment of any obligation under these programs.

+ Air Carriers & Businesses Critical to National Security

Overview

The Secretary of Treasury may enter into agreements to make or guarantee loans if:

The applicant is an eligible business for which credit is not reasonably available at the time of the transaction;
The intended obligation is prudently incurred; and
The loan and loan guarantee is sufficiently secured or is made at a rate that:
- Reflects the risk of the loan or loan guarantee, and
- Is to the extent practicable, not less than the interest rate based on market conditions for comparable obligations prevalent prior to the COVID-19 outbreak.

Terms & Conditions

The duration of the loan should be as short as practicable but no longer than five years.

Until September 30, 2020 borrowers must maintain employment levels as of March 24, 2020, to the extent practicable, and in any case should not reduce employment levels by more than 10%.

A borrower must certify that it is created or organized in or under the laws of the U.S., and that is has significant operations in and majority of its employees based in the US. Continued operations of the business are jeopardized by losses due to the pandemic.

+ Special Assistance for Mid-Sized Businesses

Overview

The Secretary of Treasury will work with the Federal Reserve to establish a new facility that would provide financing to banks or other lenders to make direct loans to eligible businesses (including to the extent practicable non-profit organizations) that have 500 to 10,000 employees.

These loans would have an annualized rate no greater than 2%.

Businesses will not be required to pay principal and interest payments for at least the first six months after the direct loan is made.

Terms & Conditions

Applicants for the direct loan must certify that:

The uncertainty of economic conditions makes the loan request necessary to support ongoing operations.
The loan will be used to retain at least 90% of its workforce, at full compensation and benefits, until September 30, 2020.
The borrower intends to restore more 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 four months after the termination of the current public health emergency.
Business is domiciled in the U.S. and has significant operations and majority employees located in the U.S.
The borrower is not a debtor in bankruptcy proceedings.
The borrower will not outsource or offshore jobs for the term of the loan and two years after repayment of loan.
The borrower will not abrogate existing collective bargaining agreements for the term of the loan plus an additional two years.

+ Main Street Lending Program

Overview

This program is intended to provide additional financing for small and medium-sized businesses and is expected to provide up to $600 billion of liquidity for financial institutions to make loans to eligible borrowers.

The program consists of two facilities:

Main Street New Loan Facility
Main Street Expanded Loan Facility

Eligibility

The Main Street Lending Program contemplates loans by eligible lenders to eligible borrowers. Eligible lenders are any U.S. insured depository institution, bank holding company or U.S. savings and loan holding company.

Eligible borrowers are businesses that:

Have up to 10,000 employees or $2.5 billion in annual revenues;
Are organized in the U.S.; and
Have significant operations and have majority of employees in the U.S.

Terms

Rate	Adjustable interest rate based on the Secured Overnight Funds Rate plus 2.5% - 4%
Term	Four years
Amortization	One year deferral (P + I)
Fees	1% of the eligible loan

Application Process

Applications for this program have not yet been released.

Healthcare Response to COVID-1

Overview of Labor Provisions

Limitation on Paid Leave

Under the Family and Medical Leave Act (FMLA), originally enacted under the Families First Coronavirus Response Act (FFCRA), employees of businesses with less than 500 employees are eligible for 12 weeks of family leave if they are unable to work because of a school closure or childcare provider closure. The first 10 days are unpaid, and the remainder of the leave is paid.

This Act reiterates that an employer is only obligated to pay employees up to a cap of $200 per day and $10,000 in the aggregate per employee.

Emergency Paid Sick Leave Act Limitation

The CARES Act states that an employer is only obligated to pay employees up to a cap of $511 per day and $5,110 in the aggregate per employee for paid sick leave and if an employee is taking care of a child or a quarantined individual, there is a $200 cap per day and $2,000 cap in the aggregate per employee.

The Act also clarifies that an employer’s obligation for paid sick leave ends when the employer has either paid the employee for an equivalent of 80 hours or where the employee has returned to work after utilizing leave provided.

Unemployment Insurance

Each state must ensure that applications for unemployment compensation, and assistance with the application process, are accessible in person, by phone, or online.

Paid Leave for Rehired Employees

Employees terminated on or after March 1, 2020 and subsequently rehired by the same employer are eligible to use FMLA leave if they worked for that employer for 30 of the last 60 calendar days prior to their termination.

Advance Refunding of Credits

The FFCRA provides a payroll tax credit to employers paying required paid sick leave and required paid family leave. In anticipation of the credit, the IRS may advance the credit.

In addition, the IRS will waive penalties for failure to timely make employment tax credits if the failure is due to anticipation of the IRS allowing the credit.

Self-Employer Funding Rules

An employer sponsoring a single employer pension plan may extend the time to make minimum contributions to the plan through January 1, 2021. When paid, interest will be due, however.

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