President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act” on March 27, 2020. This 880-page bill is divided into six separate sections. We will provide a brief overview of the separate provisions and the implications it has to businesses.
TITLE I: Keeping American Workers Paid and Employed
1. Paycheck Protection Loan (PPL) Program
Title I creates a new business loan program under the Small Business Act. Congress has appropriated $349 billion for this program. For the period of February 15, 2020 to June 30, 2020, the law permits the Small Business Administration (SBA) to provide 100% federally-back loans (but see “Loan Forgiveness” below) to help businesses pay for: (a) payroll costs, which includes: (i) wages, for employees earning up to $100,000; (ii) cash tips; (iii) paid time off, except paid time off provided under the FFCRA, for which there is a tax credit; (iv) dismissal or separation payments; (v) payments for group health benefits; (vi) payment of any retirement benefit; or (v) state and local tax payments for employee compensation;
(b) payments of interest on mortgage obligations;
(c) rent/lease agreement payments;
(d) utilities; and
(e) interest on any other debt obligation incurred before the covered period.
Eligibility includes any business concern with less than 500 employees (or a different, industry-specific number to be determined later by the SBA), which includes full time and part time employees. For businesses in the hospitality and entertainment industry, they may qualify for these loans as long as they employ less than 500 employees in each physical location and is assigned to the “accommodation and food services sector” under the North American Industry Classification System (NAICS).
Sole proprietors and independent contractors and eligible self-employed individuals may also apply for these loans.
The amount of these loans, which are capped at $10 million, is the lesser of:
a. 2.5 times the average total monthly payroll costs incurred in the one-year period before the loan is made (or for seasonal employers the average monthly payroll costs for the 12 weeks beginning on February 15, 2019 to June 30, 2019, plus the outstanding amount of a loan made under the SBA Disaster Loan Program between January 31, 2020 and the date on which such loan may be refinanced; or
b. For businesses not in existence from February 15, 2019 to June 30, 2019, 2.5 times the average total payroll payments from January 1, 2020 to February 29, 2020; plus the outstanding amount of a loan made under the SBA Disaster Loan Program between January 31, 2020 and the date on which such loan may be refinanced; or
c. $10 million.
The loan term is 10 years at 4% interest per annum, which shall apply to any part of the loan that is not forgiven under the terms of the statute. All loan payments — principal, interest and fees — are deferred for at least six months (and up to 1 year). However, the loan is eligible to be forgiven.
2. Loan Forgiveness
The loan is eligible to be forgiven, up to the total principal amount disbursed, for any amounts spent on covered payroll costs, and covered rent, utilities and interest on mortgage payments, during the eight weeks following PPL origination.
Loan forgiveness will be reduced by a ratio of the average full-time equivalent employees per month during the covered period against the same average from (at employer’s election) February 15 – June 30, 2019 or January 1 – February 29, 2020.
Loan forgiveness will also be reduced by the amount of any reduction in total salary of any employee earning less than $100,000 per year, in excess of 25% of that employee’s total salary in the last full quarter before the covered period.
The foregoing conditions will not apply if the relevant number or salary of employees was reduced during the period from February 15 to April 30 but is restored by June 30, 2020.
3. Economic Injury Disaster Loan (EIDL)
This section of the CARES Act also expands the existing EIDL program, which offer SBA loans up to $2 million for disaster relief. $10 billion is appropriated for this program. Applicants for EIDL due to COVID-19 can get an emergency $10k grant within 3 days of applying for the EIDL. EIDLs can be refinanced with a PPL, but in that case the $10k grant is subtracted from the PPL loan forgiveness.
TITLE II: Assistance for American Workers, Families and Businesses
1. Unemployment Insurance
This provision expands current unemployment benefits. This provision extends unemployment benefits to gig-economy workers who are not otherwise entitled to receive unemployment benefits. This also, allows states to enter into an agreement with the federal government to provide enhanced unemployment benefits with an additional $600 per week, for up to four months, and an additional 13 weeks of unemployment benefits for participating states, although unemployment benefits may not exceed 39 weeks. The statute provides that states should flexibly apply application of the rules to try to maximize the number of persons eligible for unemployment benefits. The statute also waives the seven-day waiting period for unemployment claims, which New York State already waived.
Thus, in New York, where the maximum unemployment benefit is $504 per week. Such amount will now be raised to $1104.00/week.
This provision also provides that states may enter into agreements with the federal government to receive funding for state-enacted “short-time” compensation programs to subsidize employees who have their hours reduced in lieu of a layoff, where the federal government would pay the difference between the reduced hour payment and the unemployment benefit.
2. Tax Rebates/Payments
The statute also provides for immediate tax rebate checks to be sent in the amount of: (a) $1,200 ($2,400 for eligible individuals filing jointly; and (b) $500 for each qualifying child. The amount of the tax credit is for an adjusted gross income of: (a) $150,000 for joint returns; (b) $112,500 for head of household; (b) $75,000 for all individuals. The credit phases out by 5% of adjusted gross income in excess of those limits, so the credit reduces to 0 for single filers earning more than $99,000; head-of-household filers with one child earning more than $146,500; and joint filers with no children earning more than $198,000.Excluded from the tax credit are: (a) nonresident aliens; (b) individuals who are claimed as dependents; and (c) an estate or trust. This rebate shall be paid immediately and can be made directly into any account provided on or after January 1, 2018.
3. Retirement Provisions
The statute waives the 10% additional tax for premature distributions from retirements plans and IRAS related to COVID-19 for amounts not to exceed $100,000. This waiver is subject to certain rules, including the requirement that these advance distributions must be repaid within three years of the distribution, and this is limited to individuals who are diagnosed with COVID-19, or whose spouse or dependent is diagnosed with COVID-19, or a person suffers an adverse financial consequence as a result of being quarantined, furloughed, laid off or suffered reduced working hours, or who is unable to work due to lack of child care. The Secretary of the Treasury may expand the list of individuals who may qualify under this section. These distributions will be deemed to qualify was 401K hardship distributions, which are exempt from tax withholdings and repayments will not be subject to the one rollover a year rule for IRAs. There are other retirement provisions provided, which you should consultant with your accountant and retirement administrators.
4. Business Provisions
Section 2301 creates an Employee Retention Credit (ERC) for employers affected by COVID-19, against employment taxes for each qualifying calendar quarter in an amount equal to 50% of qualified wages, including health plan expenses, up to $10,000 total (maximum credit of $5,000 per employee). Eligible employers include an employer (i) for which operations were fully or partially suspended by emergency order due to COVID-19 during that quarter or (ii) which can demonstrate a 50 percent decrease in gross receipts during that quarter compared to the same quarter in the prior year, until a quarter where gross receipts have returned to 80% of the same quarter in the prior year. Employers who receive PPL loans created by the CARES Act are not eligible for the ERC tax credit.
Section 2302 permits employers to defer payment of payroll taxes (6.2% for social security etc.) on employee wages from enactment through the end of 2020. Repayment of the deferred payroll taxes is due in future years, 50% by the end of 2021 and 50% by the end of 2022. Employers who receive PPL loan forgiveness are not eligible for the payroll tax deferment.
Nothing in this alert is meant to serve as tax advice, and businesses should consult with their accounts to discuss their eligibility for any of these statutes.
TITLE III: Supporting America’s Health Care System in the Fight Against Coronavirus
This Act expands the types of testing that are covered by the no cost sharing provisions of earlier coronavirus statutes. The CARES Act also provides the insurers must provide immunizations with no cost sharing obligation on the part of the insured.
The Cares Act has provisions to expand telehealth, awards for health centers, and grant programs for health programs in rural areas. The Cares Act also provides that a health care professional shall not be liable under Federal or State law for any harm caused by an act or omission of the professional in the provision of health care services during the public health emergency with respect to COVID-19 if: (a) the professional is providing health care services in response to such public health emergency as a volunteer; and (2) the act or omission occurs: (a) in the course of providing health care services; (b) in the health care professional’s capacity as a volunteer; (c) in the course of providing health care services that are: (i) within the scope of the license, registration or certification of the volunteer; and (ii) do not exceed the scope of license, registration or certification of a substantially similar health professional in the state in which the act or omission occurs; and (d) in good faith belief that the individual being treated provides care. This limitation of liability does not extend to acts or omissions that are willful or criminal conduct, gross negligence, reckless misconduct or a flagrant indifference to the rights of the individual harmed; or (b) the health care professional was under the influence of alcohol or intoxicating drugs.
1. Families Coronavirus Response Act (“FFCRA”) Update
With respect to the Emergency FMLA leave provided in the Families Coronavirus Response Act (“FFCRA”), the Cares Act provides that any employee who was laid office by the employer on or after March 1, 2020, and is subsequently rehired, is eligible for the emergency FMLA benefits if the worker has worked at least 30 days in the last 60 calendar days. The Cares Act also allows advances on anticipated tax credits for employers’ paid Emergency FMLA costs, the details of which will be explained by the Department of Labor. Also, the Cares Act clarifies that the $200/day/$10,000 cap on paid Emergency FMLA is per employee.
With respect to the Emergency Sick Leave provision of the FFCRA, the CARES Act allows employers to receive an advance tax credit from Treasury instead of having to be reimbursed on the back end. Also, it provides penalty relief for failure to deposit tax amounts in anticipation of credits allowed under this section. The details of how advance tax credits will be paid out will be explained by the Department of Labor in a forthcoming regulation. Again, consult with your accountant or tax consultant regarding the ability to obtain tax credits for any paid leave provided pursuant to the FFCRA.
TITLE IV: Economic Stabilization and Assistance to Severely Distressed Sectors
1. Loan Program for Distressed Businesses
This provision appropriates $500 billion to the Treasury Exchange Stabilization Funds for loans, loan guarantees and investments in the Federal Reserve’s lending facilities to support states, municipalities and “eligible businesses,” which includes air carriers and U.S. businesses that have not received adequate economic relief in the forms of other loans or loan guarantees. The Treasury Secretary is tasked with publishing procedures for these loans within 10 days of the statute’s enactment. These loans must be for a duration of no less than 5 years, at the prevailing market interest rate, and may not be forgiven. For 12 months following repayment of the loan, the company may not pay dividends or make other capital distributions, nor may it reduce its workforce by more than 10%.
This provision also tasks the Treasury Secretary to ensure that nonprofit organizations and businesses between 500 and 10,000 employees have access to loans that have interest rates no higher than 2% and no payments due for the first six months. To qualify, businesses must self-certify that the loans were necessary to maintain the borrower’s ongoing operations, the borrower will retain 90% of its workforce until September 30, 2020, and the borrower will not outsource or offshore jobs for a period of two years following repayment of the loans.
Foreclosure Moratorium and the Right to Request a Forbearance
The CARES Act provides that a borrower with a federally backed residential mortgage loan may request a forbearance, regardless of delinquency status, without penalties, fees or interest. This forbearance may be for 180 days and may be extended for an additional 180 days at the borrower’s request, although the second forbearance period may be shortened. Multifamily borrowers with a federally-backed multifamily mortgage loan that was current on February 1, 2020 may also request a forbearance for up to 30 days, with two additional 30-day extensions. Borrowers of a multi-family home may not initiate any proceeding to evict a tenant from a dwelling unit during the forbearance period solely due to non-payment of rent.
The CARES Act also forbids mortgage servicers of federally backed mortgages to initiate a foreclosure action, move for foreclosure judgment or order of sale, or execute a foreclosure-related eviction in any occupied home for a period of at least 60 days starting on March 18, 2020.
3. Eviction Protection
The CARES Act prevents landlords from filing for an eviction proceeding against a tenant in a residential dwelling due to non-payment of rent or other fees or charges for 120 days if the dwelling is a property insured, guaranteed, supplemented, protected or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program or the Violence Against Women Act of 1994.
The CARES Act also provides an excise tax holiday from the state of the enactment through the end of 2020 for aviation ticket tax for passengers and freight.
TITLE V: Coronavirus Relief Funds
This provision appropriates $150 billion for states, territories, Indian Tribes, or local governments to respond to the COVID-19 emergency.
TITLE VI: Miscellaneous Provisions
This provision provides for borrowing authority for the US Postal Service and designates the funds appropriated for this bill as emergency funds, which are not subject to Congress’s routine budgetary process.
The attorneys in Forchelli Deegan Terrana LLP’s Employment & Labor practice group will continue to keep you updated on any changes to your requirements as an employer as updates become available. Should you have any questions, do not hesitate to contact me at the below contact information. Battling the novel coronavirus is difficult for everyone. We are here if you need us.
With best wishes for your, and your family’s health and safety.
Gregory S. Lisi, Esq.
Partner-in-Charge, Employment & Labor practice group
GLisi@Forchellilaw.com | 516.248.1700