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

The Coronavirus Aid, Relief, and Economic Security (CARES) Act builds on the previous federal laws passed in response to COVID-19.

The CARES Act allows small and medium sized businesses to receive federal loans (in some cases forgivable) to cover payroll and other expenses. It aims to boost the economy with provisions that impact unemployment insurance, business loans, employer-sponsored health insurance, retirement savings, and employer-provided education assistance.

It also expands unemployment benefits for workers impacted by the outbreak, while extending unemployment eligibility to many who are otherwise not regularly entitled to receive such benefits.

CARES ACT- SBA Paycheck Protection Program

The Paycheck Protection Program, one of the largest sections of the CARES Act, is the most important provision in the new stimulus bill for most small businesses. This new program sets aside $350 billion in government-backed loans, and it is modeled after the existing SBA 7(a) loan program many businesses already know.

Program Overview

The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses.

If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable.

At the election of the borrower, the choice period is either (a) February 15, 2019 – June 30, 2019 or (b) January 1, 2020 to February 29, 2020.

The loans are available through section 7(a) of the Small Business Act with all standard fees waived.

Click here to access the Paycheck Protection Program Loan Application Form.

I see that the Paycheck Protection Program Loan Application requires a payroll report, is there any issue if an eligible borrower contracts with a Professional Employer Organization (PEO) to process payroll and report payroll taxes?

The SBA recognizes that eligible borrowers who use PEOs or similar payroll providers are required under some state registration laws to report wage and other data on the Employer Identification Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.

Last Updated: 4/4/20

What types of businesses are eligible?

Businesses with 500 or fewer employees may apply.

  • Businesses in hospitality industry, with a NAICS code of 72, are also eligible for a loan as long as they do not employ more than 500 employees per location
  • SBA eligibility guidelines (affiliation rules) to determine whether a business qualifies as small are waived under the provisions of the CARES Act

Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.

How big of a loan can I get and what are the terms?

The loan amount is the lesser of average monthly payroll costs during the prior year x 2.5 or $10 million with an interest rate no higher than 4%. No personal guarantee or collateral is required for the loan.

Can these loans be forgiven?

  • The federal government will forgive the loans in an amount equal to the amount of qualifying costs spent during the eight-week period after the origination of the loan
  • The amount of the forgiveness for the loan will be reduced if the employer:
    o Reduces its workforce during the eight-week period compared to prior periods
    o Reduces the salary or wages paid to an employee by more than 25% during the 8 week period (compared to the most recent quarter)
    o Any reduction in the amount of the loan forgiveness will be completely avoided if the employer re-hires all employees laid off (back to February 25) or increased their previously reduced wages, no later than June 20, 2020

SBA Paycheck Protection Program
SBA Disaster Assistance in Response to the Coronavirus

How can I access the Paycheck Protection Program Loan Application form?

Click here to access the Paycheck Protection Program Loan Application Form and contact your HRBP or Payroll Specialist with any questions regarding the form.

Resources

CARES ACT -Employee Payroll Tax Credit for Employee Retention

  • Companies are not eligible for this tax credit if they receive the Paycheck Protection loan.
  • Credit available to any employer:
    • Carrying on a business in 2020
    • Had its operations fully or partially suspended due to Covid-19 or had a decline of at least 50% in gross receipts as compared to same calendar quarter in prior year.
  • Amount of credit is 50% of “qualified” wages up to $10,000 (max credit $5,000) per employee paid through 12/31/2020
    • Qualified wages means:
      • Employers with >100 FTEs
        • wages paid to employees not performing services due to COVID-19-related circumstances (either suspension of operations or reduction in gross receipts)
      • Employers with <100 FTEs
        • all employee wages paid
      • Includes employer’s “properly allocable” qualified health plan expenses
      • Excludes wages taken into account under paid sick/family leave (FFCRA) (those that receive a 100% credit)

CARES ACT- Payroll Tax Holiday – Deferral of Employer Share of Social Security Tax

Employers may defer payment of their portion of Social Security taxes.

Payment schedule for deferred taxes:

  • 50% due 12/31/2021
  • 50% due 12/31/2022

Employers that received the SBA Paycheck Protection Loans that were forgiven are not eligible for this deferral.  The amount of the deferral will not be known until June 30, 2021.

CARES ACT – Paid Leave for Rehired Employees

The CARES act amends the FMLA to extend paid leave to employees who (1) were laid off after March 1, 2020, (2) had worked for the employer for at least 30 of the last 60 days, and (3) were rehired by the employer.

CARES ACT – Pandemic Unemployment Assistant Program

  • The CARES Act expands unemployment assistance by creating a Pandemic Unemployment Assistance Program through 12/31/2020
  • For weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 between January 27 and July 31.
  • States are receiving funding from the US Government to extend the benefits period by 13 weeks.
  • The Act provides covered individuals with unemployment benefit assistance when they are not entitled to any other unemployment compensation or waiting period.
  • The weekly benefit amount will be determined under state law plus an additional $600 for up to 39 weeks

CARES ACT – Direct Payments to Individuals

  • Individuals earning less than $75,000 ($150,000 for married couples) will receive a $1,200 direct payment from the federal government. Families in that earning threshold will also receive $500 for each child. Must have a Social Security Number to be eligible.
  • 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.

CARES ACT – Special Rules for Use of Retirement Funds

  • The 10% early withdrawal penalty from qualified retirement accounts is waived for distributions up to $100,000 if a withdrawal is for a coronavirus-related distribution (this is all encompassing – anyone that experiences adverse financial consequences as a result of Covid-19
  • The income tax attributable to coronavirus related distributions is paid over 3 years
  • Taxpayers may re-contribute the funds withdrawn for a coronavirus-related distribution within three years without regard to that year’s cap on contributions.

CARES ACT- Unemployment Insurance

  • Creates a new Pandemic Unemployment Assistance program (through December 31, 2020) to help those not traditionally eligible for Unemployment Insurance (UI), including self-employed individuals, independent contractors, those with limited work history and those who are unable to work as a result of the coronavirus public health emergency. Pays 50% of the unemployment insurance costs incurred by state, local and tribal governments and non-profit organizations, not part of the UI system.
  • Provides additional $600/week payment to each UI or Pandemic Unemployment Assistance recipient through the end of July 2020.
  • Provides funding for the 1st week of unemployment for states to waive the traditional “waiting week” before benefits begin.
  • Provides an additional 13 weeks of unemployment to help those who remain unemployed after weeks of state unemployment are no longer available.
  • Provides states with temporary, limited flexibility to hire temporary staff or re-hire former staff to quickly process unemployment claims.
  • Provides funding to states to help them maintain short-time compensation programs to prevent layoffs, as well as expand these work sharing programs in the future.

Additional CARES ACT Unemployment and Q & A

Provisions Related to Unemployment Compensation in the Senate-passed CARES Act

CARES – Health Care

  • Clarifies that all testing for COVID-19 is to be covered by group and private insurance plans (fully insured and self-insured) without cost sharing- no deductible; coinsurance or copays. Coverage extends to any services or items provided during a medical visit—including an in-person or telehealth visit to a doctor’s office, an urgent care center, or an emergency room—that results in coronavirus testing or screening. This coverage requirement began on March 18 (when Families First Coronavirus Response Act was enacted) and remains in effect only while there is a declared public health emergency (as defined under federal law).
  • Changes the use of health savings accounts (HSAs) paired with high-deductible health plans (HDHPs). Allows a high-deductible health plan (HDHP) with an HSA to cover telehealth services prior to a patient reaching the deductible. This means that telehealth and other remote care services could be covered pre-deductible without violating federal rules for HDHPs paired with an HSA. This provision is temporary and will sunset December 31, 2021 unless Congress takes future action to extend or make permanent.
  • Inclusion of certain over-the-counter medical products as qualified expenses. Allows patients to use funds in HSAs, Flexible Spending Accounts, Archer medical savings accounts and health reimbursement arrangements for the purchase of over-the-counter medical products, including those needed in quarantine and social distancing, without a prescription from a physician. This change would apply for amounts paid or expenses incurred after December 31, 2019.
  • Allows HSAs (and the similar arrangements noted above) to be used to pay for certain menstrual care products, such as tampons and pads. These products would be treated as qualified medical expenses for purposes of these arrangements. This change would apply for amounts paid or expenses incurred after December 31, 2019.
  • Allows an employee who was laid off by an employer March 1, 2020, or later to have access to paid family and medical leave in certain instances if they are rehired by the employer. The employee would have had to work for the employer at least 30 days prior to being laid off.