The CARES Act: Highlights & Key Provisions
The Coronavirus Aid, Relief and Economic Stimulus (CARES) Act is one of the largest such bills ever passed in Congress, and contains a wide variety of provisions to help businesses and workers during the economic crisis caused by COVID-19. Below you will find some highlights of key provisions.
Benefits for Small Businesses
A key focus of this bill and earlier bills have been relief for small businesses. The bill contains many provisions that support small businesses, including a Paycheck Protection Program, Emergency Economic Injury Grants, Debt Relief for Existing and SBA Borrowers, and Resources for Business Counseling Services, all described below. Note that some of the business tax provisions described in a later section also apply to small businesses.
Paycheck Protection Program
- 350 billion in funding for a provision to create a Paycheck Protection Program (PPP) that will provide small businesses and other entities with zero-fee loans of up to $10 million. Eligibility for this program is defined as:
- Businesses, start-ups, veterans organizations and nonprofits with 500 employees or less or that meet the applicable size standard for the industry within which the organization operates as provided by the Small Business Association.
- For businesses with more than one location, if it employs 500 or fewer employees per physical location; has under US$500 million in gross revenue; and falls within the “accommodation and food services” sector under the North American Industry Classification System (NAICS), the business is eligible for loans.
- Sole proprietorships and independent contractors.
- The bill requires lenders to determine whether a business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.
- Up to 8 weeks of average payroll and other costs will be forgiven if the business retains its employees and their salary levels throughout the coverage period of February 15, 2020 – June 30, 2020. Principal and interest is deferred for up to a year and all borrower fees are waived. This temporary emergency assistance through the U.S. Small Business Administration (SBA) and the Department of Treasury can be used in coordination with other COVID-financing assistance established in the bill or any other existing SBA loan program.
- The bill requires the SBA Administrator to set a cap on how much a bank can earn to process loan applications and prioritize underserved borrowers, including those in rural communities, minorities, women and veterans.
Emergency Economic Injury Grants
- $10 billion in funding for a provision to provide an advance of $10,000 to small businesses and nonprofits that apply for an SBA economic injury disaster loan (EIDL) within three days of applying for the loan. EIDLs are loans of up to $2 million that carry interest rates up to 3.75 percent for companies and up to 2.75 percent for nonprofits, as well as principal and interest deferment for up to 4 years. The loans may be used to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
- The EIDL grant does not need to be repaid, even if the grantee is subsequently denied an EIDL, and may be used to provide paid sick leave to employees, maintaining payroll, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments. Eligible grant recipients must have been in operation on January 31, 2020. The grant is available to small businesses, private nonprofits, sole proprietors and independent contractors, tribal businesses, as well as cooperatives and employee-owned businesses.
- A business that receives an EIDL between January 31, 2020 and June 30, 2020 as a result of a COVID-19 disaster declaration is eligible to apply for a PPP loan or the business may refinance their EIDL into a PPP loan. In either case, the emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven in the payroll protection plan.
- The bill provides $562 million to ensure that SBA has the resources to provide Economic Injury Disaster Loans (EIDL) to businesses that need financial support.
Debt Relief for Existing and New SBA Borrowers
- $17 billion in funding for a provision to provide immediate relief to small businesses with standard SBA 7(a), 504, or microloans. Under this provision, SBA will cover all loan payments for existing SBA borrowers, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out an SBA loan within six months after the President signs the bill. The measure also encourages banks to provide further relief to small business borrowers by allowing them to extend the duration of existing loans beyond existing limits; and enables small business lenders to assist more new and existing borrowers by providing a temporary extension on certain reporting requirements. While SBA borrowers are receiving the six months debt relief, they may apply for a PPP loan that provides capital to keep their employees on the job. The six months of SBA payment relief may not be applied to payments on PPP loans.
- Permanent fix that allows SBA to waive fees for veterans and their spouses in the 7(a) Express Loan Program, regardless of the President’s budget. Under current law, SBA may only waive fees on 7(a) Express loans to veterans when the President’s budget does not project a cost above zero for the overall 7(a) loan program.
Resources for Business Counseling Services
Many large companies are struggling to respond to the unprecedented economic disruption our nation is facing, so small businesses that have even fewer resources to dedicate to navigating the economic impacts of COVID-19 must have access to reliable counseling and mentorship services.
The CARES Act provides $275 million in grants to the nation’s network of Small Business Development Centers (SBDCs) and Women’s Business Centers (WBCs), as well as the Minority Business Development Agency’s Business Centers (MBDCs), to provide mentorship, guidance and expertise to small businesses. The funding will allow SBDCs, WBCs, and MBDCs to hire staff and provide programming to help small businesses and minority-owned businesses respond to COVID-19.
Benefits for Individuals - Individual Payments
All U.S. residents with adjusted gross income up to $75,000 ($150,000 combined for married couples), who are not a dependent of another taxpayer and have a work-eligible social security number, are eligible for a $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits.
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.
The CARES Act also includes additional unemployment provisions, including creating additional categories for benefits for the self-employed and contractors. In addition, the bill authorizes additional funds to supplement traditional unemployment insurance of $600 per week due to unemployment from the pandemic. These extra payments are currently available for the next four months.
Business Tax Provisions
Employee Retention Credit for Employers Subject to Closure Due to COVID-19
The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
The credit is based on qualified wages paid to the employee:
- For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
- For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
Wages paid to employees during which they are furloughed or otherwise not working (due to reduced hours) as a result of their employer’s closure or economic hardship are eligible for the credit. However, for employers with 100 or fewer employees, all employee wages qualify for the credit, regardless of whether they are furloughed or face reduced hours. The credit is for wages paid by eligible employers from March 13, 2020 through December 31, 2020.
Note: Employers that receive Small Business interruption loans are not eligible for the credit.
Limitation on Business Interest
The provision generally and temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020.
Net Operating Losses
This provision would allow five-year carry back for 2018, 2019, and 2020 tax years, respectively. Net operating losses (NOL) are currently subject to a taxable-income limitation, and they cannot be carried back to reduce income in a prior tax year. The provision provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years.
Delay of Payment for Employer Payroll Taxes
The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.
Limitation on Losses for Non-corporate Taxpayers
The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses. The 80 percent carry back limitation would be lifted for pass-through entities to harmonize with corporate NOL treatment for 2018, 2019, and 2020.
Credit for Prior-year Minimum Corporate Tax Liability
The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now.
Treasury and Federal Reserve Lending Fund
Under section 4003, the Treasury Department’s Exchange Stabilization Fund is provided $500 billion to be distributed to the following areas:
- Direct lending, including $25 billion for passenger air carriers and support businesses specified in FAA regulations; $4 billion for air cargo carriers; and $17 billion for businesses important to national security.
- $454 billion, plus unobligated funds available but not used, in support of the Federal Reserve’s lending facilities to eligible businesses, states and municipalities in order to relieve the market conditions.
The Treasury Department will need to issue details about how this program will operate.
There is also an effort to assist medium-sized businesses. The language states that the Secretary shall endeavor to seek the implementation of a program or facility that provides financing to banks and other lenders that make direct loans to eligible businesses including, to the extent practicable, nonprofit organizations, with between 500 and 10,000 employees, with such direct loans being subject to an annualized interest rate that is not higher than 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.
There are also various stipulations and requirements attached to this program related to the availability of alternative financing, restrictions on stock buybacks, efforts to retain employees, prevention of loan forgiveness, restrictions on dividends, and more.