By Trüpp’s Compliance Team
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, is an almost 900-page piece of federal legislation that was signed into law on March 27, 2020. The CARES Act intends to keep workers paid and employed, enhance the healthcare system, and stabilize the economy through a variety of relief efforts and assistance. This type of extensive legislation directly impacts businesses, so Trüpp’s compliance team poured over the bill language to determine exactly what employers need to know.
Keeping American Workers Paid and Employed
Paycheck Protection Program
Many small businesses and nonprofits with less than 500 employees can apply for the Paycheck Protection Program (PPP), which is a loan available through the U.S. Small Business Administration. Allowable uses of loan proceeds include payroll expenses, mortgage, rent, and utility payments.
PPP Loan Forgiveness
Borrowers may be eligible for PPP loan forgiveness equal to the amount spent on eligible expenses. The period for which expenses may be applied to qualify for loan forgiveness was extended by the Paycheck Protection Program Flexibility Act (PPPFA) from eight to twenty-four weeks following the origination date of the loan and prior to the end of the covered loan period. The amount of loan forgiveness is reduced if there is a reduction in employees or wages as of December 31, 2020. Borrowers can also avoid loan forgiveness reductions if they document the inability to rehire a previously terminated individual and a subsequent inability to hire a similarly qualified individual. The PPPFA also introduced an exception that allows borrowers to document their reduced business activity as a result of compliance with federal requirements or guidance related to COVID-19.
Economic Injury Disaster Relief Emergency Grant
The CARES Act includes a $10,000 emergency grant payable within three days to small businesses and private nonprofits who apply for an Economic Injury Disaster Relief Loan (EIDL). An EIDL is separate from a PPP loan, but borrowers cannot use an EIDL loan for the same purpose or during the same time period as the PPP loan.
While the EIDL emergency grant does not need to be repaid, it is subtracted from the amount of debt forgiven under the PPP.
NOTE: As of June 11, 2020, the SBA has a notice on their website that says they are only able to accept new applications for the Economic Injury Disaster Loan (EIDL)-COVID-19 related assistance program (including EIDL Advances) for agricultural businesses.
Assistance for American Workers, Families, and Businesses
Unemployment Insurance Benefits
The CARES Act greatly expands the availability, access to, and benefits available under unemployment insurance. The following provisions are 100% federally funded and will not be charged back to the employer or impact their experience rating:
- Pandemic Unemployment Assistance is a temporary program that provides unemployment benefits to covered individuals who are unable to work, or telework, because of a qualified COVID-19 related reason such as being diagnosed with COVID-19, caring for a family or household member who has been diagnosed with COVID-19, or being under self-quarantine as advised by a health care provider. Covered individuals are those who are not eligible for regular unemployment compensation, including those who have exhausted such benefits and individuals who are not typically eligible for unemployment. This includes those who are self-employed or have limited recent work history (including gig workers and clergy). This benefit provides up to 39 weeks of unemployment insurance benefits minus the weeks of regular unemployment compensation the individual previously received if the benefits have been exhausted.
- Federal Pandemic Unemployment Compensation provides an additional $600/week to individuals who are collecting unemployment benefits through July 31, 2020.
- Pandemic Emergency Unemployment Compensation provides up to 13 additional weeks of benefits to individuals who have exhausted their regular unemployment compensation entitlement and also expands coverage to individuals who are not typically eligible for unemployment, such as those who are self-employed or have limited recent work history (including gig workers and clergy).
- Federal Funding of Waiting Week Benefits is a temporary provision in which the Federal Government will cover the cost of unemployment compensation for the first week of benefits in states that normally require a waiting week but waive the requirement during the COVID-19 pandemic.
Recovery Rebates for Individuals
Eligible individuals will receive an advance for a 2020 tax credit in the amount of $1,200 ($2,400 in the case of eligible individuals filing a joint return) plus $500 for each qualifying child. There are limits on who is eligible for the credit based on their adjusted gross income.
Special Rules for Qualified Retirement Plans
- Individuals may be able to take a coronavirus-related distribution of up to $100,000 from their qualified retirement plan during the 2020 calendar year. The 10-percent tax penalty that generally applies to early withdrawals from a retirement account for individuals younger than 59.5 does not apply to coronavirus-related distributions under the CARES Act.
- The CARES Act provides retirement plan sponsors with the flexibility to increase loan limits from $50,000 to $100,000 for the six-month period following the enactment of the law. The loans can also be capped at 100 percent of the vested account balance rather than 50 percent.
- Qualified individuals who have outstanding loans with repayment due between March 27, 2020, to December 31, 2020, may delay the repayment for up to one year.
- All required minimum distributions for qualified plans are waived for 2020.
Employee Retention Credit
The Employee Retention Credit is a fully refundable tax credit for eligible employers that is equal to 50 percent of qualified wages (including allocable qualified health plan expenses) paid to employees. Employers, including tax-exempt organizations, are considered eligible if operations were fully or partially suspended due to a coronavirus shut-down order; or gross receipts declined by more than 50 percent as compared to the same, prior-year quarter. Employers may not receive the Employee Retention Credit if they receive a loan under the Paycheck Protection Program.
Deferral of Employer’s Share of Social Security Payroll Taxes
Employers can defer payment of the employer’s share of the social security tax they are otherwise responsible for paying (generally a 6.2% tax on wages or earned income) for the 2020 tax year. The deferred employment tax can be paid over the two following tax years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.
An employer may not defer their share of social security taxes if they receive a loan under the Paycheck Protection Program.