The CARES ACT – What It Means for You
The Coronavirus Aid, Relief and Economic Security (CARES) Act was passed by Congress and signed by the President on Friday. The over $2 Trillion stimulus package is geared to provide economic relief to workers, businesses, state and local governments, hospitals and other employers. The bill is complicated and it is unclear exactly how it will be interpreted. Since the bill’s passing, lenders have been working diligently to create loan products based on the CARES Act. We urge all businesses to speak with their lenders, accountants and other professionals to get more information about those products, when they will be made available and how they will impact your business forward. We will continue to monitor the ever-changing landscape and are committed to keeping you informed. Below is what we know so far:
Paycheck Protection Loans
- Paycheck Protection loans in an amount equal to the lesser of $10,000,000 or 2.5 times the average total monthly payments of the borrower will be made available through the Small Business Administration (SBA). These loans will be made available in addition to the SBA’s Economic Injury Disaster Loan program. Eligible businesses must have been in operation on February 15, 2020
- The Paycheck Protection loans are designed to help small businesses (500 employees or less) make payroll and pay rent, health insurance and other employee benefits, mortgage interest, utilities and other expenses (the “Covered Costs”).
- An employee’s compensation above $100,000 (on an annualized salary) are excluded from the Covered Costs. Also excluded are qualified sick and family leave payments, but a credit for those are allowed under the Families First Coronavirus Response Act. The Families First Coronavirus Response Act was discussed in our newsletter of March 20th.
- Sole proprietorships, independent contractors and self-employed individuals can also take advance of the Paycheck Protection loans, if they meet SBA criteria.
- All or a portion of the loan may be forgiven. Covered Costs during the covered period (8 weeks after the loan is approved) may be forgiven through an application process administered by the lender issuing the loan. After all required documents have been submitted, the SBA will submit a forgiveness payment plan to the lender. If the employer reduces the number of its employees, loan forgiveness will be reduced by a corresponding percentage. If the employer reduced payroll on its employees by 25% or more during the covered period, forgiveness will be reduced. However, those reductions may be waived for employers who hire back employees or reinstate salaries.
- Loans that are not completely forgiven will be subject to a maximum 4% interest rate and due no later than 10 years after any loan forgiveness.
- Application fees, personal guarantees, and collateral requirements will be waived, but any employer using the loans proceeds for unauthorized uses may be personally liable.
Employer Payroll Taxes and Social Security Taxes
- Taxpayers may defer the employer portion of certain payroll taxes through the end of 2020. Deferred amounts would need to be paid in two equal installments – at the end of 2021 and 2022.
- Employers whose operation is fully or partially suspended due to a government order or have suffered a decline in sales of over 50% may defer their share of social security taxes after the effective date of the CARES Act through December 31, 2020.
Employee Retention Credit
- The CARES Act provides a refundable payroll tax credit of 50% of the wages paid by an eligible employer to certain employees.
- Eligible employers are those whose operations were fully or partially suspended as a result of a government order that limited travel, group meetings or commerce. Employers who experience a greater than 50% reduction in quarterly sales (compared against the prior year) are also eligible.
- The credit includes wages of employees who were furloughed or had their hours reduced for employers with 100 employees or more. All wages are eligible for the credit for companies with fewer than 100 employees.
- This credit is not available to employers receiving a Paycheck Protection Loan.
- Individuals earning less than $75,000 will receive a one-time payment of $1,200. That amount will slide down for individuals earning between $75,000 and $99,000. Married couples earning less than $150,000 will receive $2,400. That amount will slide down for couples earning between $150,000 and $198,000. Families whose wages fall within the above ranges may receive an additional one payment of $500 per child.
Small Business Debt Relief
- Small businesses with non-disaster SBA loans, including 7(a) and 504 loans, may have the SBA cover all payments (principal, interest and fees) on applicable loans for a period of six months. SBA coverage on these loans for six months will also apply to businesses who take out new loans within six months of the effective date of the CARES Act.
This email is not intended to constitute legal advice, which would require a full review of your agreements and further clarity on the government response, which is in constant flux. All information, content and links in this email are provided for general information purposes only. Information above may not constitute the most up-to-date legal or other information, as the same is continuously changing. This email contains links to other third-party websites. Such links are only for the convenience of the reader. We do not recommend or endorse the contents of the third-party sites. Readers should contact an attorney to obtain advice with respect to any particular legal matter. No reader should act or refrain from acting on the basis of this email without first seeking legal advice from counsel in the relevant jurisdiction. Only an attorney can provide assurances that the information contain herein, and your interpretation of it, is applicable or appropriate to your particular situation.