The CARES Act

The Coronavirus Aid Relief and Economic Security Act

To: Steve Goldbloom

From: Eric Weiss, Attorney & CPA

Re The CARES Act

The Coronavirus Aid Relief and Economic Security Act (known as the “CARES Act” or “Act”) is the federal government’s response to battle COVID-19 and its economic effects. The Act pumped immediate cash into the economy by creating loan programs for small business including grants. The Act also extended unemployment coverage to workers who ordinary would not be eligible for unemployment support.  In addition to increasing coverage of the unemployment insurance program, the Federal Pandemic Unemployment Compensation Program (“FPUC”) also provided additional benefits for each week through July 21, 2020. The extra benefit is $600 per week. FPUC also created an additional 13 weeks of benefits. Another provision of the CARES ACT are federal rebate payments of up to $2,400 per family or $1,200 per individual. These amounts are adjusted downward and eliminated at certain levels of adjusted gross income. Below is a brief overview of the more important provisions of the Act.

Recovery Rebates

The Cares Act creates a one-time payment for taxpayers based upon their income as set forth in their 2018 or 2019 tax filings. Such payments are adjusted based upon the individual or families adjusted gross income. The 2020 recovery rebates equal $1,200 per eligible individual ($2,400 for married taxpayers filing a joint tax return) and $500 per eligible child .These amounts phase down for higher-income taxpayers (individuals earning more than $75,000 or married couples earning more than $150,000). These payments are automatically issued to households in 2020 if they filed a 2019 income tax return and will generally be received as a direct deposit or check by mail.

The Paycheck Protection Program (“PPP”)

This program was set up to provide businesses and businesses, self-employed persons and independent contractors in the gig economy with immediate financial support. The program provides for funding to cover payroll. Originally, the program was funded in the amount of $349 billion but the allocation of the money to the payroll protection plan was quickly utilized and the second allocation of $310 billion was made. The funds in this program were intended to cover the period from February 15, 2020 to June 30, 2020. The funding is currently administrated by the Small Business Administration (SBA). Some initial issues with this program were that application could only be submitted through existing SBA lenders. Many of these lenders (banks) would only accept applications from corporate clients who had existing borrowing relationships. This restriction has been somewhat eased by the SBA allowing certain Internet companies to submit applications to the Paycheck Protection Program.

The program is intended to aid small businesses (generally businesses with less than 500 employees). The program is structured in the form of small business loans, which allows for the forgiveness of two and a half times the borrowers’ average monthly payroll, which is calculated over a define base period. Loans can be issued in amounts of up to $10 million and personal guarantees are not required for loans in the amount of less than $200,000.

Economic Injury Disaster Loans (“EIDL”)

In addition to participating in the Payroll Protection Program, a borrower can also obtain an Economic Injury Disaster Loan (“EIDL”). This is an expansion of an existing SPA program, which makes funds available to small businesses that have suffered economic injury as a result of a disaster. These loans are generally limited to $200 million. As a result of the Cares Act, advances can be made upon an application for an EIDL of up to $10,000. These advances are grants and do not have to be repaid, even if the EIDL is not approved. This grant if received will be offset to reduce the forgiveness available under the PPP, if any.

Employee Retention Credit Program

This provision provides a payroll tax credit of 50% of wages paid (plus certain group health insurance premiums) when an employers’ operations are suspended due to COVID-19 shutdown order or gross receipts decline by more than 50% when compare to the comparable quartering the prior year. There is a limitation of $10,000 per eligible employee.

Bankruptcy Act Changes

The CARES Act also increases the debt a business can have and still be eligible of the benefits of the Small Business Recovery Act of 2019 (“SBRA”).

Other Changes

The ACT also makes changes to limitations on net operating loss deductions and increasing the allowable interest expense deduction. The ACT allows up to $100,000 of withdrawals from defined contribution retirement plans under certain conditions and eases repayment requirements.

This memo does not summarize the change of student loan repayment requirements or foreclosure and eviction changes. Further, it does not summarize the healthcare system provisions contained in Title 3 of the ACT. It does not discuss the provisions relating to coverage and pricing of diagnostic testing for COVID-19 or Telehealth. These and other provisions are summarized in more detail in the Reed Smith newsletter. 

This summary is not original and reflects an edited version of the sources cited.

Sources

Reed Smith Newsletter

Senate Committee Report

US Treasury Summary