On March 27, 2020, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), legislation intended to provide financial and other assistance to individuals, families, businesses, non-profits, and state and local governments in response to the COVID-19 pandemic. The Act also provides assistance for the health care system to test and treat affected patients during the pandemic.
Martin Pringle’s lawyers are prepared to assist clients with myriad legal issues that companies may consider in responding to the COVID-19 crisis, including opportunities provided by the CARES Act and the Families First Coronavirus Response Act (FFCRA). The CARES Act is the latest federal legislative response to the current and anticipated economic conditions caused by the COVID-19 pandemic. We outlined several other government efforts to assist businesses in an article last week: State and Federal Government COVID-19 Relief for Businesses.
The legislation itself is 880 pages long and covers many different initiatives. A summary of its key provisions in provided below. Martin Pringle will break down specific sections of the Act in more detail in separate articles throughout the week.
For large corporations:
- About $500 billion in loans and other money was allocated for large corporations, including airlines, cargo air carriers and airline contractors. Recipients of these funds will generally be required to pay the government back and will be subject to public disclosures.
- Any company receiving funds under the Act is barred from making stock buybacks for the term of the loan plus one year. All loans, their terms and any investments or other assistance provided by the government will be publicly disclosed.
For small businesses:
Recognizing the incredible economic strain the current public health situation puts on small businesses, the federal government allocated $377 billion in assistance for them. This assistance includes emergency grants and a forgivable loan program for companies with 500 or fewer employees.
- Emergency disaster loans and grants: The COVID-19 pandemic has been designated as a disaster for purposes of the SBA Economic Injury Disaster Loans (EIDL) and grants. Small businesses and private non-profits harmed by COVID-19 are eligible to receive emergency advances of up to $10,000 within three days of applying for and EIDL. The advance does not need to be repaid and may be used to keep employees on the payroll, to pay sick leave, to cover production costs resulting from disrupted supply chain, or pay existing debt, rent, or mortgage obligations. EIDL loans of up to $2 million are available to eligible small businesses for similar purposes with principal and interest deferment for up to four years.
- Forgivable “Paycheck Protection Program” loans: The centerpiece of the small business relief efforts in the CARES Act is the Paycheck Protection Program. $350 billion was allocated for the Small Business Administration to provide loans of up to $10 million per eligible small business. Any portion of that loan used to maintain payroll, keep workers on the books or pay for rent, mortgage and existing debt could be forgiven, provided workers stay employed through the end of June. Loans are available through June 30, 2020 and may be retroactive to February 15, 2020 to allow employers to rehire workers who may have already been laid off due to the COVID-19 situation.
- Relief for existing SBA loans: $17 billion was made available to cover six months of payments for small businesses which are already utilizing SBA loans (i.e., loans previously received, other than those received as a result of the CARES Act programs).
For all businesses:
- Accelerated Tax Benefits from Net Operating Losses: The CARES Act permits individuals and businesses to carry-back any net-operating loss (NOL) generated in 2018, 2019, or 2020 to the five years prior to the year of loss, by filing amended tax returns for any of those years to which the taxpayer wishes to carry back a loss.
- Delay of Payroll Tax Payments: Employer federal payroll tax payments otherwise due in 2020 may now be deferred with half of the 2020 payments due Dec. 31, 2021 and the other half due Dec. 31, 2022. This is intended to provide employers with immediate cash that would have otherwise been paid to the government for payroll tax deposits. Employers should consult a tax advisor regarding the impact of other credits available through the CARES Act or FFCRA as well as what their 2021 and 2022 liabilities may be.
- Employee Retention Credit: The Act establishes a fully refundable tax credit for businesses of all sizes affected by the COVID-19 pandemic to help keep workers on the payroll. Employers may receive a credit against their payroll taxes for 50% of any wages paid to employees during a period where their business activity was fully or partially suspended by a government authority, or a period where gross receipts declined by 50% or more compared to the same quarter in 2019. The credit applies to a maximum of $10,000 in compensation (including health benefits) for each employee. If the credit exceeds an employer’s payroll tax liability for the quarter, the excess will be treated as an overpayment and refunded.
- For employers with more than 100 full-time employees, the credit is for wages paid to employees when they are not providing services because of the coronavirus. Eligible employers with 100 or fewer full-time employees could use the deduction even if they aren't closed.
The Act includes several provisions intended to provide direct financial assistance or relief to individuals and families.
- Cash payments: Most individuals earning less than $75,000 can expect a one-time cash payment of $1,200. Married couples would each receive a check and families would get $500 per child. The payments are reduced for income levels greater than $75,000. No payments are contemplated for individuals making more than $99,000 and married couples making more than $198,000.
- Expanded unemployment benefits: The Act increases unemployment benefits, adding $600 per week from the federal government to the unemployment amount each eligible worker receives from his/her respective state, for a period of four months. This is intended to make up the difference between unemployed worker’s previous wage and the state’s unemployment benefit.
- The Act also adds 13 weeks of additional unemployment insurance to their state’s maximum number of weeks, capped at a total of 39 weeks.
- Self-employed workers, like independent contractors (“1099” workers), freelancers and gig workers, are eligible for unemployment benefits for the first time if they have lost work due to the COVID-19 situation, as a result of the new, temporary Pandemic Unemployment Assistance program. These benefits will be available through the end of 2020.
- Tax returns: The filing and payment deadline for federal income taxes has been extended from April 15 to July 15. No penalties or interest will be assessed if taxes owed are paid by July 15.
- Student loans: Repayment of student loans held by the federal government will be suspended until September 30, 2020. No additional interest will accrue during that time.
- Insurance coverage: All private insurance plans will be required to cover COVID-19 treatments and vaccine and makes all coronavirus tests free.
For hospitals and public health:
- In order to meet the challenges facing the health care system with an influx of new patients, the Act addresses financial and other means of assistance. Significant funding was allocated for hospitals, community health centers, FDA, and CDC.
- Telehealth: The Act addressed the need for increased use of telemedicine in the face of the public health crisis in several ways. It codified new Medicare policy waiving a previous requirement that a physician have an existing relationship with the patient seen via telemedicine in order to be reimbursed. It also authorized providers at rural health clinics and federally qualified health centers to provide telehealth services and be reimbursed at rates comparable to national average rates. Additional funding was also provided to support use of telehealth services in rural and underserved communities.
- Medicine and supplies: The Act includes several provisions, funding and otherwise, intended to encourage production and distribution of pharmaceuticals and medical supplies and equipment.
For federal safety net:
- Funds were allocated in the Act for schools to provide meals for students; for the expected increase in usage of the Supplemental Nutrition Assistance Program, also known as SNAP; and for food banks and other community food distribution programs.
For state and local governments:
- About $340 billion is allocated in the Act for programs related to state and local governments. This includes direct funds, as well as money for Community Development Block Grants, schools, and child-care facilities.
We will delve into the CARES Act in more detail in future articles, providing more information to business and individual clients regarding how they might leverage the opportunities providing in this new legislation to help them weather the COVID-19 storm.
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