CARES Act Update No. 1: An Initial Overview of the Relief Package (provided March 30, 2020)
President Trump signed into law a historic $2 trillion economic recovery package Friday, March 27, 2020, after both the Senate and House rushed to approve the bill. The relief package, entitled The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) is designed to alleviate some of the worst effects of the swift economic downturn resulting from the coronavirus pandemic and spread relief across the American economy. That relief is to span across government, education, healthcare and industry and even provide relief directly to individuals.
Within the 880 plus pages of the new legislation lies approximately $2 trillion of relief, which can be broken down as follows: $560 billion to individuals, $153.5 billion to public health, $339.8 billion to State and Local Governments, $377 billion to small businesses, $500 billion to big corporations and $43.7 billion to education. Given the wide array of relief contained within this new legislation, we believe more than one briefing is required. Therefore, after this initial overview, we will spend the next number of weeks delving deeper into the various relief programs available under the CARES Act.
The CARES Act is divided into two sections;
- The first is focused on keeping workers paid and employed, providing health care system enhancements and general economic stabilization.
- The second section deals with emergency appropriations for the U.S.’ coronavirus health response.
In this overview, we provide a summary of both sections.
Small Business Loans. To keep American workers paid and employed, the CARES Act establishes the Paycheck Protection Program, which provides a low interest (no greater than 4%) loan that is eligible for 100% principal forgiveness if the borrower meets certain requirements. For the period from February 15, 2020 to June 30, 2020 (the “covered period”), the law directs the Small Business Administration (“SBA”) to provide 100% federally backed loans to eligible businesses to help pay operational costs such as payroll, rent, health benefits, insurance premiums and utilities. Loans are calculated based on a 2.5 multiple of the eligible business’ average monthly payrolls costs (including costs such as wages, health care benefits, retirement benefits, and certain taxes assessed on employee compensation, but excluding compensation of those employees earning in excess of an annual salary of $100,000), and capped at $10million.
Unemployment Benefits. To provide assistance for American workers and families, the CARES Act also provides federal funding for unemployment compensation to workers adversely impacted by COVID-19. The legislation provides for a payment of $600/week (in addition to state payments) for up to four months for those who qualify, and an additional 13 weeks of unemployment benefits being extended under State laws.
Individual Recovery Rebates. The CARES Act provides for recovery rebates of up to $1,200 ($2,400 for joint filers) for U.S. taxpayers. The rebates are available even if the taxpayer has no income, and no action is generally required to claim the rebates. However, the rebates are means tested and therefore, are phased out for taxpayers making $75,000 or more ($150,000 for joint filers).
Retirement Plans. The 10% additional tax is waived for premature distributions related to the coronavirus for amounts not to exceed $100,000, subject to certain rules, including that it applies only to individuals who have been diagnosed with COVID-19, or have a spouse or dependent who has been diagnosed, or have experienced adverse financial consequences due to being quarantined, furloughed, laid off or suffering reduced working hours, or have been unable to work due to lack of childcare.
Business Tax Provisions. The CARES Act provides employers with a refundable credit against payroll tax (Social Security and Railroad Retirement) liability equal to 50% of the first $10,000 in wages per employee. Eligible employers must have carried on a trade or business during 2020 and have either, had operations fully or partially suspended, or had a reduction in gross receipts of at least 50%. The legislation also postpones the due date for depositing employer payroll taxes and 50% of self-employment taxes. The deferred amounts would be payable over the next two years.
Additional tax provisions include the suspension of the 80% taxable income limit on net operating loss carryovers for three years, so that the limit does not apply to 2018, 2019 and 2020, the allowance of corporate Alternative Minimum Tax (“AMT”) credits as refundable credits until 2021, and the increase of the adjusted taxable income threshold for business interest deductions to 50%.
Coverage of Testing and Preventative Services. The CARES Act extends the types of testing that would be covered with no cost sharing to any in vitro diagnostic testing approved, authorized, or cleared by the FDA.
Changes to Family and Medical Leave Act (“FMLA”). A new rule now applies for rehired employees under which an “eligible employee” under the FMLA (defined as employed for at least the last 30 calendar days) includes someone who (1) was laid off by the employer March 1, 2020 or later, (2) had worked for the employer for at least 30 days in the last 60 calendar days prior to the lay-off; and (3) has been rehired by the employer.
Economic Stabilization. The CARES Act provides that a borrower with a federally-backed mortgage loan may request forbearance, regardless of delinquency status and without penalties, fees or interest, by submitting a request to the borrower’s service and affirming financial hardship due to COVID-19. The legislation also prohibits the servicers of a federally-backed mortgage loan from initiating any foreclosure process for at least 60 days beginning on March 18, 2020.
Corona Virus Relief Funds. $150 billion is set aside for states and local governments to respond to the COVID-19 emergency. The Secretary of the Treasury is charged with administration of these funds.
Emergency Appropriations. Emergency funds have been allocated to various programs that may be available to companies during these difficult times. The Department of Agriculture, Food and Drug Administration, Commerce, Justice, Science and related agencies are among those programs receiving specific funds.
It is likely that the additional pending legislation may affect your legal obligations.