Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Updates

April 24, 2020: An additional $310 billion in funding added to PPP.

April 15, 2020: Update to Deferral of Employer Social Security Taxes (CARES Sec. 2302)


Employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer's share of social security tax that otherwise would be required to be made beginning on March 27, 2020 through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act.


Part of the sweeping COVID-19 relief legislation passed by Congress includes the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This act provides more than $2 trillion in relief packages for both companies and families affected by COVID-19 pandemic. Below are a few highlighted provisions for the staffing industry:

  • $250 billion in unemployment insurance benefits
  • $301 billion in direct payments: U.S. residents with adjusted gross income of $75,000 ($150,000 married) who are not dependent of another taxpayer and have a work-eligible social security number are eligible for the full $1,200 ($2,400 married) rebate, plus an additional $500 per child living in the households
  • Employer Retention Credit (ERC) (CARES Sec. 2301) for employers subject to closure due to COVID-19: eligible employers are able to receive a credit against their employment taxes equal to 50% of qualified wages up to $10,000 for each employee. The credit applies to qualified wages paid after March 12, 2020 through December 31, 2020.
    Eligible Employers are:
    • Employers that experience a partial or full suspension of operations during that quarter due to government orders limiting commerce, travel, or group meetings due to COVID-19.
      or
    • Employer’s gross receipts are less than 50% of their gross receipts for the same quarter in the prior year. The employer can continue to claim the credit due to a significant decline during the calendar quarter until their gross receipts exceeds 80% of their gross receipts for the same calendar quarter in the prior year.  
    • ERC is reduced if the employer is already claiming the payroll Work Opportunity Tax Credit, the payroll research credit, the employer credit for paid family and medical leave, or the payroll tax credits under the FFCRA for required paid family and sick leave for these wages.  
    • Employers who receive a business interruption loan under the Small Business Act will not be eligible to receive an ERC.
  • $350 billion set aside to fund two types of lending programs for small business: The Economic Injury Disaster Loan (EIDL) Program and Paycheck Protection Program (PPP) Loans.
    • The EIDL helps small businesses recover for broader economic injury related to the COVID-19 pandemic.
      • EIDL provides loans of up to $2MM and can be used for working capital including fixed debts, payroll, accounts payable and other bills.
      • EIDL’s have variable maturity dates and have a maximum interest rate of 4%
      • EIDL provides an emergency advance of up to $10,000 to small business harmed by COVID-19 within three days of applying for an SBA EIDL. If the application is denied, the advance does not need to be repaid under any circumstance.  The advance can be used to keep employees on payroll, to pay for sick leave, or pay business obligations, including debts, rent and mortgage payments.  
      • Businesses that have received a PPP loan are not eligible for EIDL’s. However, business receiving an EIDL are eligible for a PPP loan.
    • The PPP (CARES Sec. 1102) provides small businesses with cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If the employer maintains their payroll, a portion of the loan may be forgiven. The loan forgiveness process continues to be undefined. No documentation or process will be released until later in April. Loans are low interest (1.00%), unsecured, require no personal guarantee, and payments can be deferred for up to 6 months.
      • PPP provides a maximum loan amount of 2.5 times your monthly “Payroll Costs” for the prior 12 months leading up to the loan date, up to $10MM
      • “Payroll Costs” include:
        • Wages, commissions, salary or other similar compensation to an employee or independent contractor,
        • Payment of a cash tip or equivalent,
        • Payment for vacation, parental, family, medical or sick leave,
        • Allowance for dismissal or separation,
        • Payment for group health care benefits, including premiums,
        • Payment of any retirement benefits, and
        • Payment of state or local tax assessed on the compensation of employees.
      • The following items are EXCLUDED “Payroll Costs”
        • The Compensation of any individual employee in excess of an annual salary of $100,000
        • Federal Employment Taxes
        • Payroll Taxes
        • Any compensation of an employee whose principal place of residence is outside the U.S., or
        • Any qualified sick leave or family medical leave for which a credit is allowed under the Coronavirus Relief Act
      • Lenders may begin processing loan application as soon as April 3, 2020
      • Please make sure you are filling out application Form 2483 — this is the only loan application being accepted
      • If you receive a PPP loan, you are not entitled to delay of payments of employer-portion of Social Security taxes (6.2%)
  • Deferral of Employer Social Security taxes (CARES Sec. 2302)
    • CARES Act permits all employers to delay payment of the employer-portion of Social Security taxes (6.2%) on wages paid between the date of enactment of the CARES Act through December 31, 2020
      • 50% of the amount will be due December 31, 2021
      • 50% of the amount will be due December 31, 2022
    • Employers that receive PPP (Payroll Protection Program) are not entitled to this deferral


Small Business Definition:
Small business concerns can be eligible borrowers even if they have more than 500 employees, as long as they satisfy the existing statutory and regulatory definition of a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry. Go to www.sba.gov/size for the industry size standards.

Additionally, a business can qualify for the Paycheck Protection Program as a small business concern if it met both tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.

In addition to small business concerns, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standards for the industry in which it operates (if applicable).  Similarly, PPP loans are also available for qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of the Small Business Act that have 500 or fewer employees whose principal place of residence is in the United States, or meet the SBA employee-based size standards for the industry in which they operate.

More information can be found at: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf

For additional information, visit the U.S. Senate committee on Small Business & Entrepreneurship at www.sbc.senate.gov/public and click on the COVID-19 link.

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