Congress just passed an expansive relief bill in response to COVID-19 and the President has signed it into law. Here are some FAQ’s regarding the critical sections of that bill
Title I – Keeping American Workers Paid and Employed Act
Sections 1101 – 1114
FAQ: What is the Paycheck Protection Program?
The Paycheck Protection Program is a new loan program included in the recently adopted CARES Act that is designed to help small businesses meet their payroll costs.
FAQ: Who is eligible to participate in the Paycheck Protection Program?
Eligible recipients include small businesses and nonprofits that employ less than 500 employees (or less than the applicable size standard for the industry as provided by the SBA, whichever is lesser). Employees include all persons employed on a full-time, part-time, or other basis. Sole-proprietors, independent contractors, and certain self-employed individuals are also eligible recipients.
FAQ: How much can eligible businesses borrow?
Eligible recipients can receive loans for up to the lesser of 2.5x their monthly payroll costs or $10 million. Payroll costs are determined by the previous twelve (12) months, and can include salaries, employee benefits, payments for vacation or leave, payment of retirement benefits, and certain state and local taxes assessed on employee compensation. Payroll costs specifically cannot include employee compensation in excess of $100,000 annualized, payments to foreign employees, income tax withholdings, and paid leave as a result of COVID-19 under the Families First Coronavirus Response Act.
FAQ: What can recipients spend loan proceeds on?
Recipients may spend loan proceeds on payroll costs, costs associated with healthcare benefits and insurance premiums, interest payments on mortgage debt incurred prior to February 15, 2020 (not including principal or prepayments), rent payments, and utility payments.
FAQ: Do recipients need to start paying back the loans right away?
No, the program allows for deferral of all payments for at least six (6) months and up to twelve (12) months.
FAQ: Are these loans eligible for forgiveness?
Yes, recipients of Paycheck Protection Program loans may apply to have their loans forgiven. Recipients are eligible for forgiveness in the amount equal to what the recipient spends on payroll costs, mortgage interest, rent, and/or utilities (all of which must have been incurred or begun service prior to February 15, 2020) in the eight (8) week period after origination of the loan.
FAQ: Is the amount of the loan that is forgiven reduced by any factors?
Yes, there are two factors that can reduce the portion of the loan that is forgiven: (i) reduction of employees, and (ii) reduction in salaries.
The portion of the loan that is forgiven is reduced in proportion to the reduction of full-time equivalent employees compared to prior periods. The portion of the loan that is forgiven is also reduced by the amount of any reduction in total salary or wages of any employee in excess of 25% of the total salary or wage of such employee (excluding employee compensation in excess of $100,000 annually). Recipients will be required to submit documentation when applying for loan forgiveness, e.g. payroll tax filings reported to the IRS, state income, payroll, and unemployment insurance filings, canceled checks for mortgage interest payments, etc.
FAQ: What if a recipient has already laid off employees or reduced salaries? Are those recipients still eligible for loan forgiveness?
Yes, recipients that, prior to June 30, 2020, re-hire employees that have already been laid off as a result of COVID-19 will not be penalized for those layoffs, and the payroll costs of the re-hired employee are eligible with regard to loan forgiveness calculations.
FAQ: Are forgiven loans considered taxable income?
No, loan amounts forgiven under this program will not be considered taxable income.
FAQ: Is there any more information or guidance coming out about this program?
Yes, the CARES Act requires the Small Business Administration to issue regulations regarding this program within fifteen (15) days of enactment. Those regulations may provide more information on how this program will work and may further clarify the loan forgiveness provisions.
FAQ: Did the CARES Act make any changes to the Emergency Economic Injury Disaster Loans program?
Yes, cooperatives, sole-proprietors, ESOPs, and independent contractors may all now be eligible. The CARES Act also waived the usual requirement for personal guarantees for amounts under $200,000, and the “credit elsewhere” provisions.
The SBA may now also approve EIDL loans based solely on an applicant’s credit score or other appropriate method.
FAQ: Can businesses receive both a Paycheck Protection Program loan and an EIDL loan?
Businesses cannot receive both types of loans for the same purpose.
FAQ: Can applicants request advances on their EIDL loans?
Yes, any applicant for an EIDL loan may request an advance of not more than $10,000, which the SBA is supposed to provide within 72 hours of receipt of the application.
FAQ: What if a recipient requests an advance and then their EIDL application is denied?
Any applicant who receives an advance but has their application denied will not be required to repay the advanced payment.
FAQ: What if a recipient receives an advance on their EIDL loan but then transfers into, or is approved for a Paycheck Protection Program loan?
If that happens, then the advanced amount is reduced from the amount of the Paycheck Protection Program loan that is forgiven.
Title II – Assistance for American Workers, Families, and Businesses
Subtitle A – Unemployment Provisions
Sections 2101 – 2116
FAQ: Does the CARES Act provide additional unemployment benefits to employees adversely affected by COVID-19?
Yes. The CARES Act provides a number of additional unemployment benefits to individuals no longer working or working reduced hours. The Act provides an additional $600 of weekly unemployment benefits for up to four months for individuals already receiving state unemployment benefits. The Act also provides an additional 13 weeks of unemployment benefits to individuals who have exhausted their unemployment benefits through the state. In most states, this will provide a total of 39 weeks of unemployment benefits.
The Act also creates the Pandemic Unemployment Assistance Program which makes unemployment benefits available to individuals who would not otherwise qualify for state unemployment benefits such as independent contractors, self-employed individuals, and individuals without insufficient work history. In order to qualify for benefits under this provision of the Act, an individual must be unable to work due to particular COVID-19-related circumstances as described in the Act.
FAQ: Will my non-profit organization receive unemployment assistance through the CARES Act?
Yes. The CARES Act provides for non-profit organizations to be reimbursed for 50% of unemployment benefit costs incurred through December 31, 2020.
Subtitle C – Business Provisions
Sections 2301 – 2308
FAQ: Are additional payroll tax credits made available to businesses through the CARES Act?
Yes. The CARES Act makes available to eligible businesses a refundable payroll tax credit for 50% of wages paid to certain employees during the COVID-19 crisis. If a business has either (1) been interrupted due to a COVID-19 related shutdown or (2) had a decrease in gross receipts of 50% or more when compared to the same quarter last year, the business is eligible for the credit. For eligible businesses with more than 100 employees, the credit can be claimed for wages payed to retained employees not currently working or working reduced hours due to COVID-19. For eligible businesses with 100 or fewer employees, the credit can be claimed for all wages paid to employees. The payroll tax credit is not available to businesses that receive a Small Business Administration loan under the Keeping American Workers Paid and Employed Act.
FAQ: What employee wages are eligible for the tax credit?
The payroll tax credit applies to the employer’s share of Social Security taxes equal to 50% of qualified wages paid to an employee, up to $10,000. The credit applies to wages, including health benefits, paid between March 13, 2020 and December 31, 2020. Any applicable penalties for failure to pay appropriate payroll taxes will be waived if a business does not pay the taxes in anticipation of receiving the CARES Act tax credit.
FAQ: Are there other tax provisions in the CARES Act that will help my business?
Yes. Among other tax benefits to businesses, the CARES Act allows businesses to delay payment of their share of the 6.2% Social Security tax that would otherwise be due in 2020. Businesses will then pay back these taxes over the following two years, with half due by December 31, 2021 and the other half due by December 31, 2022.
Additionally, the CARES Act allows businesses to carry back Net Operating Losses (NOL) for tax years 2018, 2019, and 2020. NOL can be carried back 5 years from the year of loss. Businesses will also be able to offset 100% of taxable income with NOL, as opposed to 80% of NOL under the current law.
Title III – Supporting America’s Health Care System in the Fight Against the Coronavirus
Subtitle C – Labor Provisions
Sections 3601 – 3611
FAQ: How does the CARES Act affect employee eligibility to receive Emergency FMLA created by the FFCRA?
The Families First Coronavirus Response Act (FFCRA) broadened employee eligibility to receive Emergency FMLA to any employee “who has been employed for at least 30 calendar days” (rather than the normal FMLA one-year and 1,250-hour service eligibility requirement). The CARES Act, for purposes of Emergency FMLA eligibility, further amends the FFRCA’s definition of an “eligible employee” by clarifying that the term “employed for at least 30 calendar days,” includes an employee that (i) was laid off by an employer on or after March 1, 2020, (ii) had worked for the employer for at least 30 of the last 60 days prior to being laid off; and (iii) was rehired by the employer. In effect, this expanded definition of “eligible employee” means that any employee that is rehired and meets the forgoing criteria has immediate access to Emergency FMLA benefits under the FFCRA, without the need to “restart” the 30-day employment requirement.
FAQ: How does the CARES Act affect my business’s ability to recoup costs associated with COVID-19-related leaves established by the FFCRA?
The Families First Coronavirus Response Act (FFCRA) provided that businesses are entitled to reimbursement of certain costs of providing emergency paid sick leave and emergency family and medical leave through a refundable tax credit. The CARES Act amends the FFRCA to allow employers to receive advance reimbursement of such costs through an advance tax credit, instead of having to wait for reimbursement on the back end. In order to receive such an advance tax credit, eligible employers will need to use the forms and instructions that will be provided by the Secretary of the Treasury or its delegate (i.e., the IRS). Additionally, the CARES Act also provides that the Secretary of the Treasury or its delegate will waive any penalty (under section 6656 of the Internal Revenue Code of 1986) for failure to deposit payroll taxes (under Sec. 3111(a) or 3221(a) of the IRC) if such failure was due to an anticipated payroll tax credit.
Title IV – Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy
Subtitle A – Coronavirus Economic Stabilization Act of 2020
Sections 4001 – 4029
FAQ: What relief is available to large companies under the CARES Act?
The Coronavirus Economic Stabilization Act of 2020 (Title IV of the CARES Act), allocates $454 billion for loans, loan guarantees, and other investments to “eligible businesses, States or municipalities.” The term “eligible business” includes large companies and other businesses that have not already received adequate economic relief in the form or loans or loan guaranties under other provisions of the Act.
In order to qualify for a loan, loan guarantee, or other investment through a Federal Reserve program, an eligible business must comply with certain requirements, including: (i) it cannot pay dividends or repurchase stock or other outstanding equity interests while the loan or loan guarantee is outstanding and during the 12 months following repayment; (ii) it must comply with certain compensation and severance caps for officers and employees that received $425,000 or more in total compensation in 2019 while the loan or loan guarantee is outstanding and during the 12 months following repayment; and (iii) it must be organized in the United States, have significant operations in the United States, and have a majority of its employees based in the United States.
FAQ: Are mid-sized businesses or non-profits eligible for any relief under the CARES Act?
Yes, Title IV directs the Secretary of the Treasury to establish a program to provide loans for eligible businesses (including non-profit organizations) with between 500 and 10,000 employees. The loans available under this program are to be at a rate not greater than 2% per annum, and to have no principle or interest payments due for at least the first 6 months.
In order to qualify for a loan under such a program, a business must provide a good-faith certification that it meets all of the following criteria:
(i) the uncertainty of economic conditions makes the loan necessary to support its ongoing operations;
(ii) the funds received will be used to retain at least 90% of its workforce, at full compensation and benefits, until September 30, 2020;
(iii) it intends to restore not less than 90% of its workforce that existed as of February 1, 2020, and to restore all compensation and benefits to its workers no later than 4 months after the termination of the public health emergency;
(iv) it is an entity or business that is domiciled in the United States with significant operations in and a majority of its employees based in the United States;
(v) it is not a debtor in a bankruptcy proceeding;
(vi) it will not pay dividends to the common stock or repurchase stock or other equity interest while the loan is outstanding;
(vii) it will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan; and
(viii) it will not abrogate existing collective bargaining agreements for the term of the loan, and will remain neutral in any union organizing effort for the term of the loan.
FAQ: If an eligible business obtains a loan or other relief under the Coronavirus Economic Stabilization Act, what employee compensation requirements must it follow?
In order for an eligible business to obtain a loan, loan guarantee, or other investment through the Coronavirus Economic Stabilization Act, it must abide by the following compensation limitations while the loan is outstanding and during the 12 months following repayment:
(1) for officers or employees receiving $425,000 or more in total compensation, their compensation is capped at the amount they received in 2019, and any severance pay or other benefits upon termination cannot exceed twice their 2019 compensation amount; and
(2) for officers or employees receiving $3,000,000 or more in total compensation, their compensation is capped at $3,000,000 plus 50% of the excess over $3,000,000 of the total compensation they received in 2019.
FAQ: Can loans that an eligible business obtains through a program established by the Coronavirus Economic Stabilization Act be forgiven?
No. The CARES Act provides that any loan an eligible business obtains under a program established by the Coronavirus Economic Stabilization Act cannot be reduced through loan forgiveness.
FAQ: Does the CARES Act prevent landlords from evicting tenants during the coronavirus pandemic?
Yes, in some circumstances. The CARES Act imposes a nationwide prohibition on evictions and legal actions to recover fees, penalties, or other charges from tenants for nonpayment of rent if a landlord has a mortgage on the property they rent that is insured, guaranteed, supplemented, protected, or assisted in any way by the US Department of Housing and Urban Development (HUD), Fannie Mae, Freddie Mac, and other federal entities. This eviction prohibition is effective until 120 days after the enactment of the CARES Act (i.e., July 25, 2020.).
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