On March 27th, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. The CARES Act is the largest economic stimulus package to be passed in U.S. history so far. The CARES Act does make a few minor amendments and clarifications to the Families First Coronavirus Response Act (FFCRA), but much of the bill focuses on relief and aid for individuals and businesses impacted by the COVID-19 epidemic. Below are some important provisions that employers should know about.
Changes to FFCRA Paid Leave Provisions
The CARES Act includes a couple of small changes to the paid leave provisions that were enacted in the passing of the FFCRA bill; (1) the CARES Act clarifies that employees who were laid off after March 1, 2020, and then subsequently rehired are entitled to the emergency family leave and sick leave provisions as provided by the FFCRA and (2) the CARES Act provides an avenue for reimbursement for paid leave provided to federal contractors who were unable to work as a result of the COVID-19 crisis and whose job duties do not allow for telecommuting.
Introduction of the Small Business Administration (SBA) Paycheck Protection Program
The Paycheck Protection Program (PPP) is a $349 billion lending program, modeled after the existing Section 7(a) loan system, but with a 100% guarantee on PPP loans. The provision is retroactive, so it can be applied to made after February 15th, 2020, and it sunsets on June 30th, 2020.
Note: Employers can NOT apply for PPP loans yet, as the program is not operational and no forms currently exist on the SBA site. The Treasury Secretary expects these loans to be available beginning Friday, April 3rd, 2020. If immediate cash flow is needed, employers can apply for the existing EIDL loan under the SBA and then later apply for the PPP loan and refinance the initial loan that way. However, employers may not apply for both loans at the same time for the same purpose. (Please see our COVID-19 resource page for more SBA resources and guidance.)
The SBA considers the following entities eligible* for this type of loan:
- Small businesses and Nonprofits with fewer than 500 employees;
- Hospitality businesses with fewer than 500 employees at each location;
- Sole-proprietors, independent contractors, and self-employed individuals.
*The CARES act also includes language stating that the SBA has authority to determine exactly what size constraints apply to eligible employers on an industry-by-industry basis.
The PPP provision also provides for built-in deferment – the first 6 months of payments are automatically deferred and can be extended to up to a year total – and includes some loan forgiveness as well. Loan forgiveness is generally limited to payment of qualifying expenses, and the forgiveness amount is reduced if the employer reduces the number of employees or makes a reduction in salary/wages due to COVID-19. The SBA will be required to issue guidance on the full regulations within 15 days of the law’s enactment.
Business Tax Provisions
The CARES Act builds upon the tax provisions in the FFCRA to add an additional employer tax credit as well as a tax deferment option.
The new tax credit was created as an incentive for employers who retain their employees during the COVID-19 pandemic and related circumstances. This provision is available to employers of any size – including tax-exempt employers – and allows them to claim a refundable tax credit against the employer portion of payroll tax equal to 50% of certain wages paid to an employee (capped at $10,000 per employee) between March 13, 2020 through the end of the year.
Eligibility for this tax credit is limited to businesses that:
- Have had their operations fully or partially suspended by government (state, local or federal) order due to COVID-19; or
- Have experienced a 50% decline in gross receipts during a 2020 calendar quarter when compared to the same calendar quarter in the prior year.
Employers cannot utilize this tax credit with respect to any wages that are taken into account for other credits such as the work opportunity credit or tax credits outlined in the FFCRA. This credit is also not available for employers who receive(d) a covered loan under SBA’s Paycheck Protection Program.
The tax deferment option allows employers to defer paying their share of Social Security (SS) taxes, starting with the date of the bill’s enactment and ending 12/31/2020. Under the provision, the employer will be considered as being timely on payments for the employer share of SS taxes as long as they adhere to the deferment schedule; 50% due by 12/31/2021 and 50% due by 12/31/2022. Deferral is also not an option for those who have had debt forgiven under the new SBA loan forgiveness provisions.
Employers Have to Choose Carefully
The new provisions for employers offer several avenues for relief and assistance, but it is imperative to understand that employers can’t utilize all of them together.
- If an employer obtains one of the new SBA loans, they are not eligible for the 50% employee retention tax credit.
- If an employer has a new SBA loan forgiven, they cannot take advantage of the Social Security tax deferral.
- If an employer claims the 50% employee retention credit, they will no longer be eligible for an SBA loan.
- If an employer takes advantage of the Social Security tax deferral, they will no longer be eligible to have their SBA loan forgiven.
Employers should always weigh the pros and cons of their available options before making any critical business decisions. For more information and resources surrounding COVID-19, check out our FREE COVID-19 Employer Resource Page.
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