On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). This historic economic recovery package, commonly referred to as “Phrase Three,” is intended to provide relief to the American economy in response to the coronavirus disease 2019 (“COVID-19”). The CARES Act contains numerous significant provisions impacting individual Americans and businesses of all sizes.
Employee Retention Credit
- The CARES Act creates a tax credit equal to 50% of the qualified wages paid to employers during the COVID-19 outbreak.
- Eligible employers are those whose: (1) operations are fully or partially suspended because of a governmental COVID-19 order; and (2) gross receipts declined by more than 50% compared to the same quarter in the previous year.
- For employers with more than 100 full-time employees, qualified wages are those paid to employees when they are not providing services because of COVID-19.
- For employers with less than 100 full-time employees, qualified wages are those paid to employees whether the employer is still in operation or ordered to shut-down because of COVID-19.
- The credit is for the first $10,000 of compensation for each employee, including health benefits.
Other Key Provisions
- The CARES Act permits employers and self-employed individuals to defer payment of the 6.2% social security tax on employee wages. The deferred payments must be paid over the following two years.
- The CARES Act also permits employers to provide a tax-free student loan repayment benefit to employees. Employers can contribute up to $5,250 annually towards employees’ student loans, and that amount would be excluded from the employee’s income.
Paycheck Protection Program
- The Small Business Administration (“SBA”) will loan up to $10 million to eligible entities to cover operating costs such as payroll costs, health care premiums, interest payments on mortgage obligations, rent, utilities and any other debt obligations incurred before February 15, 2020.
- Only portions of the principal amount of covered loans may be forgiven, in an amount equal to payroll costs, mortgage interest costs or rent and utility costs incurred during the eight-week period following the origination of the loan.
Emergency Economic Injury Disaster Loan (“EIDL”) Grants
- SBA will also grant up to $10,000 to eligible entities to cover costs such as paid sick leave to employees unable to work due to direct effect of COVID-19, maintaining payroll to retain employees, rent or mortgage payments and repaying obligations that cannot be met due to revenue loss.
- Repayment is not required for these grants.
LOCAL GOVERNMENTAL ENTITIES
Coronavirus Relief Fund
- Each state and local government unit may be awarded direct payment from the federal government based on its relative population size.
- Each of the 50 states will receive at least $1,250,000 no later than 30 days from March 27, 2020.
- An eligible local government unit includes a county, municipality, town, township, village, parish, borough or other unit of general government below the State level with a population that exceeds 500,000.
- Funds may be used to cover costs that are: (a) necessary expenditures incurred due to COVID-19; (b) not accounted for in the most recently approved budget; and (c) incurred from the period beginning March 1, 2020, and ending December 30, 2020.
- Local government unit executives must provide signed certification to the U.S. Treasury that the use of funds comply with applicable requirements. Such certified amounts will be paid directly to the local government unit (and reduce the amount that would otherwise have been paid directly to the applicable state).
Individual Recovery Rebates
- Individuals with an adjusted gross income up to $75,000 will receive a $1,200 rebate and $500 rebate for each child.
- Married couples with an adjusted gross income up to $150,000 will receive a $2,400 rebate and $500 rebate for each child.
- The $1,200 rebate is reduced by 5% for every dollar that a taxpayer’s income exceeds the above thresholds and is completely phased out for single taxpayers with an adjusted gross income of $99,000 or more and joint filers with no children and adjusted gross income of $198,000 or more.
Federal Unemployment Benefits
Note: The U.S. unemployment system is administered as a partnership between the federal and state governments. Each state administers its own state-level benefits program, separate from federally provided/governed benefits. The CARES Act provides additional funding to supplement state benefit systems but does not mandate or result in uniform benefits or administration nationwide.
- Federal unemployment insurance (“UI”) benefits are expanded by providing an additional $600 per week payment for up to four months to each eligible recipient. Moreover, federal UI benefits are expanded to those not traditionally eligible, such as the self-employed, independent contractors and those with a limited work history.
- States will be provided funding to pay the cost of the first week of unemployment benefits and are encouraged to repeal any “waiting week” requirements in place to prevent unemployed workers from getting benefits as soon as their jobs are terminated.
- An additional 13 weeks of unemployment benefits will be funded by the federal government through December 31, 2020, to assist individuals who remain unemployed after workers have run out of state UI benefits.
Businesses and government entities interested in exploring their ability to utilize benefits under the CARES Act should act quickly and consult qualified legal counsel and tax advisors. The attorneys of Kroger, Gardis & Regas, LLP stand ready to assist companies and municipalities of all sizes in navigating the CARES Act and other legal needs.