CARES Act

The House of Representatives approved the Senate bill known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“Act”). The bill provides over $2 trillion in relief for individuals and businesses. The bill is headed to President Trump who indicated he would sign the legislation immediately. Major provisions of the CARES Act are as follows:

Paycheck Protection Program

In an effort to help small businesses meet their current operating needs, the Act would increase the government guarantee of loans made for the Paycheck Protection Program up to 100% through December 31, 2020. It would increase the maximum SBA 7(a) loan amount to $10 million through December 31, 2020, and provide a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan. The Act specifies that allowable uses of the loan include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums and mortgage, rent and utility payments. Any loan amounts not forgiven at the end of one year (as discussed below) would be carried forward as an ongoing loan with a maximum term of 10 years and a maximum interest rate of 4%.

Loan Forgiveness

Qualified borrowers will be eligible for loan forgiveness. The amount eligible for the forgiveness is equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on allowable uses as defined above. The amount of eligible loan forgiveness would be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior-year compensation. It includes provisions that encourage employers to rehire any employees already laid off.

Recovery Rebates

Cash payments of $1,200 for each adult (up to $2,400 for a married couple) and $500 for each child will be made to lower- and middle-income individuals. Individuals who earn $75,000 or less and married couples earning $150,000 or less in adjusted gross income are entitled to the full payment. The payment would be reduced if income exceeds these amounts, phasing out entirely at $99,000 for singles and $198,000 for couples without children. The income thresholds would be based on 2019 income tax returns, or 2018 if a 2019 return has not yet been filed.

Unemployment Insurance Changes

Extends coverage to those unemployed for up to four months and provides an extra $600 per week in benefits. It also waives the one-week waiting period before benefits can be paid.

Short-time Compensation Payments

Provides funding support where employers reduce employees’ hours instead of laying off workers.

Employee Retention Credit

This provision provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit would be available to employers whose (1) operations were fully or partially suspended due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year.

Delay of Payment of Employer Payroll Taxes

This provision would allow employers and self-employed individuals to defer payment of the employer‘s share of the Social Security tax, which they would otherwise be responsible for paying to the federal government with respect to their employees. Employers are generally responsible for paying a 6.2% Social Security tax on employee wages. The deferred employment tax would be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

Other Tax Provisions

• Exclusion from tax any forgiven small business loans, mortgage obligations or other loan obligations forgiven during the applicable period.
• Waiver of the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for Coronavirus-related distributions. Income would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to contribution limitations.
• Waiver of the required minimum distributions rules for 2020.
• Exclusion of up to $5,250 from income for payments of an employee’s education loans.
• Allowance of a $300 above-the-line deduction for charitable contributions.
• Elimination of the income limitation for charitable contributions.
• Increase to the net operating loss (NOL) carryback period to five years for NOLs arising in 2018, 2019 or 2020.
• Modification to the limitation on losses for taxpayers other than corporations.
• Make corporate alternative minimum tax credits immediately refundable.
• Increase the limitation on business interest expense from 30% to 50%.
• Technical correction to allow for the immediate write off of qualified improvement property.

We will be providing updates on the law changes as the details become available. In addition, keep checking our website (www.ssb-cpa.com) for additional resources on the loan programs. Please contact the SSB team with any questions or concerns you might have—we are here to help during these troubled times.