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

The unprecedented coronavirus (COVID-19) continues to cause chaos not only in hospitals across the country, but also in entire markets and industries. This has meant that many businesses must now face previously unthinkable challenges, for example their entire business being ordered by the government to halt operations. We understand that these are not only challenging times, but also confusing times. We are prepared to help our clients’ legal and business needs resulting from the coronavirus pandemic, no matter which industry our clients may hail from: manufacturing, technology, hospitality, travel, entertainment, dining, health care, fashion, apparel, consumer goods, sports, and more.

The CARES Act

In a rare and much-needed display of bipartisanship, the Senate passed the CARES Act unanimously (96–0) on March 25, 2020. The CARES Act represents the third, and by far the largest, phase of the federal government’s coronavirus-related economic relief measures, with a price tag of $2.5 trillion. It provides not only businesses but also individuals and hospitals with much-needed emergency economic relief. The House of Representatives passed the CARES Act by a voice vote on March 27, 2020, and the President signed the bill into law later that day.

The CARES Act 101

Some of the most important aspects of the CARES Act:

1. The U.S. government has created a $349 billion loan program for small businesses. This includes 501(c)(3) non-profits and physician practices. Importantly, these loans can be forgiven through various federal processes which act to ensure companies retain their employees during these uncertain times.
2. Individuals, businesses, and hospitals will receive stimulus to directly address the widespread economic havoc caused by the pandemic.
3. $500 billion in funds is allocated for assisting businesses, state governments, and local municipalities. Of that, no more than $46 billion is set aside to assist airlines, air cargo carriers, and businesses of paramount importance to national security. The remaining $454 billion is available to assist eligible companies, state governments, and local municipalities.
4. The Treasury Secretary now has authority to issue loans or make loan guarantees to state governments, local municipalities, and eligible businesses. Various regulations imposed in the Dodd-Frank Act, the Economic Stabilization Act of 2008, and more have been relaxed.
5. $130 billion in funds has been set aside exclusively for the health care industry, including assistance with drug and medical device shortages. The CARES Act also greatly expands the role of telehealth services in Medicare, even if such services are unrelated to the pandemic.
6. The federal government has expanded unemployment insurance eligibility, providing eligible individuals with an additional $600 per week on top of the individual’s state-determined unemployment amount.
7. Checks of $1,200 will be sent to Americans making no more than $75,000. In the case of joint returns, checks will be sent to joint filers making $150,000 or less, and heads of households making $112,500 or less. Additionally, payments of $500 per child will be paid “as rapidly as possible.”
8. The CARES Act expands the Defense Production Act, which now allows for a two-year window for government to correct shortfalls in resources, without regard to the expense limit of $50 million.

A quick summary of the CARES Act

Title I: Keeping American Workers Paid and Employed Act

Paycheck Protection Program. $349 billion is set aside to cover a period from February 15, 2020 through June 30, 2020, and greatly expands SBA loan eligibility. Businesses which have suffered as a result of the pandemic may borrow for a variety of eligible costs related to maintaining employment and benefits: payroll costs, continuance of health care benefits, salaries for employees making under $100,000 per year, mortgage interest and rent obligations, utility payments, and interest on debt incurred before the covered period. The maximum loan is 2.5 times the average total monthly payroll cost, up to $10 million. Eligible companies include those that employ 500 people or fewer, with industry-based exceptions and a per-location rule for the Accommodation and Food Services industry. Affiliation rules are waived for certain categories. Requirements for other available credit, personal guaranty, and collateral are waived. All or a portion of the loans may be forgivable, and debt service payments can be deferred for one year.

Loan forgiveness. Borrowers are eligible for forgiveness equal to the amount spent during an 8-week period after origination on rent, payroll costs for workers making less than $100,000 annually, utility payments, and mortgage interest. The amount forgiven cannot exceed the principal. Forgiveness is reduced in proportion to reductions in employees retained compared to the previous year, with a safe harbor for employers who re-hire laid-off workers.

Emergency Economic Injury Disaster Loans (EIDL). The covered period runs from January 21, 2020 through December 31, 2020. Eligibility is expanded to any business with fewer than 501 employees, sole proprietors, independent contractors, cooperatives, ESOPs, and tribal small business concerns. Loans can be approved on the applicant’s credit score alone. Applicants can request an advance of up to $10,000 within three days, which is not subject to repayment even if the loan is ultimately denied. Personal guarantees are waived for loans up to $200,000, along with the credit-elsewhere test and the one-year-in-operation requirement.

Subsidy for certain loan payments. For existing SBA 7(a), Title V, and microloan borrowers, the Administrator will pay principal, interest, and fees for six months.

Bankruptcy. The small business debtor threshold under Subchapter V is raised to $7.5 million in aggregate debts. Pandemic relief payments are excluded from current monthly income and disposable income.

Title II, Subtitle A: Unemployment insurance

Eligibility is expanded to those furloughed or unemployed as a direct result of COVID-19, self-employed and gig workers, and those who have exhausted existing benefits. Benefits are administered by each state under agreement with the Labor Secretary. An extra $600 per week is available through July 31, 2020, with total benefits generally capped at 39 weeks. States may waive waiting periods. Fraud or misrepresentation results in ineligibility and possible prosecution. Additional benefits are not counted as income for Medicaid and CHIP.

Title II, Subtitle B: Rebates and individual provisions

Eligible individuals receive tax credits of $1,200 (single) or $2,400 (joint), plus $500 per qualifying child, phased out by 5% of income above $150,000 for joint filers, $112,500 for heads of household, and $75,000 for others. Coronavirus-related retirement distributions of up to $100,000 are exempt from the 10% early withdrawal penalty and may be taxed over three years or repaid within three years. Plan loan limits are doubled to $100,000 for 180 days. Required minimum distributions are waived for 2020. An above-the-line charitable deduction of up to $300 is available for 2020.

Title II, Subtitle C: Business provisions

An employee retention credit of 50% of qualified wages, up to $10,000 per employee per quarter, is available to employers fully or partially suspended by government order or with gross receipts below 50% of the prior year. Employers may defer the employer share of payroll tax through December 31, 2020, payable half by the end of 2021 and half by the end of 2022. Net operating loss rules are relaxed, with five-year carrybacks for losses arising in 2018 through 2020. The excess business loss limitation for non-corporate taxpayers is suspended. Corporate AMT credits are accelerated. The business interest limitation rises from 30% to 50% for 2019 and 2020. Qualified improvement property is immediately deductible. Distilled spirits used in hand sanitizer are exempt from excise tax through 2020.