The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law by President Trump on March 27, 2020.
The CARES Act – also known as the
$2 Trillion Coronavirus Stimulus Package
– unleashed a $350 billion
paycheck protection program
(PPP) aimed at helping U.S. small businesses, which have faced devastating losses in the wake of the coronavirus pandemic.
The CARES Act also provides numerous other significant tax provisions for both businesses and individuals, as well as significant financial provisions affecting small businesses.
The key highlights are listed below.
Paycheck Protection Loans
Businesses with fewer than 500 employees, including sole proprietors and those with self-employment income, are eligible to apply for a forgivable loan that is fully guaranteed by the federal government through December 31, 2020 and 85% guaranteed after that date. The maximum term of the loan is 10 years with a maximum rate of 4%. All payments on the loan are deferred for a minimum of 6 months and a maximum of 12 months. There are no fees to the borrower for this loan.
Eligible businesses can apply for a loan that is up to 2.5 times their average monthly payroll for the rolling 12 months ending on the date that the loan was made. The maximum amount of the loan is $10 million.
To learn more about the Paycheck Protection Program, please
The amount to be considered when computing average monthly payroll excludes certain items and includes others.
Payroll does not include the following:
Wages to any individual that are in excess of $100,000.
Wages that are reimbursed under the Families First Coronavirus Relief Act (FFCRA).
Wages paid to individuals who are not residents of the United States.
Payroll does include the following:
Wages, commissions, salaries to employees or independent contractors.
Payment for vacation or sick leave.
Health insurance costs.
Payment or retirement benefits.
Most importantly, the loan taken under this provision will be forgiven to the extent that it is used to pay certain expenses in the 8-week period immediately following the date of the loan. The loan forgiveness related to this loan is tax-free.
The following expenses are eligible for loan forgiveness:
Payroll costs (the same costs as included above);
And Certain Utility Payments
The amount of loan forgiveness is limited by any reduction in workforce or reduction in pay for employees making less than $100,000. The percentage of reduction is based on the average FTEs per month from 2/15/20 to 6/30/20 as compared to the average FTEs per month in the same period for 2019 or the average FTEs per month from 1/1/2020-2/29/2020. This percentage reduction does not apply if the employer eliminates the reduction in FTEs by June 30, 2020.