The "Coronavirus Aid, Relief, and Economic Security Act," also called the "CARES Act," was signed into law on March 27, 2020. The law establishes several programs to provide relief to favored industries, businesses of all sizes, and individuals whose employment has been impacted by the coronavirus (COVID-19) pandemic. These programs include, but are not limited to, providing increased funding to disaster assistance, health-related, and educational agencies, crediting taxes to businesses, and expanding unemployment insurance benefits. However, here is what we know so far about the provisions designed to support small businesses and individuals:

 

Paycheck Protection Program (PPP). The CARES Act creates the PPP, which is a new type of loan for the Small Business Administration (SBA) to administer. The SBA has the authority to provide up to $349 billion of loan guarantees targeted to provide small businesses, non-profit organizations, veterans organizations, and tribal business concerns with less than 500 employees (including full-time, part-time, and employees hired on any other basis) with support to cover payroll and certain other expenses through June 30, 2020. Other eligible applicants are sole proprietors, independent contractors, and self-employed individuals. Businesses with over 500 employees could be eligible if they meet certain SBA standards. Ultimately, applicants must have been operating since at least February 15, 2020, and must have paid salaries and payroll taxes (or 1099 non-employee compensation).

 

Loans provided through the PPP equal either (1) a maximum of $10 million per business or (2) the sum of 2.5 times the business's average monthly payroll costs and any outstanding amount of a repayable loan that was borrowed since January 31, 2020. Employees' annual salaries up to $100,000 will be used to calculate the average monthly payroll costs.

 

Further, interest is capped at a maximum of 4% per year and the first six months of payments are deferred. Unlike other loans currently available through the SBA, these loans are potentially forgivable up to 100% of the principal amount borrowed and are not tied directly to establishing losses as there is a presumption of negative impact from COVID-19.

 

To incentivize lending, the SBA will guarantee payment of 100% of the loans and recipients may receive forgiveness equal to eight weeks of payroll (and some overhead costs), subject to the certain conditions being met with respect to the use of the funds via the PPP loan. Borrowers must use funds from the PPP for payroll costs (wages, leave pay, health care costs, retirement benefits, and related taxes), mortgage interest payments, rent and utility payments, and interest on pre-existing debt obligations that incurred prior to February 15, 2020. It is important to note that the SBA recommends that at least 75% of the forgiven loan amount must have been used towards payroll expenses. To also be eligible for PPP loan forgiveness, borrowers must either retain their employees and maintain their salary levels or rehire employees and restore their salaries before June 30, 2020.

 

Note that employers may not receive refundable tax credits through both the PPP and the Families First Coronavirus Response Act (FFCRA) for the same wages and payroll expenses.   Small businesses and sole proprietorships may apply starting April 3, 2020 and independent contractors and self-employed individuals may apply starting April 10, 2020. However, we strongly recommend employers to apply as soon as possible since these loans will be distributed on a first-come, first-served basis and there is a cap on funds. The application for the PPP loan can be found HERE and more information for borrowers can be found HERE . The last day to apply for and receive a loan is June 30, 2020.

 

Emergency Injury Disaster Loans (EIDL). The Act also creates a new program to provide quick relief for applications awaiting processing of an EIDL and relaxes the SBA's standard approval requirements for granting these loans. Loan applicants can apply for working capital loans of up to $2 million. Applicants may obtain up to a $10,000 advance in the form of a grant without repayment obligations within three days of applying in order to cover immediate payroll, rent, mortgage, and other specified expenses based on self-certification that the borrower applicant is eligible. Such advance may be obtained even if the applicant is subsequently denied an EIDL. The applicant must have been in business as of January 31, 2020. These grants will expire on December 30, 2020. An eligible applicant may apply for both the EIDL and PPP loans, but the funds cannot be used for the same purposes. Any advance amount received under the EIDL would be subtracted from the amount forgiven under the PPP. Funds received under the EIDL can be refinanced into a PPP loan for forgiveness purposes. The application for the EIDL can be found HERE.

 

Employee Retention Credit. Created by the CARES Act, the Employee Retention Credit purports to incentivize employers to maintain their employees on payroll through this pandemic by providing partial refundable credits if certain conditions are met. Employers must continue to pay their employees wages after March 12, 2020 and before January 1, 2021 in order to receive tax credit equal to 50% of up to $10,000 in qualified wages (i.e., wages, health plan expenses) paid to each employee for the calendar year. In other words, for each employee the employer paid up to or exceeding $10,000 after March 12, 2020 and before January 1, 2021, the employer would receive a maximum credit of $5,000 per employee. Employers eligible for this credit are businesses that either (1) partially or fully halted operations in any calendar quarter in 2020 because of a government order related to COVID-19 or (2) experienced a reduction of more than 50% in gross receipts compared to that in a comparable quarter in 2019. It is vital to note that (1) the Employee Retention Credit is not available to businesses receiving financial assistance through PPP loans and (2) although an employer can receive tax credits for paid leave days under the FFCRA, the employer cannot claim credit for wages under the Employee Retention Credit for the same wages claimed under the FFCRA.

 

SBA Debt Relief Program. The CARES Act provides a reprieve for small businesses by making payments of principal and interest on (a) new Section 7(a) loans issued prior to September 27, 2020; and (b) for a period of six months on behalf of borrowers with certain existing SBA Section 7(a) loans.

 

Enhanced Unemployment Benefits. Unemployment insurance (UI) payments to eligible individuals will be boosted by $600 per week through July 31, 2020, in addition to state employment benefits that are usually paid out. An additional 13 weeks of coverage will be available to those who cannot find work within 26 weeks. For the first time, many "gig economy" workers and independent contractors will be eligible for unemployment benefits. Further, workers whose unemployment benefits were exhausted after July 1, 2019 and who remain unemployed may now be eligible for an additional 13 weeks of coverage. These new programs will be implemented through each state's Department of Labor (DOL). Those already receiving unemployment payments will receive the additional $600 automatically. Gig workers, independent contractors, self-employed individuals, and workers whose benefits were exhausted after July 1, 2019, and unemployed workers who have not yet applied for unemployment should do so through their state's DOL, which will determine whether they are eligible for benefits under the new law. UI applicants filing in New York can visit this NYS DOL page and those filing in New Jersey can visit this NJ DOL page for more information on each state's UI benefits and the application process.

For detailed information on necessary documentation that must be kept and submitted for businesses to receive their tax credits and/or have their loans forgiven, borrowers should speak with their tax and financial advisors. Information provided in this article does not constitute tax advice.