CARES Act

Coronavirus Aid Relief and Economic Security Act

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Friday, April 20, 2020

Note: We have provided key updates in red!

Skip to the information for Individuals and Families

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US Treasury Department Information

CARES Act Complete text – H.R.748

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General Information

As you are most likely aware, on Friday, March 27th, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. While we can discuss and debate the politics surrounding the $2 Trillion measure, whether it was necessary, and the economics, what most people want to know is, “What is really in it and does it affect me?”.

For this discussion, we will mostly stick to how it may affect you directly, rather than delving into the long-term economics and how the Act will be paid for. We must also condition our statements with the following cautionary clarifications and warnings:

  • The following is our preliminary interpretation of the Act; interpretations will most certainly change over time based on statements or opinions of governing bodies,
  • Any interpretation that we make is subject to a different interpretation by a governing body itself,
  • Legislation of this nature is inherently prone to interpretive uncertainty and some aspects may remain relatively uncertain for some time, and
  • This is a brief overview of key aspects of the Act but is in no way intended to be comprehensive.

So, keeping these clarifications in mind, we will break down for you some of the most important CARES Act provisions. As a final caveat, we recommend that you seek the council of a qualified, expert financial professional regarding any matter we address here before you decide to take any action. This outline should be used to prompt conversation, not as a guide to definitive action.

The CARES Act covers extremely broad financial topics. Generally, these topics can be broken into aspects that address individuals/families and businesses. So, hopefully you can jump to the sections below of greatest interest to better know what questions to ask and what possibilities to further investigate.

Provisions for Individuals and Families

Tax Rebates

The Act provides for financial assistance to individuals and families in the form of “Tax Rebates” for certain taxpayer conditions, including, but not limited to:

  1. Taxpayer cannot be a dependent of another taxpayer
  2. Taxpayer must possess a work-eligible Social Security Number
  3. Taxpayer must have adjusted gross income under the limit beyond which there is a phase-out. Those limits are as follows:
  • Single Filer – $75,000
  • Head of Household Filer – $112,500
  • Joint Filer – $150,000

There are some clarifications to understand regarding the rebates which are as follows:

  • Rebates are based on 2020 income, but are advanced using 2018 returns if you have yet to file 2019 or 2019 if it has been filed. If you receive SS 1099 or RRB 1099, you may receive your payment without having to file a return.
  • Based on current interpretations, if your 2020 income exceeds 2018 or 2019 from which your rebate was calculated, you will not owe back the difference, so for those with incomes close to the threshold considerations should be made quickly regarding filing 2019 immediately or waiting until after the rebate to file if you have not already.
  • For those whose income falls below a 2018/2019 threshold limit in 2020, they will receive a true-up based on their actual 2020 tax filing.

Rebate checks are anticipated by April 17th, 2020, in amounts as follows:

  • Individual Filer – $1,200
  • Joint Filer – $2,400
  • Children – $500 per dependent child under age 17

Note: The IRS or state agencies will NOT call you to verify information. Do NOT give out information regarding these programs over the phone. You should receive a letter in the mail regarding your stimulus payment no later than 15 days after distribution. The IRS is required to mail a notice to the taxpayer indicating the payment amount, whether the payment was mailed or deposited and a phone number to call if the taxpayer did not receive the payment.

Unemployment

The Act provides an additional unemployment benefits and eligibility. In particular:

  • Company owners, self-employed, and “gig” economy workers are eligible to draw unemployment under the Act. Get the details for how to apply in Tennessee!
  • $600 a week supplemental to the current benefit amount for up to four months
  • Extension of existing state benefits by up to 13 weeks

NOTES: For company owners, self-employed, and “gig” economy.

  • At the current time some states (unemployment is implemented at the state level) are still denying these claims, though the Act seems to be clear that these individuals should be covered. Get the details for how to apply in Tennessee!
  • If you “pay yourself” via W2 payroll, filing unemployment on yourself may negatively impact your SUTA tax percentage. This is yet uncertain in most states.

Retirement Plan Investments

Early (Premature) Distributions – the Act will allow certain persons to take early withdrawals without penalty for up to $100,000 prematurely distributed from an IRA or other retirement plan. Note this avoids the penalty, but not the standard applicable taxes. The amount withdrawn can either be redeposited within three years from the distribution date or the income tax can be spread over the three years after withdrawal. In addition, certain previsions are made for extending 401(k) loan repayment requirements for the same individual exceptions below, though interest will still accrue. Persons eligible for the exception to the penalty include:

  • Individuals diagnosed with COVID-19 by a test approved by the CDC
  • Individuals who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or suffered reduced working hours or who is unable to work due to lack of childcare

Required Minimum Distributions (RMDs) – Individual Retirement Account (IRA) and defined contribution plan (401k, but not defined benefit plan) account holders who have not taken required minimum distributions (RMDs) in 2020, are no longer required to take one. If a 2020 RMD has already been taken, it can be rolled back into a retirement plan. This waiver also applies to 2019 RMDs that must be taken by April 1, 2020, as well as 2020 RMDs that must be taken by April 1, 2021.

FMLA and EPSLA

The Families First Coronavirus Response Act (FFCRA), which is different than the CARES Act, but makes major changes to the Family Medical Leave Act (FMLA) and creates a new provision called the Emergency Paid Sick Leave Act (EPSLA). These may require employers to permit Public Emergency Health (PEH) Leave even if you would not normally have paid sick leave.

FMLA

The FMLA still only applies to employers with 50 or more employees, but the FMLA is amended to require PEH Leave cover an employee who “is unable to work or telework due to a need for leave to chare for a minor child whose school or place of care is closed due to a public health emergency. Self-quarantining for Covid-19 is not covered under PEH Leave. Key details are as follows:

  • Under PEH, the first 10 days are unpaid
  • Following the first 10 days, the next 12 weeks are paid at 2/3 pay up to a maximum of $200 per day and $10,000 total
  • Employees of religious organizations may be exempted from the requirement under a ministerial exception.

EPSLA

The new Emergency Paid Sick Lease Act (EPSLA) applies to all organizations regardless of size or number of employees. The EPSLA requires paid sick leave if an employee is unable to work or telework for the following Covid-19 related situations/reasons:

  1. Employee is subject to a Federal, State, or local quarantine or isolation
  2. Employee has been advised by a health professional to self-quarantine
  3. Employee is experiencing Covid-19 symotoms and is seeking medical diagnosis
  4. Employee is caring for someone subject to 1. or 2. above
  5. Employee is care for a child whose school or childcare is closed
  6. Employee is experiencing a situation similar to conditions outlined by the Secretary of Human and Health Services

Note: There is an exception to paid leave for item 5 above for small businesses with under 50 employees whereby in paying such sick leave the “viability of the business is threatened”.

Sick leave payment under the six qualifying conditions does vary depending upon the reason for the leave. Paid sick leave is as follows under the Act:

  • For leave as a result of items 1-3: Employers are required to provide full regular pay for 10 days up to a maximum of $511 per day and $5,110 total.
  • For leave as a result of items 4-6: Employers are required to provide 2/3 regular pay up to a maximum of $200 per day and $2,000 total.

Mortgage Forbearance

The Act provides that individuals and families with mortgages may receive forbearance for up to 90 days. But, be aware that forbearance is NOT payment nor forgiveness of a debt. Forbearance is a temporary reprieve from a debt obligation delaying when the payment is due and in certain cases late fees and interest. However, the Act does not make clear when such a forbearance would have to be “made up” and so it has been left to the lender to determine this. Some banks and financial institutions may be willing to let these payments be added to the end of the loan. Most thus far have indicated that all four months (3 forbearance + 1 in 90 days = 4) would be due at the end of the 90 day period of time.

If you are having difficulty in paying your mortgage due to the Covid-19 crisis, we recommend that you immediately contact your lender and then determine exactly how forbearance will be handled for your situation. Finally, be mindful of the fact that the financial institution that currently holds your mortgage may be a different institution than the one through which you closed your mortgage; your mortgage may have been sold.

Charitable Giving

The Act increase the maximum amount of charitable giving deductible on itemized tax returns for individuals and families. Up to 100% of AGI can be deducted for those who itemize, up from 60%. Keep in mind that this only assists individuals who itemize. However, there is also a $300 charitable giving “above-the-line” deduction for cash donations (not in-kind) for those who do not itemize.

Provisions for Businesses

Unemployment

As previously stated under the section of this document regarding Unemployment under “Individuals and Families”, the Act provides for Company owners, self-employed, and “gig” economy workers to draw unemployment under the Act. However, there may be issues as follows:

  • At the current time some states (unemployment is implemented at the state level) are still denying these claims, though the Act seems to be clear that these individuals should be covered. Get the details for how to apply in Tennessee!
  • If you “pay yourself” via W2 payroll, filing unemployment on yourself may negatively impact your SUTA tax percentage. This is yet uncertain in most states.
  • You may actually be more benefited if you are W2 “employee” of your own company by continuing to work and operating your business (if possible) and then have your payroll reimbursed under the SBA PPP loan forgiveness program (See Below).

It is also important to note that there is NO reimbursement to a “contractor-employer” for payments to independent-subcontractors. So if you are a company paying subcontractors or independent contractors, you cannot collect any benefit for payments to them under the CARES Act.

FMLA and EPSLA

Be aware that as a business employer, you may be subject to additional provisions under the Families First Coronavirus Response Act (FFCRA), which is different than the CARES Act, but makes major changes to the Family Medical Leave Act (FMLA) and a new provision called the Emergency Paid Sick Leave Act (EPSLA). These may require employers to permit Public Emergency Health (PEH) Leave. View details address under the FMLA and EPSLA section in the overview under Individuals and Families.

SBA Loans & Loan Forgiveness

First, keep in mind that the special SBA program benefits under the CARES Act are “loans” that may be forgiven “if” your company meets and complies with the requirements for forgiveness. We anticipate that a significant number of companies will be able to have partial or even complete forgiveness. However, we also anticipate a significant number of companies will apply for these loans thinking they are grants or without concern of the forgiveness requirements who will be burdened paying these loans back.

Funding Caps

Be aware that the CARES Act has appropriated $350 Billion for SBA Loan assistance through the SBA 7(a) loan program. Unless additional Congressional action is taken to expand the appropriation cap, these funds could run out quickly. Treasury Secretary Steven Mnuchin has stated that if the funds run out, “I can assure you that will be top of the list for me to go back to Congress on”. But, additional funding is completely uncertain.

As of April 16th, 2020 (two weeks into the program that actually started late) . . . funding did run out for the PPP Program. Some banks have ceased taking applications. Some are taking applications and ordering them for submission should additional funding become available. Contact your lending institution for details. We recommend having everything in order and reviewed by your lender for immediate submission to the SBA should funding be allocated.

Economic Injury Disaster Loan (EIDL)

The CARES Act EIDL is a temporary measure to provide $10,000 in emergency SBA Loans to small businesses as a result of Covid-19. These loans are not forgivable; however, they may be rolled into your SBA PPP Loan which is forgivable. If you have taken out an EIDL, you must apply for the SBA PPP and roll your EIDL into it for forgiveness.

As of April 14, 2020, the EIDL implementation “interpretation” of the Act by the SBA changed the program funding from $10,000 per organization to $1,000 per employee with a $10,000 maximum per employer. Though the EIDL was to be provided within 3 days, we have only “heard” of one company receiving it within 3 weeks of the EIDL launch. Because almost noone had received the EIDL, some banks were removing it from the PPP loan application, thus there is great uncertainty regarding how forgiveness for these funds will be executed should an organization actually receive EIDL funds post and excluded from PPP loan execution.

Small Business Administration Payroll Protection Program (SBA PPP)

The SBA PPP is a special CARES Act loan that “may” be forgiven if your company meets the requirements.

Be cautious, you may meet the requirements for the loan and not the requirements for forgiveness!

To apply for the SBA PPP you will have to submit an application to an SBA approved lender, which is typically your local bank. We recommend that you check with your business banker regarding submitting your SBA PPP. If your bank is not an SBA approved lender, you will have to use a different lender. Be aware each bank is handling this process somewhat differently as there is yet to be total clarity on the process. In fact, most banks delayed or postponed the April 3rd SBA PPP launch on April 3rd, because the SBA actually made changes to their guidelines the morning of April 3rd.

Essentially the SBA PPP loan is designed to encourage companies/employers to get people working and pay employee’s salary and wages as soon as possible rather than to leave people out of work collecting unemployment. As such, the loan is based on payroll, though the following costs may be forgiven under the forgiveness provisions of the loan:

  • Gross payroll (excludes employer matching FICA, but includes benefits such as 401k)
  • Mortgage Interest (note it is only interest that is forgiven, not principal, insurance, and taxes)
  • Rent
  • Utilities

NO OTHER COSTS WILL BE FORGIVEN

The SBA PPP loan itself is based on 2.5 times the average monthly payroll up to a maximum $10 million on all salary and most benefits up to $100,000 per employee annualized (income for any employee over $100,000 is excluded). The date range for calculating the average cost is different for seasonal businesses, nonseasonal businesses and firms opened in 2020. For the purposes of forgiveness, the amount forgiven will be based on your actual 2020 payroll, rent, mortgage interest and utilities for the 8-week period beginning at the time of the origination of loan, however depending upon your banking institution, they may require you to provide your 2019 and/or 2018 payroll information. In reality, 2018/2019 payroll is irrelevant to the amount of the loan to be forgiven.

Who is eligible?

  • Those companies that are not using the 50% Tax Credit on Wages (See below).
  • Small Businesses (fewer than 500 employees), nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors.
  • Must certify that the business has been affected by Covid-19.
  • Must have been formed and operational by February 15th, 2020.

Clarifications:

  • Certain industries with over 500 employees may be considered small and be able to apply (See More HERE)
  • Self-employed and independent contractors cannot apply until April 10th, 2020
  • Affiliation standards are waived for small businesses (1) in the hotel and food services industries (click HERE for NAICS code 72 to confirm); or (2) that are franchises in the SBA’s Franchise Directory (click HERE to check); or (3) that receive financial assistance from small business investment companies licensed by the SBA.

Requirements for Forgiveness:

  • Documentation of the “forgivable” loan expenses must be maintained and submitted for forgiveness. Some financials experts are recommending opening a separate bank account for the tracking of these expenses.
  • Payroll levels must be maintained. Employers who lay off employees or reduce wages by more than 25% will have reductions in forgiveness.
  • Laid-off employees must be rehired by June 30th, 2020, for companies to recoup their wages through loan forgiveness.

Other Provisions:

  • Loan terms are the same for all borrowers
  • Loan rates are 1% fixed (previously set at 0.5%)
  • Loan terms are two years with no prepayment penalty
  • No collateral is required for $25,000 and under.
  • No personal guarantee is required
  • Loan payments are deferred for 6 months, however interest will accrue during that period
  • Lenders are paid $500 under the program, but may NOT collect any fees from the applicant
  • The PPP ends June 30th, 2020 whether all funds have been disbursed or not

Payroll 50% Tax Credit on Wages

In lieu of the SBA PPP, employers may claim a 50% tax credit on wages paid to employees from March 13th to December 31st, 2020 up to a maximum of $5,000 credit per employee ($10,000 of employee wages). The qualifications are as follows:

  • Work must be suspended due to government actions related to Covid-19. (It is yet uncertain, but “essential” businesses may not qualify”)
  • The Employer MUST experience a 50% decline

Non-Profit Provisions

Like other businesses, many non-profits are eligible to participate in the SBA Loan programs, both the EIDL and PPP. However, certain nonprofits may be excluded from the PPP. Generally, the same provisions outlined above apply for non-profit implementation.

Charitable Giving Incentives

The Act increase the maximum amount of charitable giving deductible on itemized tax returns for both individuals and business. Up to 100% of AGI can be deducted for individuals, up from 60%. Up to 25% of taxable income can be deducted by businesses, up from 10%. Keep in mind that this only assists individuals who itemize. However, there is also a $300 charitable giving “above-the-line” deduction for cash donations (not in-kind) for those who do not itemize.