Cares Act Business Provisions
Updated April 23, 2020
On Friday, March 27, a historic, bipartisan deal was signed into law to offer $2 trillion in health care and economic relief to Americans and businesses amid the ongoing novel coronavirus pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a massive aid package containing a combination of funding for public health programs, tax benefits for businesses and individuals, appropriations for government programs supporting coronavirus relief efforts, and other items to help stabilize the economy.
The CARES Act is includes numerous provisions that impact both business and individual taxpayers. The following is a high level summary of the business related provisions:
Paycheck Protection Program (PPP): The PPP allows small businesses to receive a possibly forgivable Small Business Administration (SBA) loan. Loan funds can be used for several purposes including: payroll costs, medical or family leave, insurance premiums; mortgage, or rent, etc. Eligible borrowers include business concerns, nonprofit organizations, and veterans’ organizations that employ no more than 500 employees. Businesses of any organization type qualify, including sole proprietorships. Large businesses in the accommodations and food services sector, also qualify if they have no more than 500 employees per physical location.
The maximum loan amount will be the lesser of $10 million or an amount equal to a multiple equal to 2.5X of the business’s average monthly “payroll costs.” While payroll costs are defined broadly and include a variety of expenses (vacation or family leave, payments for certain group health care, etc.), it does not encompass the compensation of employees whose annual salary is in excess of $100,000.
Under the PPP, borrowers may be eligible for forgiveness of the principal amount of the covered loan in an amount equal to the costs incurred and payments made during the covered period (the eight weeks following receipt of the loan) for payroll costs, payment of interest on any covered mortgage, or rent, and any covered utility payment. The amount of the loan forgiveness will be reduced based on a formula that accounts for any reduction in the number of the borrower’s employees (FTE) during the covered period, as well as a formula that accounts for reductions in the total salary or wages of any lower paid employee. As such, if all your employees are laid off during the covered period, there is no loan forgiveness.
To apply for the loan you need to reach out to a banking institution which can help look at the best options for you.
Employee Retention Credit: Employers are allowed a refundable credit against applicable employment taxes equal to 50 percent of qualifying wages up to $10,000, for a maximum credit of $5,000 per person.
Eligible employers include those forced by a government to entirely or partially suspend operations because of COVID-19 or those experiencing a significant decline in gross receipts because of COVID-19.
A significant decline in business’ gross income is defined as the first calendar quarter in 2020 where gross receipts are less than 50% of the gross receipts for the same calendar quarter in 2019 and continues through the first calendar quarter after the quarter in which gross receipts are greater than 80% of gross receipts for the same calendar quarter in the prior year.
For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19 related circumstances described above.
For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from Mar. 13, 2020, through Dec. 31, 2020.
If you qualify for a PPP loan, you are not eligible for this credit.
Payroll Tax Deferral: Employers can defer payment on their share of Social Security taxes through 2020. Half of the deferred taxes must be paid by December 31, 2021 and the other half by December 31, 2022.
Net Operating Loss: Temporarily suspends the 80 percent taxable income limitation on Net Operating Losses for tax years before 2021.
Net Operating Loss Carryback: Allows net operating losses (“NOL”) arising in 2018, 2019, and 2020 to be carried back five years. Businesses will be able to amend tax returns for tax years dating back to 2013 to utilize the carrybacks.
AMT Credits: Allows refunds of unused alternative minimum tax credits.
Business Interest Deduction: Increases the limitation on the deductibility of interest expense that may be deducted for 2019 and 2020 from 30 percent to 50 percent of adjusted taxable income.
Limitation on Losses for Non-Corporate Taxpayers: Removes the excess business loss limitation for 2018 – 2020.
Qualified Improvement Property: Includes a technical correction to the TCJA by fixing the qualified improvement property error, which has inadvertently excluded certain investments from the TCJAs full expensing allowance. Qualified Improvement Property placed in service after September 27, 2017, can now be depreciated under a 15 year life and eligible for 100% bonus depreciation.
Charitable Contributions: Limitations for charitable contributions by C Corporations increased from 10% to 25% of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15% to 25% of taxable income.
Paid Sick and Family Medical Leave: With respect to the Emergency Family and Medical Leave Expansion Act in H.R. 6201, the bill clarifies that an employer will not be required to pay more than $200 per day and $10,000 in aggregate to each qualifying employee. Further, with respect to the Emergency Paid Sick Leave Act in H.R. 6201, the bill explains that an employer will not be required to pay more than $511 per day and $5,110 in aggregate to an individual qualifying for sick leave and not more than $200 per day and $2,000 in aggregate when caring for a quarantined individual or child. If an employee is laid off after March 1, 2020 and later rehired, the bill provides access to paid family and medical leave under certain circumstances as long as the employee worked for the employer for more than 30 days prior to being laid off. Lastly, it allows employers to seek an advanced tax credit for payments made to employees.