Highlights of the estimated $2.2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act:
- Small business loan-to-grants and stabilization for other businesses following important restrictions,
- Direct payments to those with wages middle-income and below,
- Expanded unemployment insurance, and more.
“The bill is the largest relief package in U.S. history.” ~ wsj.com
Recovery checks for individuals
Each U.S. individual with adjusted gross income less than $99,000 (single-taxpayer) and $198,000 (joint filers), will receive a recovery check within weeks. The $1,200 checks plus an additional $500 for every child, will be reduced for higher income taxpayers and begin phasing out for single-taxpayers with adjusted gross income greater than $75,000 or $150,000 for married couples filing a joint return.
Employee retention credit for employers
Eligible employers will receive a 50% credit on qualified wages against their employment taxes for each quarter, with any excess credits eligible for refunds. An eligible employer is one with operations suspended by orders issued in response to COVID-19 or has suffered a significant decline (more than 50% decrease year over year) in gross receipts.
Economic Stabilization Fund (ESF) to provide $500 billion in direct loans, loan guarantees and other investments
Eligible businesses include those who have incurred or are expected to incur losses as a result of the COVID-19 crisis such that the operations of the business are in jeopardy.
- must be created or organized in the United States (U.S.),
- have significant operations or a majority of their employees in the U.S.
Limitations for the loan term plus one additional year:
- No stock buybacks,
- No dividend payments on the business’s common stock,
- Employment levels cannot be reduced by more than 10% and must be maintained “to the extent practicable”,
- Adhere to limitations on the total compensation of highly paid workers
Payroll Protection Program Loan Forgiveness
The Act provides that loans will be eligible for payment deferment for at least 6 months and no more than one year, as well as forgiveness for the total amount borrowers spent on payroll costs and mortgage interest, rent, and utility payments between February 15 and June 30, 2020. Any canceled indebtedness will not be included in the borrower’s taxable income. However, note that a borrower whose PPP loan is forgiven is not eligible for deferral of the payroll tax offered under Section 2302 of the CARES Act.
There are a few restrictions on the amount of loan forgiveness a business can receive. First, the forgiven amount cannot exceed the loan principal. Second, the amount forgiven will be reduced proportionally by any reduction in employees compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their compensation the prior year. To encourage employers to rehire employees who may already have been laid off due to COVID-19, the Act provides an exception to the reduction if the business re-hires employees and/or eliminates the reduction in salaries by June 30, 2020.
For more information, you can download a copy of the CARES Act Highlights provided by The Washington Council Ernst & Young, by clicking on the following link.