Below is a brief summary of federal legislation, not intended as legal advice. Effective dates and implementation timelines for the different provisions of this bill will vary. NEFI will provide additional details as they become available. NEFI urges you to consult a qualified tax professional or attorney for guidance on how these changes affect your business and employees.
The House of Representatives today gave final approval to a massive economic relief package in response to the coronavirus pandemic. The 880-page bill, titled the Coronavirus Aid, Relief, and Economic Security (CARES) Act, has an estimated cost of around $2 trillion and includes support for businesses, workers, and Americans furloughed or laid off as a result of the ongoing COVID-19 crisis.
The Senate approved the bill (H.R.748) late Wednesday night by a unanimous vote of 96-0. The bill was the product of intense negotiations between Senate Democrats and Republicans, Speaker of the House Nancy Pelosi, and White House officials. President Trump has promised to sign the bill once it arrives at his desk.
This is the third in a series of bills recently passed by Congress to address the worsening COVID-19 situation and its affect on American businesses, families, and the U.S. healthcare system. Congressional leaders have promised to take up additional legislation next month as additional needs are identified.
Provisions of Interest to NEFI members
$900 Million in Emergency Fuel Assistance: In a move urged by NEFI and other groups, the bill provides an additional $900 million for the federal Low-Income Home Energy Assistance Program (LIHEAP). The funds are available to states through the next fiscal year (September 30, 2021). NEFI would like to thank Senators Collins (R-ME), Leahy (D-VT), Shaheen (D-NH), Reed (D-RI), Representative Welch (D-VT), and others from the Northeast delegation who fought hard to include this emergency funding.
Support for Small Businesses:
- Creates a new $349 billion "paycheck protection loan program" administrated by the Small Business Administration (SBA) for businesses with fewer than 500 employees, including sole proprietorships. Loans will be available to help cover certain expenses for the period from February 15 through June 30, 2020, up to 2.5 times average monthly payroll, to a maximum of $10 million. Loans are guaranteed at 100% through December 31, 2020 and at 85% thereafter for loans greater than $150,000. Loan forgiveness is provided through a process that incentivizes companies to retain employees on their payroll. The loans are good for up to 10 years and limited to a 4% interest rate. SBA fees are waived.
- Expands access to Economic Injury Disaster Loans (EIDLs) to include businesses with fewer than 500 employees, including sole proprietors, independent contractors, and employee stock ownership plans (ESOPs). EIDLs are fast-track loans provided directly from the U.S. Treasury rather than banks. No personal guarantee is now required on loans of less than $200,000 taken before December 31, 2020, which are for reasons "other than payroll costs."
- Includes $10 billion for new Emergency Grants that will offer an immediate advance of up to $10,000 in payroll support for businesses that have applied for EIDLs. These grants will be paid out within three days and are not subject to repayment, even if the EIDL application is rejected and the loan denied.
- Another $17 billion is provided to pay the principal, interest, and fees on existing federally guaranteed small business loans for a period of six months.
- NEFI will provide additional information on various small business loans, grants, and other benefits and programs under the CARES Act, as it becomes available.
Other Business-Related Relief Measures:
- A new "Employee Retention Credit" may be taken against employment taxes for businesses that retain and pay their employees during any quarter when operations are partially or fully suspended due to the pandemic. Employers with gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year. The credit is equal to 50% of qualified wages (up to $10,000 in wages) for each employee.
- Provides advance funding on the payroll tax credit to offset the cost of providing new paid sick and family medical leave mandated under the previous coronavirus bill, the Families First Coronavirus Response Act.
- Provides at least $454 billion to the Secretary of the Treasury to assist distressed areas of the economy through loans, loan guarantees, or direct investment by the Treasury or the Federal Reserve. Broad discretion is given on how these funds may be used, but funds are meant to assist larger businesses with between 500 and 10,000 employees. Employers are subject to some limitation; for example, they must endeavor to maintain at least 90% of their workforce.
- Delays payment of 50% of payroll taxes for 2020 until December 31, 2021. The remaining 50% would be due December 31, 2022.
- Suspends collection of federal excise taxes on aviation fuel until 2021.
- Includes several other beneficial tax provisions, including the temporary modification for net operating loss deductions; repeal of the excess loss limitation; modification of limitation on business interest; and the acceleration of the corporate AMT credit under the 2017 tax reform law.
Highlights for Individuals and Families
Financial Relief Checks: Americans will receive a one-time tax rebate check of $1,200. The check phases out by $5 per $100 in income after the first $75,000 in adjusted gross income ($112,500 for head of household and $150,000 for couples filing jointly). The income is based on the 2019 filing, 2018 if taxes have not yet been filed, or an individual's Form SSA-1099 Social Security Benefit Statement. An additional $500 will be provided for each child. The checks will be paid by Treasury "as rapidly as possible."
Pandemic Unemployment Assistance: In a controversial move, through July 31, 2020, unemployed workers will receive $600 per week in addition to the unemployment benefit determined by each state. The bill expands eligibility to furloughed and self-employed workers. This provision was a sticking point that almost derailed the bill in its final hours. Some lawmakers opposed this measure for fear it would increase layoffs, arguing that some people could be paid more on unemployment than if they stayed in their current jobs. A Republican amendment to limit the benefit to no more than an employee's previous wages failed in the Senate 48-48.
Emergency Retirement Disbursements: Individuals directly affected by COVID-19 or who experience economic hardship as a result of the pandemic may take up to $100,000 in special disbursements and loans from tax advantaged retirement accounts without penalty. Repayment would be allowed over three years and extra contributions would be allowed for this purpose.
This massive piece of legislation will impact businesses significantly in the weeks and months ahead. NEFI will provide additional details as they become available. We strongly urge you to consult with tax and legal professionals regarding the specifics of this legislation, how it will be implemented and enforced, and the implications for your business and employees.
CARES Act Bill Text
Summary of Small Business Provisions
Section-by-Section Summary of Economic Relief Measures (Division A)
Summary of Emergency Appropriations Provisions (Division B)