Analyzing the CARES Act
Congress has passed a nearly $2 trillion legislative package, its third emergency supplemental bill in response to the coronavirus pandemic, known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, or H.R. 748. Among its many provisions, the bill provides significant further relief for small businesses and individuals.
The bill — at 335 pages and about 140,000 words — is not exactly a page turner. So, we read it for you (it took 3 lawyers, 2 days, 8 hours, and a lot of coffee). Below, we have selected and summarized the provisions we believe most relevant to our clients’ needs. Accordingly, this summary does not cover the CARES Act in its entirety, and we will be routinely updating this page.
For Employers / Businesses
We have written a more detailed article regarding the CARES Act relief for small businesses.
Small Business Loans: Paycheck Protection Program
The CARES Act allows, from February 15, 2020 to June 30, 2020, for loans up to $10 million for payment of payroll costs, costs related to group healthcare benefits during periods of paid sick, medical, or family leave, and insurance premiums, as well as employee salaries, mortgage interest payments, rent, utilities and interest on other debt obligations. The interest rates on these loans will be capped at 4%.
Loan amounts will total the lesser of: (1) $10 million or (2) 2.5 times an applicant’s average total monthly payments for payroll costs (not including compensation for employees in excess of $100,000 annually, prorated for the covered period) incurred during the one-year period before the date on which the loan is made, plus the outstanding amount of any other SBA loan made between January 31, 2020 and the date of the newest loan application. Loan amounts for seasonal employers and other applicants that were not in business during the period between February 15, 2019, and June 30, 2019, will be determined using a modified version of the above formula.
These CARES Act loans shall be available to small businesses, 501(c)(3) nonprofit organizations, 501(c)(19) veteran organizations, tribal businesses with fewer than 500 employees, sole proprietors, independent contractors, self-employed individuals, and businesses in the hospitality and restaurant industries with more than one physical location and no more than 500 employees per physical location. For purposes of the loan, the term “employee” includes individuals employed on a full-time, part-time or other basis.
Loan approval authority has been delegated to lenders, who must consider whether a business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or paid independent contractors. Borrowers will be required to make good faith certifications that the uncertainty of current economic conditions makes the loan request necessary to support ongoing operations. Borrowers must pledge to use funds to retain workers, maintain payroll and pay other debt obligations. A borrower must also certify that it does not have an application pending for a loan for the same purpose and duplicative of amounts applied for or received under a covered loan, nor has it received such a loan between February 15, 2020, and December 31, 2020.
- Interest rates capped at 4%
- Both borrower and lender application fees will be waived.
- The “credit elsewhere” test and personal guarantee and collateral requirements will be waived during the covered period.
- Lenders are required to provide complete deferment of 7(a) loan payments for not less than six months and not more than one year, including payment of principal, interest and fees.
- Existing 7(a) loans made between January 31, 2020, and the date on which covered loans are made available may be refinanced as part of a covered loan.
- No pre-payment penalty.
- Loans are nonrecourse against a shareholder, partner, member, or individual within an entity to the extent that the loan is used for a permitted purpose.
Paycheck Protection Program Loan Forgiveness
The CARES Act provides that borrowers will be eligible for loan forgiveness in an amount equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on the following:
- Payroll costs.
- Interest payment on any mortgage obligation, for real or personal property, incurred prior to February 15, 2020.
- Payment of rent on any lease in force prior to February 15, 2020.
- Payment on any utility for which service began before February 15, 2020
The amount forgiven will be reduced in proportion to any reduction in employees retained compared to the prior year.
The amount forgiven will be reduced in proportion with the reduction in pay of any employee making less than $100K annually beyond 25% of their prior year compensation.
To incentivize employers to rehire employees already laid off due to COVID-19, borrowers that rehire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.
- Must provide proof of your respective payroll, mortgage interest, lease payment, and utility payments to qualify for forgiveness.SEC. 1106. LOAN FORGIVENESS. (e)
- Applicants for forgiveness must provide certification that the provided documentation is true and correct and that the amount for which forgiveness is requested was utilized for a permitted purpose.SEC. 1106. LOAN FORGIVENESS. (e)(3)
- Decisions on forgiveness must be provided within 60 days of application.SEC. 1106 LOAN FORGIVENESS. (g)
- Loans that are forgiven are not taxable as forgiven debt.SEC. 1106. LOAN FORGIVENESS. (i)
Emergency EIDL Grants
The CARES Act further establishes an emergency grant to allow an eligible entity that has applied for an EIDL loan due to COVID-19 to request an advance on that loan of no more than $10,000, which the SBA must distribute within three days. Applicants will not be required to repay such an advance payment, even if subsequently denied an EIDL loan.
Eligible entities include startups, tribal businesses, cooperatives and ESOPs with fewer than 500 employees, and any individual operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020, to December 31, 2020).
Grants for Education, Training, and Advising to Certain Businesses
Small business development centers, women’s business centers, minority business centers, and minority chambers of commerce are eligible to receive grants for the provision of education, training, and advising to qualifying business enterprises relating to:
- Accessing and applying for Federal resources relating to access to capital and business resiliency;
- hazards and prevention of transmission and communication of COVID-19 and other communicable diseases;
- potential effects of COVID-19 on supply chains, distribution, and sale of products and mitigation of those effects;
- the management and practice of telework to reduce possible transmission of COVID-19;
- the management and practice of remote customer service by electronic or other means;
- risks and mitigation of cyber threats in remote customer service or telework practices;
- the mitigation of the effects of reduced travel or outside activities during COVID-19; and
- Any other relevant business practices necessary to mitigate the economic effects of COVID-19.
Employer Tax Benefits
Benefits for Employee Retention
Employers, both for profit and not-for-profit, who have 1) suspended operation, either partially or completely, or 2) experienced reduction in gross revenue of: 50% in 1Q 2020 when compared to 1Q of 2019 and 80% in 2Q 2020 when compared to 2Q 2019, due to governmental orders may receive a credit of up to $10,000 per employee on their payroll taxes for 50% of the quarterly wages of all employees left on staff during the suspension.
For purposes of calculating this benefit, wages include health plan expenses as are properly allocable to such wages.
Delay of Payment of Employer Payroll Taxes
Employers who owe FICA taxes between the date the CARES Act is enacted and January 1, 2021 are able to defer those payments. Payment of deferred taxes are to be made in an amount of at least 50% by December 31, 2021 with the remaining unpaid deferred taxes due December 31, 2022.
Unemployment / Sick Leave
Section 110(b)(2)(B) of the Family And Medical Leave Act of 1993 (FMLA) is amended so that employers are now required not to pay more than $200 per day and $10,000 in the aggregate for each employee under paid leave under this section. (SEC. 3601. LIMITATION ON PAID LEAVE)
Section 5102 of the Emergency Paid Sick Leave Act is amended. That section of the Emergency Paid Sick Leave Act concerns a paid sick time requirement for employers when an employee can’t come into work due to the coronavirus. The section is now amended so that employers are not required to pay more than $511 per day and $5,110 in the aggregate when an employee is taking leave 1. Due to a federal, state or local quarantine, 2. Has been advised by a health care professional to quarantine, or 3. Is experiencing COVID-19 symptoms and is seeking a medical diagnosis. Meanwhile, employers are not required to pay more than $200 per day and $2,000 in the aggregate when taking leave 1. Because are caring for someone who is under quarantine (as described above), 2.caring for a child whose school has been closed due to the coronavirus, or 3. Other conditions specified by the Secretary of Health and Human Services. (SEC. 3602. EMERGENCY PAID SICK LEAVE ACT LIMITATION)
Section 110(a)(1)(A) of the Family and Medical Leave Act of 1993, as added by section 3102 of the Emergency Family and Medical Leave Expansion Act, is amended to provide that an ‘eligible employee’ means an employee who has been employed for at least 30 calendar days by the employer with respect to whom leave is requested under section 102(a)(1)(F). Additionally, the term ‘employed for at least 30 calendar days’, used with respect to an employee and an employer described in clause (i), includes an employee who was laid off by that employer not earlier than March 1,2020.
Section 7001 of the Family First Coronavirus Response Act is amended to include a provision allowing the advanced payment of payroll credits against FICA and RRTA taxes paid for an employee on qualified sick leave.
The bill also provides temporary funds to reimburse nonprofits, government agencies, and Indian tribes for half of the costs they incur through December 31, 2020 to pay unemployment benefits.
Unemployment to the Individual and Other Individual Benefits
The CARES Act provides that the Secretary of Labor shall provide, to any covered individual, unemployment benefit assistance while they are unemployed, unable to work, and while not receiving other unemployment compensation for unemployment caused by COVID-19 for weeks beginning on or after January 27, 2020 and ending before December 31, 2020.
A “covered Individual” means a person who is not eligible for regular compensation or extended benefits under State or Federal law or pandemic emergency unemployment compensation and provides self-certification that they are otherwise able to work except they are unemployed because:
- They have been diagnosed with, or are experiencing symptoms of, COVID-19;
- A member of their household has been diagnosed with COVID-19;
- They are providing care for family member or member of their household with COVID-19;
- A child of the person is unable to attend a school or childcare facility that is closed as a direct result of COVID-19 and the school or childcare facility is required for the person to work;
- They are unable to reach their place of work because of quarantine;
- They were scheduled to start work but can’t because of COVID-19;
- They are unable to work because of self-quarantine due to COVID-19;
- They have become the breadwinner of their home because the head of household died from COVID-19;
- They had to quit their employment because of COVID-19;
- Their place of employment closed because of COVID-19;
- They meet any additional criteria established by the Secretary of Labor; or
- They are self-employed, seeking part-time work, do not have sufficient work history, or otherwise would not qualify for regular unemployment or extended benefits under State or Federal law or pandemic emergency unemployment compensation and meet the above requirements.
This relief is not available for persons who telework for pay or people receiving paid leave benefits.
The amount of unemployment benefits available to each individual shall be equal to the weekly benefit amount authorized by the unemployment compensation laws of the individual’s home state but no less than the federal minimum wage. Additionally, the CARES Act provides that the States can opt into an agreement with the Federal Government to offer an additional $600/wk over normal unemployment benefits.
The federal bill also eliminates the one-week waiting period through December 31, 2020. The federal government will cover the cost for this additional week of benefits.
The CARES Act makes an additional 13 weeks of unemployment benefits available through December 31, 2020 to help those who remain unemployed after they exhaust their state unemployment benefits.
The CARES Act provides for an advanced income tax refund for all individuals to be paid as follows:
- $1,200 ($2,400 in the case of individuals filing joint return) plus
- $500 per child
This refund shall be reduced by 5% of all income over:
- $150,000 for those filing joint returns
- $112,500 for those filing as head of household
- $75,000 for all others
Income shall be determined based on an individual’s 2019 tax return if it has already been filed. Otherwise, the 2018 tax return will be used.
Tax Relief for Individuals
The CARES act provides for the following:
- Tax-favored withdrawals from retirement funds for coronavirus related expenses up to $100,000 that can be repaid over a three-year period.SEC. 2202 SPECIAL RULES FOR USE OF RETIREMENT FUNDS
- Increased loan limits from retirement plans to $100,000 from $50,000. The repayment date for these loans is extended by a year if the loan is taken before December 31, 2020.SEC. 2202 SPECIAL RULES FOR USE OF RETIREMENT FUNDS
- Internal Revenue Code 401(a)(9) relating to Required Minimum Distributions does not apply for the calendar year 2020.SEC. 2203 TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTION RULES FOR CERTAIN RETIREMENT PLANS AND ACCOUNTS
- Adjusted Gross Income can be reduced by up to $300 for charitable contributions made in 2020.SEC. 2204 ALLOWANCE OF PARTIAL ABOVE THE LINE DEDUCTION FOR CHARITABLE CONTRIBUTIONS
- An increase in the amount of qualified charitable contributions for individuals and corporations.SEC. 2205 MODIFICATION OF LIMITATIONS ON CHARITABLE CONTRIBUTIONS DURING 2020
Universities now have the increased ability to utilize emergency financial aid grants in order to assist undergraduate and graduate students with unexpected expenses or financial needs due to emergency.
- Students can get approved leaves of absence, if needed and other related leighwaysSEC. 3508. INSTITUTIONAL REFUNDS AND FEDERAL STUDENT LOAN FLEXIBILITY
- Payments for federal student loans are suspended through September 30, 2020, and no interest accrues during this time. Furthermore, this will not affect any loan forgiveness or loan rehabilitation programs.Sec. 3513, temporary relief for federal student loan borrowers
Real Estate / Real Property
Real Estate / Real Property
Moratorium on foreclosures for federally backed mortgage loans. Unless a property is vacant or abandoned, Federally back mortgaged loans are not subject to judicial or non-judicial foreclosure proceedings, including foreclosure-related evictions, for not less than the 60-day period beginning on March 18, 2020.
Borrowers with Federally Backed Mortgage Loans who are experiencing a financial hardships can request a 180-day forbearance (with the possibility of another 180-day extension), during which no fees, penalties or interests beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time shall accrue. The requirements are simply that a borrower must attest to financial hardship caused by the COVID-19 pandemic, borrowers need not submit any other additional documentation. Borrowers can end forbearance arrangements early.
“Federally Backed Mortgage Loans” include loans secured by first or second liens on residential real property designed principally for 1 to 4 families that is:
- insured by FHA
- Insured under 255 of NHA
- guaranteed under section 184 or 184A of the Housing and Community Development Act
- guaranteed or insured by VA
- guaranteed or insured by Dept. of Agriculture
- made by department of agriculture
- purchased or securitized by the FHLMC or the FNMA
Forbearance of residential mortgage loan payments for multifamily properties with federally backed loans also exist for those borrowers who were current on their payments as of February 1, 2020. If they submit an oral or written request for forbearance affirming that they are experiencing a financial hardship during the COVID-19 pandemic, they shall be provided forbearance for up to 30 days, with up to 2 additional 30-day extensions. Borrowers can end forbearance arrangements early. Multifamily borrowers who receive forbearance may not evict tenants or charge them late fees or penalties for late payment of rent.
Any property with a federally backed mortgage loan must abide by a temporary, 120-day period (beginning on the enactment of the Act) of a moratorium of eviction filings for tenants who, pursuant to a residential lease, or without a lease or with a lease terminable under State law, reside there.
During the emergency period the director of the United States Patent & Trademark Office (“USPTO”) may now “toll, waive, adjust, or modify, any timing deadline established by the Trademark Act, the Leahy-Smith America Invents Act or related regulations if the Director determines that the emergency materially affects the functioning of the Patent and Trademark Office, prejudices the rights of applicants, registrants, or others appearing before the office or prevents the same from filing a document or fee with the Office.
Upon invoking these powers, the statute requires the UPTO Director to (1) USPTO provide public notice and (2) report to congress within 20 days of taking such action and the rationale behind doing so should the modification of the provision be for longer than 120 days.
Section 19001 provides similar emergency authorities to the Register of Copyrights as the Act does to the Director of Trademarks. On or before December 31, 2021, the Register of Copyrights may temporarily toll, waive, adjust or modify any provision unless excepted in this chapter should a national emergency generally disrupt or suspend the ordinary functioning of the copyright system.
However, the Register shall only modify its provisions to the extent that it deems reasonably necessary to mitigate the impact of the disruption caused by the national emergency.
This does not permit the extension to deadlines to commence a legal action or proceeding in Federal Courts except in limited circumstances. Should the Register modify a provision for longer than 120 days, they must provide Congress within 20 days of taking said action.
Health Care Professional and Medical Device Manufacturer Protections
With the ultimate purpose behind the CARES Act being the Federal Government helping States, Businesses and individuals needs, the Act has also enacted several provisions that limit a Health Care Providers and Manufacturers potential legal liability related to the coronavirus pandemic and the healthcare industry.
Specifically, the CARES Act provides broad immunity to volunteer health care professionals during the Coronavirus Emergency Response. Under Section 3215, “a healthcare professional shall not be liable under Federal or State law for any harm caused by an act or omission of the professional in the provision of health care services during the public health emergency” so long as the healthcare professional meets a few select requirements as outlined within the CARES Act.
The Act is also taking into account that the U.S. needs to increase production and manufacturing of respiratory protection devices. To encourage the manufacturing of necessary medical supplies, the CARES Act is amending the Public Service Health Act to include “respiratory protective devices.” The Public Health Services Act allows for Congress to provide immunity (except for willful conduct) to manufacturers and sellers of certain medical products which now respiratory protective devices now qualify for that protection.
Despite price gouging already being against the law, Congress has included anti-price gouging measures. Should a person or entity be found liable for price gouging, the CARES Act permits a civil penalty of of $300 per day and for each day the violation continues. The Act also requires each diagnostic provider to make the cost of the test public on their website.