On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act became law. The CARES Act is a $2 trillion stimulus package designed to provide economic relief to American workers and businesses, including an additional $350 billion for new loans for small businesses. This article will outline the key provisions of the Act.
Small Business Loans
The Small Business Administration (“SBA”) will oversee the Payment Protection Program, which will distribute $350 billion to small businesses. While the SBA will administer the program, small businesses can obtain loans through private lenders. The CARES Act defines small businesses as employers with fewer than 500 employees. Under the Act, small businesses also include non-profits, sole proprietorships, self-employed individuals, and firms with fewer 500 employees per location.
The CARES Act offers loan support for small businesses. In order to eligible for a small business loan, an “impacted borrower” must have been in operation on February 15, 2020 and have an application for a covered loan that is approved or pending approval on or after the enactment date of the CARES Act. A covered loan is a loan made under the CARES Act between February 15, 2020 and June 30, 2020.
The small business loans are for employers impacted by COVID-19 and the economic downturn caused by the pandemic. The loans must be used to make payroll and cover other business expenses, such as paid sick leave, insurance premiums, and mortgage, rent, and utility payments.
Small businesses may take out loans up to 2.5 times the borrower’s average monthly payroll costs, up to $10 million. An employer’s loan amount is based on the employer’s average total monthly payroll costs incurred during the one year period prior to the loan date.
For businesses that were not operational in 2019, the employer’s loan amount is based on the employer’s average monthly payroll costs between January 1, 2020 and February 29, 2020. The loans will cover payroll costs of up to $100,000 per employee. The maximum interest rate under this law is 4%.
Loan Forgiveness
Employers are eligible for loan forgiveness for covered loans up to the principal amount financed. If an employer eliminates employees or reduces employee salaries from February 15, 2020 until 30 days after the enactment of the Act, the amount of loan forgiveness an employer will receive will be reduced. However, if the terminated employees are rehired and/or the employees are returned to their original salaries by June 30, 2020, 100% of the principal of the loan will be forgiven.
Additionally, if small business owners have already laid off workers, they will be forgiven for the principal of a loan if they use the funds to rehire those employees by June 30, 2020.
Individuals
Unemployment Insurance
The CARES Act extends unemployment benefits for all eligible Americans up to a maximum of 39 weeks. These benefits cover the period beginning on January 27, 2020 and ending on December 31, 2020. The amount of unemployment insurance individuals can receive includes the amount they are entitled under state law plus $600 for up to four months. The typical one-week waiting period to apply for unemployment has also been waived.
In addition, the CARES Act creates the Pandemic Unemployment Assistance (“PUA”) program to provide payment to individuals who are not traditionally eligible for unemployment benefits (such as those who are self-employed, have a limited work history, gig workers, and independent contractors) who are unable to work as a result of the COVID-19 pandemic. The program expires on December 31, 2020.
Individuals are not eligible for benefits under the PUA if they are able to telework or if they are receiving paid sick leave or any other paid leave benefits.
Under the PUA, a “covered individual” is anyone who self-certifies that they are able and available for work but is unemployed or partially unemployed because any of the following:
- The individual has been diagnosed with COVID-19 or is experiencing symptoms and seeking a medical diagnosis;
- A member of the individual’s household has been diagnosed with COVID-19;
- The individual is providing care for a family member or household member who has been diagnosed with COVID-19;
- The individual is the primary caregiver for a child or other person in the household who is unable to attend school or another facility that is closed as a direct result of COVID-19;
- The individual is unable to reach the place of employment because of a quarantine imposed as a direct result of COVID-19;
- The individual is unable to work because a health care provider has advised them to self-quarantine due to concerns related to COVID-19;
- The individual was scheduled to begin working but lost their job or is unable to reach the job as a direct result of COVID-19;
- The individual has become the breadwinner or major support for a household because the head of household has died as a direct result of COVID-19;
- The individual has to quit their job as a direct result of COVID-19;
- The individual’s place of employment is closed as a direct result of COVID-19; or
- The individual meets any additional criteria established by the Secretary of Labor.
Individual Rebate
The CARES Act provides that all U.S. residents with an adjusted gross income of up to $75,000, who are not a dependent of another taxpayer, are eligible for a $1,200 rebate. Married couples with an adjusted gross income of $150,000, and who filed taxes jointly, are eligible for a $2,400 rebate. Additionally, U.S. residents are eligible for an extra $500 rebate per child. Individuals with no income or those whose income comes from entirely non-taxable benefit programs, such as Social Security, are also eligible for the rebate.
Most Americans will not have to do anything to receive their rebate check. The IRS will issue rebates based on a taxpayer’s 2019 tax return, if filed, or alternatively, their 2018 return.
The rebate amount will be reduced by $5 for every $100 that an individual’s income exceeds the $75,000 or $150,000 limits. This means that individuals with no children earning over $99,000 and married couples without children earning over $198,000 will not receive a rebate check.