Highlights of the CARES Act

April 3, 2020

Highlights of the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed late last week provides emergency assistance for both employees and businesses. While all of the details are still being ironed out, below are some of the highlights of the Act. In addition to the measures outlined in this summary, the CARES Act contains several business tax relief provisions designed to preserve cash on hand, increase write-offs and credits, or otherwise use the tax rules to assist with business liquidity. We have analyzed those provisions in more detail here.

How could the CARES Act help my employees?

The CARES Act provides cash assistance directly to eligible taxpayers among other opportunities for relief. The following is a summary of the individual assistance programs included within the CARES Act:

  • One-time checks
    • The U.S. Treasury has stated it will issue refund checks “as rapidly as possible,” and officials are hoping for April. The full credit amount of $1,200 for individuals and $2,400 for couples is available for individuals with income at or below $75,000 ($112,500 for heads of household) and couples with income at or below $150,000. You will receive an additional $500 per child. Your tax rebate amount will be reduced by $5 for each $100 your income exceeds the income limits. That means for those without children, an individual will not receive a rebate if his or her income exceeds $99,000 or for couples, more than $198,000 of income.
  • 401K and IRA early withdrawal penalties
    • 10 percent early withdrawal penalties will be waived for certain coronavirus-related 401k and IRA distributions up to $100,000 made during 2020.
  • Student loans
    • Federal student loan payments will be waived for up to six months, and interest will not be accrued during this period.
  • Unemployment benefits
    • Individual unemployment benefits provided by states will increase by an additional $600 per week for four months, retroactive to January 27.
  • Credit reporting
    • The Act creates a moratorium on missed payment reports to credit reporting agencies for the duration of the public health emergency and 120 days thereafter.
  • Mortgages
    • Foreclosures will be prohibited on all federally-backed mortgage loans for 60 days beginning March 18, 2020, and up to 360 days of forbearance (180 days, plus one 180-day renewal) will be provided for borrowers of a federally-backed mortgage loan who have experienced a financial hardship related to the COVID-19 emergency.

How could the CARES Act help my small business?

The goal of the Act is to provide financial assistance to businesses and incentivize businesses to keep employees on payroll. These provisions are called the Paycheck Protection Program.

  • The Act focuses on the Small Business Administration (SBA) Section 7(a) guaranteed lending program. SBA will provide additional guidance and implementation dates following enactment of the Act.
  • The Act authorizes $349 billion for loans under the SBA Section 7(a) guaranteed lending program to cover, among others, eligible small businesses, those entities already classified as small business concerns under existing SBA regulations, or 501(c)(3) non-profits with fewer than 500 employees. It waives all fees and increases the federal government guarantee to 100 percent, with payments deferred for six months and no prepayment penalty.
  • The Act increases the loan amounts available under 7(a) to the lesser of $10 million or 2.5 times average monthly payroll, plus the value of any existing EIDL loan received after January 31, 2020, and provides eligibility for loan forgiveness on all amounts used for payroll plus up to 25% used for mortgage interest, lease, and utility payments made within 8 weeks of loan closing. Loan forgiveness will be reduced if there is a reduction in the number of employees or employee compensation during this period. Loans are currently fixed at 0.5 percent and a 2 year term for any amount not forgiven.
  • Loans may also be used — but not forgiven — for other specified purposes.
  • Information is changing rapidly and some provisions in the program may change even before the applications are accepting staring tomorrow. 

How could the CARES Act help my mid-size business?

Assistance for mid-size businesses is being accounted for in provisions related to the severely distressed sectors of the economy:

  • As part of a $454 billion provision in support of Federal Reserve lending, the Act directs the U.S. Treasury and Federal Reserve to try to provide financing to banks and other lenders that make direct loans to eligible businesses and nonprofits with 500 to 10,000 employees.
  • The interest rate on loans would be capped at 2 percent, with no payments due for the first 6 months, and borrowers would be required to provide good-faith certification to a list of conditions, including workforce retention; no payment of dividends or stock buybacks; no outsourcing or offshoring of jobs; and union neutrality with no collective bargaining agreement breaches for two years after repayment.

What measures are included for severely distressed sectors of our economy?

The Act provides $500 billion to the Treasury Department’s Exchange Stabilization Fund (ESF) to provide loans, loan guarantees, and other investments for eligible businesses, states, and municipalities.

  • Includes direct loans for airlines ($25 billion), air cargo carriers ($4 billion), and Boeing/businesses that are critical to maintaining national security ($17 billion).
  • $454 billion (and any additional amount not used for the programs above) will support programs or facilities established by the Federal Reserve.
  • The Act prohibits companies that receive loans or loan guarantees under certain programs from issuing new stock buybacks or paying dividends for as long as the loans or guarantees remain in effect plus 12 months. It also eliminates salary increases for employees who earned more than $425,000 in 2019 and requires firms to maintain as close to March 24, 2020, employment levels as practicable until September 30, 2020. 
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