Client Alert: $2 Trillion Stimulus Package – "The CARES Act" – To Aid Businesses and Individuals During The Coronavirus Pandemic
By Nicholas P. Capotosto & Terry W. Vincent on March 27, 2020
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) addresses the economic impact of the COVID-19 (coronavirus) outbreak. The Act was unanimously approved by the Senate and by an overwhelming voice vote in the House, and president Trump signed it into law on the afternoon of March 27.
A summary of the current legislation includes:
Small Businesses: A $350 billion fund for small bcausinesses to mitigate layoffs and support payroll. Details include the following:
- establishes and provides funding for forgivable bridge loans;
- loans will cover from February 15, 2020 and end June 30, 2020;
- businesses, nonprofits, self-employed individuals, sole proprietorships, and independent contractors with less than 500 employees are eligible;
- loans are capped at the lesser of $10 million or 2.5 times the total of the applicant’s average monthly payments for payroll costs for 1-year prior to obtaining the loan;
- proceeds may be used for payroll costs, group health care benefits, employee salaries, commissions, compensation, interest on mortgage obligations, rent, utilities, and interest on debt obligations (approved expenses) incurred before the covered period;
- no personal guarantees or collateral are required for the loans;
- the loans are non-recourse so long as the proceeds are used for an approved purpose;
- any balance remaining on the loan after forgiveness shall be for a 10 year term at an interest rate not greater than 4%;
- loans may be eligible for forgiveness of indebtedness in an amount equal to the sum of approved expenses incurred during the 8-week period after loan origination;
- forgiven loan amount may be reduced based upon the number of employees and adjustments in reduced salaries and wages;
- canceled indebtedness is excluded from gross income;
- provides additional funding for grants and technical assistance;
- establishes limits on requirements for employers to provide paid leave; and
- strengthens unemployment insurance, which could potentially add $600 per week for up to four months on top of what a state would give beneficiaries.
Tax Issues: With respect to taxes, the bill:
- delays dates for employer payroll taxes and estimated tax payments for corporations;
- revises provisions relating to losses, charitable deductions, and business interest; and
- provides a credit against employment taxes if the employer does not take the Small Business Administration (SBA) loan.
Individuals: The bill provides direct payments of $1,200 to individuals, $2,400 for married couples, with additional $500 payments per qualifying child. The rebate begins phasing out when incomes exceed $75,000 (or $150,000 for joint filers) and is capped at $99,000 for individuals.
Brouse McDowell will continue to provide timely updates as the implementation details of the CARES Act are made available.