The Consolidated Appropriations Act (signed into law on December 27, 2020) made a number of changes to the CARES Act’s relief measures. The new legislation reopened the PPP and made changes to it, extended and expanded the ERC, and replenished funds for the EIDL program. The Act also makes changes to unemployment insurance compensation benefits and provides a second round of stimulus checks. For information about the new legislation, check out our article, “Consolidated Appropriations Act: Hello, New COVID-19 Relief.”
Businesses nationwide are temporarily closing up shop and seeing a decline in sales due to the COVID-19 pandemic. With so many businesses struggling during this time, the government passed legislation to help businesses bounce back.
One legislation that recently passed to help support and relieve small businesses during the coronavirus crisis is the CARES Act. Read on to learn all about what the CARES Act has in store for you.
The CARES Act: An employer’s guide
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020. It was the second major legislation in response to COVID-19 passed into law following the Families First Coronavirus Response Act (FFCRA). The new legislation not only benefits individuals across the country, but is also chock-full of perks for small business owners.
So, what does the CARES Act include? How will it impact your small business? Check out the main components of the new act:
- Paycheck Protection Program
- Employee Retention Credit
- Employer Social Security tax deferral
- Economic Injury Disaster Loan expansion
- Government-issued stimulus checks
- Unemployment assistance
- Student loan relief
- Health care
Some of the above relief measures solely impact business owners or individuals while others provide assistance to businesses and individuals alike. Dive into the various elements of the CARES Act below.
Paycheck Protection Program
The Paycheck Protection Program (PPP) is one of the biggest relief measures for small businesses under the CARES Act. The program’s forgivable loans incentivize small businesses to keep employees on payroll in the midst of the pandemic.
The Paycheck Protection Program Flexibility Act was signed into law on June 5. This act made a number of changes to the original PPP, including changes to the usage rules and extensions to some time frames.
The PPP provides small businesses with funds for up to 24 weeks of payroll costs, interest on mortgages, rent, and utilities (originally up to eight weeks). Current PPP borrowers can choose to extend their eight-week period to 24 weeks. New borrowers will automatically have a 24-week covered period that can’t extend beyond December 31, 2020.
Borrowers must use 60% of the loan for payroll-related expenses. Payroll costs include things like:
- Salaries, wages, commissions, and tips ($100,000 max per employee)
- Employee benefits (e.g., sick leave)
- State and local taxes
Interest on mortgages, as well as rent and utility bills must be from before February 15, 2020.
Businesses receiving assistance can receive a loan equal to their average payroll costs for the last eight weeks, plus an additional 25% (maximum set at $10 million per applicant).
To qualify for the loan, you must be a small business with fewer than 500 employees. If you have more than 500 employees, you still may be eligible to receive the protection loan depending on your industry. Small businesses also include the following:
- Self-employed individuals
- Sole proprietors
- Nonprofit and veteran organizations
- Independent contractors
- Tribal businesses
The PPP loan has a repayment plan of five years and a fixed interest rate of 1%. The loan forgiveness amount decreases if you’re not able to retain or rehire all of your employees before December 31, 2020. Paycheck protection loans are 100% forgiven (principal amount of the loan, plus accrued interest) if employers use them to cover eligible expenses.
To request loan forgiveness, submit a request to your lender after the loan period. Lenders have 60 days to make a decision on your loan forgiveness. Your loan forgiveness request should include the number of full-time equivalent employees and pay rates and eligible mortgage, lease, and utility payments. Be sure to keep detailed records to prepare for requesting loan forgiveness.
Because of the Paycheck Protection Program Flexibility Act, business owners can receive a PPP loan and also defer paying the employer portion of payroll taxes. The payroll tax deferment is a universal employer benefit under the CARES Act.
Before the PPP Flexibility Act was signed into law, employers who received a PPP loan could only defer payroll tax payments until their loan was forgiven. With the new act, employers can defer payments for the remainder of 2020.
Per the IRS, the Social Security tax you deferred must be paid by the following due dates:
- December 31, 2021 (50%)
- December 31, 2022 (remaining amount)
PPP loans are on a first-come, first-served basis. Businesses interested in a PPP loan should apply through an approved lender as soon as possible using the Paycheck Protection Program application. The deadline to apply for the program is August 8, 2020.
Employee Retention Credit
The Employee Retention Credit is another CARES Act relief measure for small businesses. It is a fully refundable coronavirus tax credit eligible employers can claim that is equal to 50% of qualifying wages paid to employees after March 12, 2020 and before January 1, 2021.
The maximum credit per employee for all calendar quarters is $5,000 (up to $10,000 in qualified wages per employee).
You are considered to be an eligible employer for the Employee Retention Credit if:
- You have to fully or partially suspend operating during any quarter in 2020 due to the coronavirus or
- Your gross receipts significantly decline as a result of the coronavirus
Self-employed individuals and government workers are not eligible for the Employee Retention Credit.
The credit reduces your employer Social Security tax liability. If your credit is more than your Social Security tax liability, you will get a refund.
To claim the credit, report your total qualified wages and related credits for each calendar quarter on your federal employment tax returns (e.g., Form 941). Qualified wages are the compensations and wages employers pay to employees during this period of time (including qualified health plan expenses). The number of full-time equivalent employees you had in 2019 also determine qualifying wages. You cannot claim the credit on FFCRA paid leave wages.
Employers can claim the Employee Retention Credit if they don’t receive a PPP loan. You cannot receive both the Employee Retention Credit and a PPP loan. Employers who receive a PPP loan cannot claim the Employee Retention Credit, regardless of if the PPP is forgiven or not.
Employer Social Security tax deferral
Under the CARES Act, employers can defer payments for the employer portion of their Social Security tax liability. The Social Security tax deferral is not a payroll tax credit. Instead, it’s a benefit under the CARES Act offered in addition to the Employee Retention Credit and the FFCRA tax credit.
Employers can defer SS tax payments that are due from March 27, 2020 – December 31, 2020. As a reminder, the deferred Social Security tax payments are due December 31, 2021 (50% of the deferred amount) and December 31, 2022 (remaining amount).
Again, employers that apply for a PPP loan must stop deferring Social Security tax payments when they receive an issuance from their lender that says their PPP loan is forgiven.
Economic Injury Disaster Loan expansion
The Economic Injury Disaster Loan (EIDL) existed pre-CARES Act and is operated by the Small Business Administration (SBA). However, the CARES Act declared the coronavirus a disaster and extended the EIDL to businesses impacted negatively by the pandemic. And, the act authorized low-interest EIDLs of up to $2 million per business.
The EIDL is another coronavirus loan option that provides relief for qualifying businesses by providing low interest rates (3.75% for businesses and 2.75% for nonprofit organizations) and long-term repayment plans (maximum of 30 years). Business owners can use an EIDL to cover employee wages, rent, accounts payable, and other expenses.
The EIDL is available to small businesses affected by the coronavirus pandemic. This includes businesses with fewer than 500 employees, including sole proprietorships, independent contractors, and self-employed individuals. Nonprofit and veterans organizations impacted by COVID-19 can also apply for the loan. Companies with 500 or more employees in some industries may still be able to apply if they meet the SBA’s size standards.
Small businesses in the U.S. can apply for an Economic Injury Disaster Loan forgivable advance of up to $10,000. Aside from the advance (up to $10,000), the rest of the loan is not forgivable. You do not have to repay the loan advance if you use the funds for things like providing COVID-19 paid sick leave to employees, maintaining payroll to retain employees during the pandemic, or making rent or mortgage payments.
Businesses can apply for both the EIDL and PPP. But, you can’t double-dip and get funds from both loan programs for the same purpose. To apply for an EIDL, fill out an online application through the SBA’s website.
Government-issued stimulus checks
Another aspect of the new CARES Act is stimulus checks, also referred to as economic impact payments. These government-issued stimulus checks will benefit all individuals, including small business owners.
The act provides most U.S. adults with economic impact payments, based on adjusted gross income (AGI) from 2018 or 2019. The year you base your AGI on depends on if you’ve filed your taxes for 2019 yet. If you have not filed for 2019, use your AGI amount from your 2018 tax return.
Each qualified individual can receive up to $1,200, depending on their AGI. Individuals will also receive an additional $500 for each child they have under the age of 17.
Check amounts also vary depending on if you’re married filing jointly or are filing as head of the household. Take a look at a breakdown below to see what the AGI cutoffs are for each type of individual:
- A single U.S. resident must have an AGI under $75,000 to receive the full $1,200. Single individuals with AGIs above $99,000 are not eligible to receive a check.
- Married couples filing jointly with an AGI below $150,000 can receive a $2,400 (in total) check. Couples with a total AGI above $198,000 are not eligible.
- If you file as head of household, your AGI must be less than $112,500 to receive the full stimulus check amount. If you have an AGI above $146,500, you are not eligible for the stimulus check.
The CARES Act also expanded unemployment benefits with the Pandemic Unemployment Assistance (PUA). Benefits now apply to workers who used to be deemed ineligible.
With PUA, the following individuals are now eligible for unemployment:
- Self-employed individuals
- LLC or S Corp owners
- Independent contractors
- Gig workers
Eligible workers include individuals who were laid off, became ill, or had to care for someone else with coronavirus.
To qualify, individuals must be out of work due to the coronavirus. Individuals who work from home do not qualify for the PUA.
The PUA is a federal initiative, meaning that states must sign up and implement a system before individuals can apply.
The CARES Act also offers eligible workers an additional $600 per week for four months in addition to what the state program pays. State programs have also been extended for an additional 13 weeks.
Student loan relief
Although it’s not something businesses can take advantage of, the CARES Act also pushes back most federal student loan payments for individuals. With the act, individuals do not need to make federal student loan payments until September 30, 2020. Loans will also not accrue interest until September 30.
Individuals must continue making payments if they have a Perkins loan and/or Federal Family Education Loan.
As an employer, you can also provide up to $5,250 in tax-free student loan repayment benefits per employee until the end of the year.
If you provide health care benefits to employees at your business, the CARES Act might also impact your health care.
Along with other types of relief, the CARES Act provides health care relief for workers and employers who provide coverage.
Because of the new legislation, insurers are now required to include COVID-19 testing and diagnostics as well as preventive services without any cost-sharing. Additionally, the act also provides more funding and support for telehealth services related to COVID-19, without cost-sharing.
Comparing elements of the CARES Act: Chart
Phew, that was a lot of new information to take in. To quickly see how the CARES Act impacts you, check out the chart below.
|PPP||ERC||SS Tax Deferral||EIDL||Stimulus Checks||Unemployment Assistance||Student Loan Relief||Health Care|
|Employers||X||X||X||X||X||X (impacts employers if the business offers health care)|
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