Mar 26, 2020
Near-Term Liquidity, Tax, and Unemployment Business Provisions for COVID-19
On March 25, 2020, the Senate passed a $2 trillion economic stimulus bill, the Coronavirus Aid Relief and Economic Security Act (CARES Act). The House is expected to pass the bill on Friday.
Below is a summary of the major business provisions in the bill, including:
- Direct Financial Support
- Tax and Debt Provisions
- Unemployment Insurance and Paid Leave
Direct Financial Support Provisions in the CARES Act
The bill creates largely two different direct financial support mechanisms based on the size of the company.
- Small businesses, nonprofit, or veteran’s organization with less than 500 employees, or the applicable size standard for the industry as provided by SBA, if higher.
- The bill allows for businesses that are classified as accommodation or food services to count the 500 employee maximum per physical location.
- Loan period is February 15, 2020 and ending June 30, 2020.
- Size of loan would equal 250 percent of employer’s average monthly payroll. Max loan amount is $10 million through December 31, 2020.
- Allowable uses of the loan includes: payroll support including employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
- Was the business operational on February 15, 2020
- Had employees for whom it paid salaries and payroll taxes.
- Borrower needs to make a good faith certification that the loan is necessary due to COVID-19, will use funds to retain workers and maintain payroll, lease, and utility payments
- Not receiving duplicative funds for the same uses from another SBA program.
- Waives collateral and personal guarantee requirements
- If the employer maintains its payroll, then the portion of the loan used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.
- Max interest rate at four percent
- Expands Emergency Economic Injury Disaster Loans (EIDL) and allows SBA to advance $10,000 within three days of application to help maintain payroll.
- Increases SBA Express loan to $1 million
- Other “Eligible Business” that has not otherwise received adequate economic relief in the form of loans or loan guarantees.
- $454 billion for loans, loan guarantees, and investments through Federal Reserve 13(3) lending program. Passenger air carries received $25 billion, cargo air carriers received $4 billion, and national security business received $17 billion in direct lending.
- Intended for companies between 500-10,000 employees.
- Funds required to be used to maintain at least 90% of recipient’s workforce, at full compensation and benefits, through 9/30/20.
- Interest on loans not to exceed 2%, with no principal or interest payments due within 6 months
- Within 4 months of termination of the public health emergency, a commitment to restore 90% of the workforce as it existed on 2/1/20;.
- Recipient will not outsource or offshore jobs for two years
- Will not abrogate existing collective bargaining agreements for term of loan plus two years
- Business must remain neutral in any union organizing effort for the term of the loan.
- All business applying for loans or loan guarantees under this provision must verify it is not insolvent and is unable to obtain adequate financing elsewhere.
- Loan forgiveness is not permissible.
CARES Tax and Debt Provisions
- Delays of payment of employer payroll taxes
- Allows employers to defer payment of the employer share of the Social Security tax with respect to their employees. The provision requires that the deferred employment tax be paid over the following two years.
- Modifications for net operating loss
- Provision provides that a loss from 2018, 2019, or 2020 can be carried back five years and temporarily removes the taxable income limitation to allow an NOL to fully offset income.
- Modification of limitation on business interest
- Temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of the taxable income (with adjustments) for 2019 and 2020.
- Fixes treatment of qualified improvement property
- Enables businesses, especially in the hospitality industry, to write off immediately costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.
- Modification to the AMT
- The provision accelerates the ability of companies to recover those AMT credits.
- Temporary Relief from Troubled Debt Restructurings
- Financial institution or federally-insured credit union may elect to suspend requirements under U.S. Generally Accepted Accounting Principles for loan modifications related to the coronavirus pandemic
- Creates a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. Up to the first $10,000 of compensation.
- For employers with more than 100 full-time employees, credit is for employees that were not providing services during the shut-down
- For employers with less than 100 full-time employees, all employees wages qualify for the credit whether they were open or shut-down during the outbreak.
- Employers can provide a student loan repayment program on a tax-free basis. Employer may contribute up to $5,250 annually toward employee student loan and such a payment is not taxed.
Unemployment Insurance and Paid Leave Provisions in CARES Act
- Increase in Unemployment Compensation Benefits
- Provides an additional $600 per week payment to each recipient of unemployment insurance for up to four (4) months.
- Expansion during 2020 for UI to cover individuals not otherwise covered by UI under a variety of conditions, including: COVID-19 diagnosis of the individual or a family member, family care obligations and school closures, or self-quarantine advice from a health provider;
- Eligibility includes individuals who are unable or unavailable to work (but not actually laid off or unemployed) because their place of employment is closed “as a direct result of the COVID-19 public health emergency”;
- Does not include employees who can telework with pay or who are receiving paid leave benefits.
- Full Federal Funding of the First Week of Compensable Regular Unemployment for States with No Waiting Week
- Pandemic Emergency Unemployment Compensation
- Provides an additional 13 weeks unemployment benefits through December 31, 2020 to help those who remain unemployed after weeks of state unemployment are no longer available.
- Financing of Short-Time Compensation Payments
- Provides funding to support “short-time compensation” programs, where employers reduce employee’s hours instead of laying off workers and the employees with reduced hours receive a pro-rated unemployment benefit. This provision would pay 100 percent of the costs they incur in providing short-time compensation through December 31, 2020.
- Employer shall not be required to pay more than $200 per day and $10,000 in the aggregate for each employee under the Family and Medical Paid Leave.
- Employer shall not be required to pay more than $511 per day and $5,110 in the aggregate for sick leave or more than $200 per day and $2,000 in the aggregate to care for a quarantined individual or child for each employee.
- Allows an employee who was laid off by an employer March 1, 2020, or later to have access to paid family and medical leave in certain instances if they are rehired by the employer. Employee would have had to work for the employer at least 30 days prior to being laid off.
- Employers receive an advance tax credit from Treasury instead of having to be reimbursed on the back end for paid sick leave.
- On March 20, 2020, Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (DOL) announced that small and midsize employers (under 500 employees) can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees.
- DOL published guidance explaining paid sick leave and expanded family and medical leave under the Families First Coronavirus Response Act.
- Treasury announced the deferment of up to $10 million of federal income tax payments for corporate taxpayers until July 15, 2020.
Prior and Expected Legislative Action
- The first two emergency COVID-19 bills passed by Congress focused on healthcare funding and employees of small businesses.
- Congress passed the first COVID-I9 package on March 6, 2020. The $8.3 billion emergency funding bill provided for disease treatment and prevention, vaccine development, telehealth, and grants to the states to help fight the virus. The bill also appropriated $20 million for small business loans.
- Congress passed the second COVID-19 bill, The Families First Coronavirus Response Act, on March 18, 2020. The bill expanded emergency paid sick leave and family leave for employees at companies with fewer than 500 employees. Bill text here. Factsheet here. Bill section by section here. A summary of paid leave provisions is here.
- Bicameral, bipartisan negotiations are already underway on a fourth bill, which could also serve as a vehicle for other relief measures that are not included in the CARES Act.
For a complete look at federal and state action related to the coronavirus, visit MWC’s Coronavirus (COVID-19) Facts and Resources website.