by Cara Nicklas and Kyle McAllister
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief & Economic Security Act (CARES Act). The Act is a sprawling piece of legislation that addresses a wide range of topics from healthcare and national defense to the tax code and student loans. Rather than explaining all the technical contours of the Act, the purpose of this article is to focus on only the portions of the Act that might provide the most benefit to you and your business.
Individual Assistance
Direct Payment Program – Under the direct payment program, individuals who reported adjusted gross income of $75,000 or less or couples filing jointly who reported adjusted gross income of $150,000 or less on their most recently filed tax return will receive a one-time payment of $1,200 per adult and $500 per child under 17 years old. For each $100 of adjusted gross income that an individual or couple filing jointly reported over the established thresholds, the amount of the direct payment they receive will decrease by $5.
Federal Loan Modification – The federal loan modifications under the Act allow student loan borrowers to pause their monthly payments and interest until October 2020. The Act also allows borrowers of federally backed family mortgages to pause their monthly payments and interest for up to 180 days.
Expanded Unemployment Benefits – The Act expands unemployment compensation benefits by expanding eligibility to workers who are not eligible for state unemployment benefits or have exhausted state unemployment benefits.
Penalty-Free Access to Retirement Plans – The Act allows individuals younger than 59 ½ who have experienced financial hardship due to the coronavirus to withdraw up to $100,000 from an IRA or other defined retirement plan without incurring the normal 10% withdrawal penalty. It is important to note that there are additional restrictions regarding this distribution that change depending on what type of retirement account you are withdrawing the funds from. If you have been negatively affected by the coronavirus and are considering making a withdrawal from a retirement account, we strongly advise you to discuss your situation with your attorney, accountant, and financial advisor.
Suspension of Minimum Required Distributions – Due to the precipitous drop of the stock market the past several weeks, the CARES Act includes a provision that waives the minimum required distributions from IRAs and certain defined contribution plans for 2020.
Business Loans
Paycheck Protection Program (PPP) Loans – PPP loans will be administered through local lending institutions and backed by the federal Small Business Association. The loans are intended to help businesses cover payroll and other operating expenses and will be available to businesses with less than 500 employees as well as individuals who are self-employed and work as independent contractors. Of particular benefit to most small and mid-sized businesses is the loan forgiveness portion of the PPP. This provision states that the portion of the loan that is spent on certain operating expenses within the first eight weeks after receiving the funds may be forgiven in full if certain requirements are met.
Economic Injury Disaster Loans (EIDLs) – Although the EIDL program was available to small businesses prior to the CARES Act, the Act expands the program by allowing for an emergency loan advance of up to $10,000, removing the personal guarantee requirement for loans of under $200,000, and expanding eligibility to independent contractors, sole proprietors, and non-profits. Like Paycheck Protection Loans, the emergency loan advance of up to $10,000 may be entirely forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruptions, and mortgage or lease payments.
Interplay Between PPP Loans and EIDLs – It is important to note that a business may apply for both a PPP loan and an EIDL. However, there are additional restrictions on businesses receiving both types of loans, including that there must be no duplication in the use of funds between the loans. We strongly recommend talking with your attorney and accountant regarding these additional restrictions if you plan on applying for both a PPP loan and EIDL.
Business Tax Relief
The tax relief provided to businesses in the CARES Act includes employee retention credits, payroll tax deferral, and modifications to the IRS’s treatment of business interest deductions, net operating loss allocation, and alternative minimum tax credits. Each of these tax relief programs is too complex to be adequately discussed in a brief summary, but our attorneys would be happy to discuss these changes with you and work with your accountant to determine how your business can benefit from the changes.
Conclusion
The CARES Act is a wide-ranging piece of legislation with many programs and provisions. Certain aspects of the programs described above may be modified as the Act is implemented. Our attorneys will continue to monitor the development of the Act as implementation begins in the coming days and weeks and would be happy to provide ongoing legal advice regarding which programs may be most beneficial to you and your business.
