The Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion stimulus package to respond to the economic fallout from the coronavirus (COVID-19) outbreak is designed to help workers, businesses, employers, and healthcare providers, states and others weather the storm caused by COVID-19. These are summaries of key provisions for employers.
Employers are advised to speak with their accountants or tax counsel.
Employee Retention Credit for Employers Closed Due to Covid-19. Provides eligible employers with a refundable payroll tax credit equal to 50% of certain “qualified wages” (including certain health plan expenses) paid to its employees in a calendar quarter if the employer is engaged in an active trade or business in 2020 and, during the applicable calendar quarter, either
(i) the operation of that trade or business is fully or partially suspended due to a governmental order related to COVID-19, or
(ii) the gross receipts for that trade or business are less than 50% of gross receipts for the same calendar quarter of the prior year.
The employee retention credit is available for employers with more than 500 employees, but for employers with more than 100 employees, the credit is available only with respect to wages paid to an employee that is not providing services due to the circumstances described in (i) and (ii) above. The credit is capped at $5,000 (50% of $10,000 qualified wages) per employee for all calendar quarters. Section 501(c) tax-exempt organizations are eligible for the credit, but governmental entities and companies receiving small business interruption loans under the CARES Act are not.
Paycheck Protection Program. Provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. Increases the government guarantee of loans to 100 percent through Dec. 31, 2020, for SBA 7(a) loans. If employers maintain their payroll, the loans would be forgiven. The loans are available to companies with not more than 500 employees and those which have below a gross annual receipts threshold in certain industries. 501(c)(3) nonprofits, sole-proprietors, independent contractors, and other self-employed individuals are eligible for loans for employee salaries, benefits, sick leave, health care premiums, mortgage, rent, utilities, retirement benefits, vacation, family, medical, or parental leave, and state and local taxes on compensation. Salaries of employees who earn over $100,000 are not forgivable. However, for individuals earning over $100,000, the portion of their salary up to $100,000 is forgivable and any amount of their salary over $100,000 is eligible for a loan over a 10 year period at the SBA rate that is not to exceed 4 percent.
Since the eligibility starts on April 1, 2020 the program applies to 2nd quarter withholding.
Expanded unemployment insurance. Expands both the eligibility for federal unemployment insurance and the benefits. It provides for a flat weekly payment of $600 in benefits, on top of the benefits already available under State programs, for up to four months. The Act also extends temporary federal unemployment benefits to self-employed, contract, and other workers who may typically be ineligible for unemployment insurance.
Delay of payment of payroll taxes. Permits employers and self-employed individuals to delay payment of the 6.2% employer share of the Social Security tax (but not the 1.45% employer share of the Medicare tax) from the date of enactment through the end of 2020. The tax would be payable over the following two years with half paid by December 31, 2021 and the other half by December 31, 2022.
Waiver of early withdrawal penalty from retirement funds. Allows an individual to withdraw up to $100,000 from a qualified retirement account without incurring the 10% penalty for early withdrawals if (1) they are diagnosed with COVID-19, (2) their spouse or dependent is diagnosed with COVID-19, or (3) they experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19. And increases the maximum amount that an individual may borrow from a qualified plan from $50,000 to $100,000.