UPDATE: The $2.2 trillion stimulus package referred to as the CARES Act was signed into law on March 27, 2020. The Act provides economic assistance to businesses of all types (including nonprofits) and public entities. The Act also provides monetary assistance and other forms of relief for qualifying individuals. A summary of the stimulus package is below. Coats Rose is closely monitoring the CARES Act and all related regulations and guidance to provide clients with swift and comprehensive advice on the stimulus.
Relief for Businesses and State and Local Governments
Tax Provisions
- Deferral of Social Security Taxes
- Permits employers and self-employed individuals to defer payment of the 6.2% Social Security tax over the following two years, with half of the deferred tax to be paid by December 31, 2021 and the other half by December 31, 2022
- Employee Retention Tax Credit
- Provides a refundable payroll tax credit for 50% of the first $10,000 of wages paid by certain employers whose (1) operations were fully or partially suspended due to a government shut-down order, or (2) gross receipts declined by more than 50% over the same quarter in the prior year
- For employers with more than 100 employees, qualifying wages are those that are paid to employees when those employees are not providing services because of the COVID-19 pandemic. For employers with 100 of fewer employees, all wages are qualified, whether the employer is open and operating or closed pursuant to a shut-down order
- Other Tax Measures
- Permits employers to seek an advance of the payroll tax credit created under the second stimulus package to fund paid FMLA and sick leave, instead of having to claim the tax credit on a reimbursement basis
- Relaxes limitations on companies’ uses of net operating losses (NOL) arising in a tax year beginning in 2018, 2019 or 2020. The provision provides that an NOL can be carried back five years and removes the taxable income limitation to allow an NOL to fully offset income. Companies are permitted to amend prior year tax returns to take advantage of these provisions. The bill also modifies the loss limitation applicable to pass-through businesses and sole proprietors, allowing them to utilize excess business losses
- Accelerates the ability of corporations to recover alternative minimum tax credits now, instead of having to claim them as refundable credits over time
- Increases the amount of interest expense businesses may deduct on their tax returns, by increasing the limit to 50% of taxable income for 2019 and 2020
SBA Resources
- SBA Paycheck Protection Program
- Provides $350 billion for a guaranteed small business interruption loan program to make loans of up to $10 million through the SBA 7(a) program, and creates an avenue for additional lenders to make Paycheck Protection Loans outside of the 7(a) program
- Eligible uses include salaries, paid leave, health benefits, rent and mortgage payments, utilities and debt obligations
- Eligible applicants are expanded beyond businesses meeting SBA’s traditional small business definition to certain nonprofit organizations, businesses with 500 or fewer employees, certain businesses with more than 500 employees (if the business has more than one physical location but employs 500 or fewer employees at each location and meets certain other criteria), sole proprietors, independent contractors and other self-employed individuals
- Significantly relaxes underwriting criteria (waives the “credit elsewhere” requirement, waives the personal guarantee requirement, etc.) and increases the government guarantee percentage to 100% through 2020
- Establishes criteria for forgiveness for a portion of the loan equal to certain payroll, rent, mortgage and utility expenses incurred during the 8-week period following February 15, 2020. Additional forgiveness is available to employers who increase wages paid to tipped workers. To encourage employers to rehire any employees who have already been laid off in the crisis, employers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the 8-week period
- Any forgiven indebtedness will not be counted as taxable income to the borrower
- Expanded Access to SBA’s Economic Injury Disaster Loans (EIDL)
- Under the previous stimulus package, SBA received additional funding for its EIDL program. This bill relaxes underwriting requirements and expands eligibility to include nonprofits, businesses with fewer than 500 employees, sole proprietors and independent contractors
- Establishes an Emergency Grant to allow an eligible applicant who has applied for an EIDL loan due to the pandemic to request an advance of up to $10,000, which the SBA must distribute within 3 days of the request
- Other SBA Resources
- Permits SBA to subsidize loan payments for 6 months for certain existing 7(a) or other SBA loan borrowers
- Provides $250 billion for grants and technical assistance to SBA small business development centers, minority business centers, veterans outreach business centers, and women’s business centers
- SBA is required to establish regulations no later than 15 days after enactment
Provisions of the Economic Stabilization Act
- $500 billion available through December 31, 2020 for businesses, states and municipalities
- $46 billion is set aside for direct lending to aviation-related businesses and businesses important to maintaining national security. The Department of Transportation is authorized to require assisted airlines to maintain scheduled air service
- The remainder of the $500 billion will be used by the Federal Reserve for short-term loans and loan guarantees to eligible businesses and support to states and municipalities, including bond purchases from issuers or in secondary markets. The Federal Reserve also intends to implement a credit facility targeted specifically at nonprofit organizations with 500 to 10,000 employees, subject to additional loan criteria
- Businesses receiving direct loans must be U.S. companies with employees predominantly located in the U.S., and they must maintain at least 90% of their employees at March 24, 2020 levels. Stock buybacks and dividends are prohibited for borrowers and affiliates, and there are restrictions on executive compensation for a year following the term of the assistance
- Businesses receiving loans or investment through this program cannot include businesses owned (with more than a 20% stake) by members of Congress and certain members of the executive branch or their immediate family members
- Additional provisions
- Measures to increase liquidity and support financial institutions, including temporary relaxing of certain regulatory requirements, and authorization of the Federal Deposit Insurance Corporation (FDIC) to temporarily guarantee debt of solvent depository institutions and holding companies
Other Relief Measures
- Creates Coronavirus Relief Fund for State, Tribal and Territorial Governments
- Provides $150 billion for expenditures incurred due to the COVID-19 emergency, allocated proportionately by population, with a minimum of $1.25 billion available for states with small populations
- Clarifies the Families First Coronavirus Response Act (the 2nd Stimulus Package)
- Grants authority for the Secretary of Labor to exempt small businesses with fewer than 50 employees from certain paid leave provision requirements
- Clarifies that, with respect to paid FMLA leave, an employer shall not be required to pay more than $200 per day and $10,000 in the aggregate for each employee, and, with respect to paid emergency sick leave, an 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 relative
- Allows an employee who was laid off on March 1, 2020, or later to receive paid family and sick leave if they are rehired by the employer, provided that the employee had worked for the employer for at least 30 days prior to being laid off
- Temporarily Modified Bankruptcy Rules
- Increases the eligibility threshold to file for bankruptcy protection under subchapter V of Chapter 11 to businesses with less than $7,500,000 of debt from $2,725,625
- Permits individuals and families currently in Chapter 13 bankruptcy to seek payment plan modifications due to hardship resulting from the pandemic
- Excludes pandemic-related payments from the federal government from being treated as “income” for purposes of Chapters 7 and 13 bankruptcy
- Relief to Specific Industries
- Medical:
- Provides direct assistance to healthcare providers (hospital, physician, nursing home, home health, etc.) by expanding certain Medicare payments, such as by increasing the payment that would otherwise be made to a hospital for treating an admitted COVID-19 patient by 20%, preventing scheduled reductions in Medicare payments for durable medical equipment and for clinical diagnostic laboratory tests, and lifting the Medicare sequester (which reduces payments to providers by 2%), from May 1 through December 31, 2020
- Provides $1.32 billion in emergency funding to community health centers
- Waives certain requirements to give healthcare providers flexibility during the crisis, including measures to promote telehealth and home health care
- Includes measures to reduce medical supply and drug shortages
- Establishes a Ready Reserve Corps to provide for adequate medical professionals to respond to public health emergencies and updates the Public Health Service Act (PHSA), relating to support for nursing and clinician training and faculty development
- Clarifies that volunteer health professionals are afforded liability protection
- Aviation:
- Provides direct financial assistance to pay employee wages and benefits of up to $25 billion for passenger air carriers, up to $4 billion for cargo air carriers, and up to $3 billion for airline contractors, with a number of conditions attached to the bailout
- Medical:
Relief for Individuals
- Expanded Unemployment Benefits
- Increases the maximum weekly benefit by $600 for up to four months
- Extends eligibility to people who were not previously eligible (i.e., independent contractors, people with limited work history and the self-employed)
- Provides an additional 13 weeks of unemployment benefits in 2020 for workers who remain unemployed after state unemployment benefits are no longer available
- Funds “short-time compensation” schemes where employers can reduce employee hours and such employees may receive a pro-rated unemployment benefit
- Provides additional funding to partially reimburse states for the expanded benefits
- Direct Payments to Certain Americans
- Adults with an adjusted gross income of up to $75,000 per year can receive a $1,200 rebate (or $2,400 for married couples earning up to $150,000), with an additional $500 for each dependent child
- This is available even for people who have no taxable income, such as people who receive SSI benefits
- The IRS will rely on 2018 or 2019 returns, if available, to issue the rebates automatically
- Payments will be phased out entirely at $99,000 for single adults and $198,000 for couples without children
- Other Measures
- Lending:
- Prohibits foreclosures of all federally-backed residential mortgage loans for 60 days commencing on March 18, 2020. Provides up to 180 days of forbearance for consumers who have experienced a financial hardship as a result of the pandemic; multifamily property borrowers are eligible for up to 90 days of forbearance and may not evict or charge late fees to tenants for the duration of the forbearance period.
- Requires that creditors who agree to loan modifications or forbearance for a consumer that has been impacted by COVID-19 refrain from reporting such account as delinquent to furnishers to credit reporting agencies during the period of accommodation
- Tenant Protections: Landlords of mortgaged property insured or assisted in any way by HUD, Fannie Mae, Freddie Mac and certain other programs are prohibited from initiating evictions or legal action to recover penalties or other charges related to nonpayment of rent for 120 days following enactment
- Employer-paid Education Expenses: Permits employers to provide a new education benefit to employees through the end of 2020. Employers may provide up to $5,250 annually toward repayment of an employee’s student loans or other educational expense (tuition, books, etc.), and such benefits will be tax-free to the employee
- Student Loans: Suspends all federal student loan payments, including principal and interest, through September 30, 2020. Interest will not accrue during the suspension period
- SNAP program: Adds more than $15 billion for the Supplemental Nutrition Assistance Program
- Retirement Fund Withdrawals: Waives 10% early withdrawal penalty for COVID-19-related distributions of up to $100,000 from retirement funds; any resulting taxes will be spread out over three years and the withdrawn funds can be recontributed within 3 years
- Charitable Contributions: Allows up to $300 to be deducted for cash contributions to charitable organizations, regardless of whether or not the taxpayer itemizes deductions; raises limits on deductions for charitable donations to 50% of AGI
- Covid-19 Treatment: Provides that Medicare and private insurers may not impose a cost share on COVID-19 testing, permits uninsured individuals to receive free testing in any state Medicaid program that elects to offer it, and provides for free COVID-19 vaccinations (when eventually available)
- Lending: