Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Wednesday evening, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act (the Act), as the federal government continues to respond to the coronavirus (COVID-19) outbreak. The Act passed the House of Representatives this morning and now awaits President Trump’s signature.

The Act is 880 pages long and, once passed, will among other things: (1) Expand Small Business Loans to businesses with up to 500 employees with increased forgiveness of loans used to meet payroll; (2) Establish the Exchange Stabilization Fund to provide direct loans, loan guarantees, and investments broadly in support of the Federal Reserve’s efforts to mitigate adverse economic consequences; (3) Extend Unemployment Insurance Benefits to self-employed and those with limited work histories, supplement benefits for all individuals and extend coverage to up to 39 weeks; and (4) Provide extensive aid to the healthcare industry and states in addressing the COVID-19 crisis.

The following is a general summary of some key provisions of the Act:

Loan Programs

The Act contains lending provisions, including an amendment to the Small Business Act (SBA), which allows eligible business to take out loans during the covered period (February 15, 2020, through June 30, 2020) to help with, among other expenses, payroll, costs related to insurance premiums, salaries, rent, utilities, interest on debt incurred before the covered period, and payments of interest on mortgage obligations. For most businesses, the maximum loan amount is calculated primarily through a formula that considers monthly payroll costs with a cap of $10,000,000. Certain individuals operating as sole proprietorships or independent contractors, as well as eligible self-employed persons are also now eligible to receive these loans. Generally, borrowers may not have more than 500 employees to be eligible for these loans. The Act also includes a loan forgiveness provision to the extent the funds were used to pay qualifying costs for 8 weeks after the loan date, with a provision that reduces the forgiveness amount for employee reductions or reductions in wages.

The Act also includes specific provisions for Severely Distressed Sectors of the U.S. Economy. Borrowers for these direct loans, include businesses, states, and municipalities, with specific amounts earmarked to airlines and businesses critical to national security.

Besides the amounts that are specifically earmarked, an additional 454 billion dollars in loans and loan guarantees are being made available to programs or facilities established by the Board of Governors of the Federal Reserve System. This section also includes provisions to establish facilities to assist mid-sized businesses with between 500 and 10,000 employees.

Direct Payments to Individuals

The Act contains provisions that result in direct payments to individuals of $1,200 per individual ($2,400 for joint filers), plus $500 for each qualifying child. These payments are gradually reduced for individuals making over $75,000 or, $150,000 in the case of couples that file joint returns. Those individuals making over $99,000, or joint filers making over $198,000 will not be eligible for payments.

Unemployment Benefits

The Act calls for the expansion of unemployment insurance benefits, including Pandemic Unemployment Assistance for certain individuals who are not otherwise eligible for unemployment compensation, such as gig-economy employees, the self-employed, and independent contractors. The Act also allows for states to enter into agreements with the Secretary of Labor to provide additional unemployment benefits, including an additional 13 weeks of benefits, immediate unemployment compensation payments, and up to an additional $600 a week in benefits, capped at four months.

Evictions and Foreclosures

Borrowers with federally-backed mortgages can request forbearance, which must be granted for an initial period of up to 180 days, and may be extended for another 180-day period if necessary. During the forbearance period, no fees, interest, or penalties beyond the amounts that would be calculated if all payments were made on time will accrue to the mortgagor’s account. Additionally, a 120 day moratorium on eviction filings goes into effect on residential properties that are backed by federal mortgages.

Tax Provisions

The Act provides eligible employers with a refundable credit against employment taxes in an amount equal to 50 percent of qualified wages for each employee in a calendar quarter. During any given calendar quarter, the credit is limited to $10,000 per employee. The Act also delays the date for employers to deposit payroll taxes, with the deferred amounts becoming payable over the coming two years.

We will continue to update you about this and other major federal and state measures addressing the ever-developing COVID-19 pandemic. For additional information on this or any related topic, please contact McNeelyLaw’s attorneys by visiting mcneelylaw.com or calling our office at 317-825-5110.

This McNeelyLawLLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.