The CARES ACT Simplified

We simplified the details to help you understand both if you qualify and how you can apply for these programs.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed and signed into law on Friday of last week. This bill contains many parts, several of which pertain to small businesses. We will discuss the Paycheck Protection Program, the Employee Retention Payroll Tax Credit and the Employer Payroll Tax Deferral below.

Paycheck Protection Program

The Paycheck Protection Program (“PPP”) authorizes approximately $350 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. These loans are available through June 30, 2020.

Who can apply?

• Any business, including 501(c)(3) and 501(c)(19) non-profits, with 500 employees or fewer that was in operation on February 15, 2020.

• Traditional SBA affiliate rules have been waived in certain instances.  (If you have a question about whether affiliate rules apply to your small business, please discuss with your Controller)

What are the terms?

• Maximum loan size:  The lesser of (1) $10 Million or (2) 250% of the average total monthly payments by the applicant for payroll costs.

What is included in “payroll costs”:
          – Salaries, wages, commissions, or similar types of compensation
          – Healthcare costs
          – Retirement benefits
          – State/local employer taxes

Not included:
          – Wages exceeding $100,000 per employee
          – Federal employment taxes
          – Employees who live outside of the U.S.
          – Paid sick or family leave for which a payroll credit is allowed under the Families First Coronavirus Response Act (FFCRA)

• Allowable uses of loan proceeds: payroll costs as defined above, mortgage interest, rent, utilities and interest on any other debt obligations that were incurred before the covered period.

• Maximum interest rate is 4% (We are seeing rates as low as 1%).

• Loan fees are waived.

• Maximum term is 10 years (We are seeing average terms of 2 years).

• No personal guarantee or collateral required.

• If there is a balance remaining on the loan after forgiveness is calculated, payments due on the remaining loan are deferred for a minimum of 6 months.

• Only one PPP loan may be obtained per business.

What amounts will be “forgiven”?

• Loan proceeds that are used to cover payroll costs, mortgage interest, rent and utility costs during the 8 week period after the loan is disbursed will be forgiven, subject to the following:
          -Your loan forgiveness will be reduced if you decrease your full time employee headcount or if you decrease salaries and wages by more than 25% for any employee that made less than $100k annualized in 2019.
          -If you have already made changes to your headcount or lowered salaries, you have until June 30, 2020 to restore those levels and not be penalized as to forgiveness.


When and how to apply?

• Starting April 3rd, 2020 existing SBA lenders will begin accepting applications.

• New SBA lenders will need to be approved and enrolled into the SBA program before they can begin accepting applications.

• Check with your banking institution to see if they are an existing SBA lender.  If they are not, or you would like other recommendations for lenders, please reach out to your Controller.

• Complete the application provided by your approved lender and submit the requested payroll related documentation by June 30, 2020.


What if I have existing loans with the SBA or have applied for an Economic Injury Disaster Loan (EIDL)?

Businesses are allowed to apply for PPP loans in addition to other loans offered by the SBA including EIDL loans so long as there is no duplication in the uses of the funds. Thus, if you have other loans via the SBA, you should use those loans for costs other than those allowed uses for your PPP loan.


Employee Retention Payroll Tax Credit

The Employee Retention Credit provides a refundable payroll tax credit for 50% of qualified wages paid by an eligible employer during the COVID-19 crisis.

Who is an eligible employer?

• Businesses, regardless of size, that carry on a trade or business during the calendar year 2020 that either:
          -Have operations that are fully or partially suspended by government order due to COVID-19 during the calendar quarter or
          -Have experienced a decrease in revenues by 50% or more (vs. prior year) during the calendar quarter

To be an eligible employer, you must have NOT elected to receive assistance through the Paycheck Protection Program. 

What are qualified wages?

• For employers with more than 100 full-time employees, wages of those employees who are furloughed or face reduced hours are eligible for the credit.

• For employers with 100 or fewer full-time employees, all employee wages are eligible.

• Qualified wages are capped at $10,000 per employee paid between March 12, 2020 to December 31, 2020.  Because the tax credit is calculated at 50% of qualified wages, the maximum credit per employee is $5,000.


What is a “refundable” payroll tax credit?

• For any eligible quarter, an employer may use the payroll tax credit to reduce their payroll tax deposit in the amount of the credit.

• Any amount of the calculated tax credit that is over the tax liability for that quarter is refunded to the employer.


Employer Payroll Tax Deferral Program

This program allows employers to defer payment of the employer share of the Social Security tax, beginning after the effective date of the CARES Act through December 31, 2020.

Details and Restrictions

• Deferred tax amounts would be spread over two years, with equal amounts being due on December 31, 2021 and December 31, 2022.

This program is NOT available to employers that have or will be receiving loan forgiveness under the Paycheck Protection Program.

Do you:

1. Have additional questions on the CARES Act?
2. Need help determining which option you may be eligible for?
3. Need assistance gathering the required support your lender is requesting?
4. Need help with reforecasting or an updated financial model?

Please click to reach out to us!