Business and Employer Provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act
March 27, 2020
IAM received this summary today from Pace LLP, the Association’s lobbying arm in Washington, DC.
This summary focuses on the business and employer provisions, and not the individual/healthcare areas.
We will continue to search for application and process avenues for IAM members seeking financial and other assistance.
Loans to Eligible Businesses
Provides Treasury $500 billion to provide loans and loan guarantees. To be eligible for this program, a company must not otherwise receive adequate economic relief from other provisions of the bill.
All direct lending must meet the following criteria:
Alternative financing is not reasonably available.
The loan is sufficiently secured or is made at an interest rate that reflects the risk. The duration is as short as possible, with a maximum term of 5 years.
Borrowers and their affiliates cannot engage in stock buybacks (unless contractually obligated).
Borrowers cannot pay dividends until the loan is no longer outstanding or on year after the date of the loan.
Borrowers are prohibited from reducing their workforce below March 24, 2020, levels until Sept. 30, 2020.
The company must be domiciled in the United States, with a predominantly U.S. employee base.
For businesses critical to national security, their operations must be jeopardized by COVID-19-related losses.
Until one year after the loan is outstanding, recipients of any direct lending are barred from increasing compensation for an officer or employee whose total compensation exceeds $425,000.
Executives earning more than $3million in 2019 compensation may not earn from the $3 million plus 50% of the excess over $3 million.
Of the $500 billion, $46 billion is set aside for direct lending to specific industries.
- $25 billion for passenger airlines
- $4 billion for cargo air carriers
- $17 billion for businesses important to maintaining national security.
Small Business Loans
This provision provides $350 billion for small business loans administered by the Small Business Administration under the new Paycheck Protection Program. This would provide loans of up to $10 million per company; loan size would be dependent on a company’s payroll.
- The loans are available to companies with no more than 500 employees or that meet the applicable size standard for the industry as provided by the SBA if higher.
- Loans can be forgiven. The amount of the forgiveness is equal to the amounts spent by the borrower during the eight weeks from loan origination on payroll costs (up to $100,000 in wages), mortgage interest, rent or utilities (subject to certain restrictions).
- The forgiveness amount is reduced by layoffs (though employers may rehire workers to mitigate this reduction) or pay reductions in excess of 25%. Amounts forgiven are not treated as taxable income to the borrower.
- Loan amounts can only be used for payroll, mortgages, rent, insurance premiums and utility payments. Companies could not apply for both an SBA disaster loan and a loan under this program. This program is only in place through Dec. 31, 2020.
- For eligibility purposes, the provision requires lenders to determine whether a business was in operation on Feb. 15, 2020, and has employees, instead of repayment ability.
- Borrowers are not permitted to receive both an SBA economic injury disaster loan and a loan under this new program, unless the disaster loan is unrelated to COVID-19.
- Borrowers must certify that the loan is necessary because of COVID-19 and that the proceeds will be used for payroll and specified other uses.
- Fees for borrowers participating in the program are waived.
- Maximum term is 10 years, and maximum interest rate is capped at 4%.
Net Operating Loss Carryback
This provision retroactively allows companies to use tax losses to offset income from prior years. Losses from 2018, 2019 and 2020 may be carried back five years, allowing companies to amend prior-year returns. This provision applies to both corporations and pass-through businesses.
Increase in Allowable Interest Deductions
The maximum amount of business interest deductions is increased for 2019 and 2020 from 30% of earnings before interest, taxes, depreciation and amortization (EBITDA) to 50% of EBITDA.
Payroll Tax Deferral
This provision allows an employer to defer its share of 2020 payroll tax, paying these amounts over the next two years.
Payment of Tax Refunds
Tax reform imposed a one-time tax on earnings held overseas, which could be paid over eight years. The IRS has taken the position that companies cannot receive refunds until the eight-year period is completed. The bill overturns the IRS position.
Employee Retention Tax Credit
- This provision creates a new, temporary refundable payroll tax credit for companies affected by COVID-19 (i.e., with operations suspensions or a significant decline in gross receipts). The maximum credit is $10,000 per employee. The credit amount is based on wages, including health benefits. For businesses with more than 100 employees, only wages paid during a period that services are not provided due to COVID-19 are counted. For companies with fewer than 100 employees, all wages are counted. This credit is for wages paid through the end of 2020.
Corporate Alternative Minimum Tax Credits
- This provision allows companies to accelerate recovery of corporate AMT credits.
- This provision sets a cap on maximum payments employers will be required to pay for new emergency paid leave requirements. The provision also allows employers to receive an advance tax credit on paid leave rather than having to be reimbursed on the back end. The provision also ensures that federal contractors who are unable to work will continue to be paid.
- This provision provides additional federal funds for workers who are unemployed or underemployed. The provision also establishes short-term compensation programs for states that allow for employers to reduce workers’ hours while still providing employees a pro-rated unemployment benefit.