The CARES Act and What It Means For Your Business
Help is coming for small businesses struggling to outlast the COVID-19 pandemic. President Trump signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act on March 27th, paving the way for $2 trillion in aid to be pumped into the economy. One of the Act’s central goals is to make it easier for small businesses to keep their lights on and their employees paid until this crisis is over. It’s a much-needed sign of hope after several devastating weeks for American business owners.
Highlights of the CARES Act
At 880 pages long, the CARES Act is a massive piece of legislation. It includes a ton of provisions, but highlights include:
- Relief checks for individuals. For workers struggling to pay their bills, this is one of the most significant provisions of the CARES Act. Eligible individuals will receive a one-time refundable tax credit of $1,200, while eligible married couples are entitled to $2,400. Individuals have to have adjusted gross incomes of $75,000 or less ($150,000 or less for married couples) to be eligible for the full amount. Additionally, parents of minor children can expect an additional $500 tax credit for each child. If you’re eligible, you don’t have to do anything to get your check. The IRS will use 2018 and 2019 tax filings to determine who gets what.
- Expanded unemployment benefits. As COVID-19 causes unemployment to skyrocket, more and more Americans can expect to rely on unemployment benefits. The Act extends unemployment benefits for people unable to work because of the virus by making more people eligible, increasing benefit amounts and providing an additional 13 weeks of benefits.
- Loans and grants for businesses. The CARES Act includes a number of provisions that are designed to keep small businesses running – more on that in a minute. The Act also designates about $500 billion just for the support of major corporations with more than 500 employees, with some funds earmarked for loans and grants to keep passenger airlines operational. Loans made to major corporations under the Act will have to be repaid.
- Relief for the healthcare system. About $100 billion will be funneled to hospitals involved in treating the virus, with additional money earmarked for veterans’ health care, CDC funding, expanding telehealth and prescription drug access.
- Funding for state/local governments. The Act establishes a fund to help state, local and tribal governments defray the costs of responding to the pandemic. Each state is entitled to at least $1.25 billion.
- Funding for education and the safety net. Additional money is reserved for increasing funding to food banks, food stamp programs and child nutrition programs, as well as providing relief for anyone with federally-held student loans and students forced to drop out of school because of COVD-19.
What the CARES Act Does for Small Businesses
In addition to supporting individuals and major corporations, this stimulus package includes a lot of good news for small business owners. Provisions that benefit these businesses include:
- Forgivable loans to keep businesses going. The CARES Act establishes the Paycheck Protection Program, through which an estimated $350 billion in loans will be distributed by the Small Business Administration. An eligible small business may borrow up to 2.5 times its monthly payroll, up to $10 million per business, to cover payroll, rent, mortgage, utility and debt interest costs. Loans may be forgivable for businesses that continue paying employees through the end of June. Unlike with other types of SBA loans, borrowers don’t have to prove they can’t receive credit elsewhere to qualify. Maximum interest rates are set at 4 percent. Information on how businesses can apply for these loans is forthcoming from the SBA.
- Expansion of the EIDL program. Businesses that need immediate relief may be able to receive up to $10,000 as an Economic Injury Disaster Loan. The Act expands the EIDL program to make it easier for small businesses to quickly get help for financial emergencies caused by the pandemic. All small businesses affected by COVID-19 can apply. The SBA will distribute an advance on a business’s loan within three days of the business making the request. The EIDL application is currently available through the SBA.
- Changes to some Tax Cuts and Jobs Act provisions. To reduce the tax burden on businesses, the Act rolls back some of the requirements imposed by the TCJA; specifically, the way net operating losses should be handled is changing.
- Employee retention payroll credits. A business that has to completely or partially suspend operations or sees a significant decline in gross receipts because of COVID-19, and which continues to pay its employees during the shutdown, may be eligible for an employee retention credit of up to $5,000 per employee.
With everything moving so quickly, there are still a lot of unanswered questions about things like how aid money will be distributed and what the long-term tax implications will be for businesses. We can expect to get answers to some of those questions in the coming days and weeks as government agencies scramble to enact this new law. In the meantime, there’s a lot of reason to be hopeful about your business’s future.
The team at Commonwealth Payroll & HR is closely monitoring all developments around small businesses and COVID-19. We’ll keep you updated on everything you need to know to protect your business and employees right now. Reach out with any questions or concerns!