President Trump Signs CARES Act

By , and
March 27, 2020

After much negotiation over the past few days, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law, a $2 trillion stimulus package aimed at providing critical economic relief to Americans affected in the wake of the COVID-19 outbreak.

Big Picture

With a combination of direct payments, grants, loans (some of which are forgivable), tax credits and increased tax deductions, the CARES Act provides:

  • about $350 billion in loans and other assistance for small businesses;
  • about $500 billion in loans and other assistance for large businesses; and
  • direct payments to individuals of $1,200 per adult, and $500 for each child, with qualifying income levels

Business Impact

  1. SBA Business Loans

In order to support businesses that have seen their operations adversely impacted by the outbreak, the Act provides significant financial support for small businesses, including $350 billion for Small Business Administration loan guarantees and subsidies.

Relaxing loan qualification requirements, the Act allows businesses employing less than 500 people to qualify for SBA loans. It increases the maximum loan amount to $10 million and would expand allowable uses of loans to include payroll support (including paid sick or medical leave), employee salaries, mortgage payments, group healthcare benefits, and other debt obligations. The loan period for this program would begin on February 15, 2020, and end on December 31, 2020.

Further, the Act directs the Small Business Administration to either collect no loan fees or reduce fees and allows it to guarantee up to 100% of loan amounts (regardless of loan size) through 2020. The loans would not require collateral or personal guarantees and interest rates will not exceed 4 percent.

As an enticement for employers to retain workers, the CARES Act provides a process by which borrowers would be eligible for loan forgiveness in an amount equal to the amount spent by the borrower during an eight-week period after the loan’s origination date. The forgiveness applies to amounts spent on the following items: payroll costs, rent or mortgage payments, and utility payments. The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of her prior calendar quarter compensation.

  1. SBA Disaster Loans

In addition to expansion of the SBA’s Business Loan Program, the CARES Act expands the SBA’s Disaster Loan Program. Businesses employing less than 500 peoples may qualify for a disaster loan. During the covered period (until December 31, 2020), the CARES Act waives the “1 year in business prior to the disaster” requirement (except the business must have been in operation on January 31, 2020). It also waives the requirement that an applicant be unable to find credit elsewhere while allowing lenders to approve applicants based solely on credit scores (without any tax submission) or “alternative appropriate methods to determine an applicant’s ability to repay.”

Borrowers applying for loans under the Disaster Loan Program in response to COVID-19 may, during the covered period, request an emergency advance from the administrator of up to $10,000, which does not have to be repaid, even if the loan application is later denied. Provided the borrower is eligible, these advances are to be awarded within three days of an application.

If an entity that receives an emergency advance transfers into, or is approved for, a loan under the SBA Business Loan Program, the advance amount will be reduced from any payroll cost forgiveness amounts.

  1. Tax Benefits
    • Business that retain employees are eligible for a refundable payroll tax credit in the amount of 50%. This can be used to offset the employer’s share of social security taxes, but it is capped at $10,000 of qualified wages per employee. For employers with more than 100 full-time employees, only employees who are currently not providing services for the employer due to COVID-19 reasons are eligible for the credit.
    • Employers can defer payment of their half of the social security taxes until 2021 (when half is due) and 2022 (when the other half is due).
    • The business interest expense deduction is increased from 30% of taxable income to 50% of taxable income for 2019 and 2020.
    • Net operating losses arising in 2018, 2019, and 2020 can be carried back 5 years. Businesses can receive a refund for prior tax years.
    • The Act suspends limitations on excess farm losses and on the use of pass through business losses against non-business income for three years (these limits do not apply to the 2018, 2019, and 2020 tax years).

Individual Impact

  1. Direct Payments

On the individual level, the Act attempts to soften the blow as a result of lost income by providing immediate relief in the form of an advanced tax rebate credit. Adult taxpayers will receive a lump-sum check of up to $1,200 ($2,400 for joint tax returns). Families will receive an additional $500 for each qualifying child. For taxpayers with annual incomes over $75,000 ($150,000 for joint returns), the rebate phases out by $5 for every $100 of income over $75,000, dropping to zero for incomes over $99,000 per year for a single filer (or $198,0000 for joint returns).

The IRS will use the taxpayer’s 2019 tax return. If the 2019 return hasn’t been filed yet, the 2018 return will be used.

  1. Unemployment Compensation

The Act provides for immediate federal enhancement of existing state unemployment compensation benefit programs. It allows for an additional $600/week for up to 4 months, even if the employee is currently making less. Also included is an additional 13 weeks of unemployment compensation benefits for participating states.

  1. Modifications to Paid Leave

The CARES Act modifies the Family Emergency and Medical Leave Expansion Act to make clear that the paid FMLA leave cap of $200/day or $10,000 total, and the sick pay cap under Emergency Paid Sick Leave Act of $511/day or $5,110 total for the employee’s own use and $200/day or $2,000 total to care for others, are merely the maximum mandated paid leave/sick pay. They are not caps on what the employer can provide, and therefore employers can go beyond the mandate.

  1. Housing

A borrower with a federally-backed mortgage loan may request forbearance, regardless of delinquency status and without penalties, fees, or interest, by submitting a request to the borrower’s servicer and affirming financial hardship due to COVID-19. A forbearance must be granted for up to 180 days and extended for an additional period of up to 180 days at the request of the borrower, though the initial or extended forbearance may be shortened.

The CARES Act prohibits the servicer of a federally-backed mortgage loan, except for a vacant or abandoned property, to initiate any foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for at least 60 days beginning on March 18, 2020.

Landlords are prevented from bringing legal causes of action to recover possession from tenant for nonpayment of rent or other fees or charges for 120 days (this does not apply to vacant or abandoned properties).

  1. Retirement Accounts – Early Withdrawals

Taxpayers would also be allowed to take tax-favored disbursements or loans from their retirement accounts up to $100,000 to pay for expenses or make up lost income related to the epidemic. The 10% early withdrawal penalty would not apply. These can then be repaid with additional contributions beyond the normal contribution limits during the next three years.

The CARES Act adds a provision permitting a one-year delay in required minimum distributions (“RMDs”) applying to both 2019 RMDs that needed to be taken by April 1, 2020 and 2020 RMDs. The Act also adds the special rollover rule similar to the one enacted in 2009, allowing amounts subject to the RMD rules in 2020 to be rolled over.

  1. Charitable Deductions

A new above-the-line deduction of up to $300 for charitable donations has now been created and limits on other charitable deductions have been relaxed in order to increase charitable giving during this time. These include cash contributions and donations of food, and they apply to both individuals and corporations.

For the remainder of 2020, individuals no longer have a contribution limitation of 50% of adjusted gross income. This figure is increased to 25% of taxable income for corporations and 25% for deductions on contributions of food inventory.

  1. Student Loans

The CARES Act expands the definition of employer-provided educational assistance that is excluded from gross income to include up to $5,250 in student loan payments made by an employer through 2020. It also suspends involuntary collections on student loans, including by offsetting an income tax refund.


  1. Testing

The CARES Act expands the types of testing that would be covered with no cost sharing. The Act also requires that a group health plan or insurer reimburse the provider for either the negotiated cost of the testing or, if there is no negotiated price between the group health plan and the provider, for the cash price of the diagnostic testing as reflected on its website. The provider is required to publicize that price on a publicly available website and is subject to a fine if not in compliance.

  1. Health Savings Accounts

For plan years beginning on or before December 31, 2021, a plan will not fail to be a high deductible health plan by failing to have a deductible for telehealth and other remote care services.

The Act repeals the Affordable Care Act rule that prohibited over-the-counter medicines (except insulin) from being “qualified medical expenses.” Health savings account or flexible spending account users can use funds in those accounts to cover over-the-counter medical products, including those needed in quarantine and social distancing, without a prescription.

Please contact Ruder Ware’s COVID-19 Focus Team with any questions.

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