Employer and small business guide to the CARES Act
The CARES Act, signed into law in response to the coronavirus pandemic, includes $2 trillion in assistance to households and businesses, $349 billion available to assist small businesses through the Small Business Administration (SBA), expanding unemployment insurance benefits, allocating $500 billion to the Treasury fund, creating a Paycheck Protection Program for small businesses, and granting $100 billion to health care providers.
In addition to providing many individuals with a one-time payment of up to $1,200 (plus $500 per child), a total of $500 billion is authorized for direct loans and guarantees for businesses struggling as a result of the pandemic.
Here’s how the CARES Act will impact employers.
The CARES Act grants $250 billion to make unemployment insurance available to more workers, including part-time employees. People who are unemployed will receive an extra $600 per week for up to four months. The duration of the benefits is also extended to 38 weeks.
How does unemployment insurance work?
While the unemployment application procedure varies by state, the overall process and eligibility requirements are generally the same. When a former employee files for unemployment, their most recent employer will receive a “Notice of Unemployment Insurance Claim Field” in the mail. The notice provides general information about the claim, including the reasons the former employee states they are no longer working. It’s crucial for employers to respond in writing—either accepting or contesting the claim—within 10 days of the mail date at the top of the claim notice. Other than accepting the claim, employers do not need to do anything further when it comes to ensuring unemployment benefits are granted to laid off workers.
How much will I be charged?
As usual, employers will continue to pay your regular unemployment taxes under both the Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA). For 2020, the FUTA tax rate is 6%, applied to the first $7,000 earned by each employee. The amount employers pay to the state depends on several factors: the amount of your payroll, the number of unemployment claims your workers have filed, and your state’s unemployment tax rate.
Many states across the country, including Alabama, Maryland, Minnesota, and South Carolina, to name a few, have said that a business’s state unemployment tax rate won’t increase for layoffs related to COVID-19. Other states, like Mississippi, have said that employers’ unemployment insurance accounts will still be charged for benefits paid to employees, even if it’s a result of the coronavirus.
Paycheck Protection Program for Small Businesses
The CARES Act expands the ability of small businesses to obtain loans through a new $349 billion Paycheck Protection Program (PPP). The Paycheck Protection Program is overseen by the Small Business Administration (SBA).
Who is eligible to receive the loans?
Any business with fewer than 500 employees is eligible to receive a loan, as well as any self-employed individuals, independent contractors, and sole proprietors. Eligible businesses must be in operation on February 15, 2020, and have paid employee salaries and payroll taxes. A business is not eligible to receive the loans if already receiving an Economic Injury Disaster Loan (EIDL) for the same purpose. According to the CARES Act, priority will be given to businesses in under-served and rural markets, including veterans and members of the military community, women, socially and economically disadvantaged individuals, and businesses that are less than two years old.
How do the loans work?
The loans can be used to cover payroll, health care costs, mortgage interest payments, rent, utilities, and debt payments. The monthly payroll cost for an employee can’t exceed $33,333.
The total amount of the loan is 2.5 times the businesses’ monthly operating costs as described above. The maximum amount that can be given to a single business is $10 million, with a maximum interest rate of 4%. Loans are available to eligible businesses under the program through June 30, 2020. The loans are tax-free and federally-guaranteed, meaning there is no interest on the loan. All loan payments are deferred for one year.
What about loan forgiveness?
Loans under the program are eligible for forgiveness up to the aggregate amount of payroll payments, interest payments on mortgages, rent payments, and utility payments made during the eight-week “covered” period following loan origination. If a small business owner has to lay off employees during the covered period, the amount forgiven will be reduced proportionally. For example, if a small business reduces a quarter of their workforce, the amount of the loan would be reduced by 25%. If employee salaries are reduced by more than 25%, the loan will be reduced proportionally. However, if all employees are rehired and their full salaries are restored by June 30, the loan will not be reduced.
How do I apply for the loans?
To expedite the loan process, personal guarantees have been waived. All that is required to apply is a “good faith certification” that your business has been affected by the COVID-19 pandemic, and the funds will be allocated using those guidelines.
$500 Billion Treasury Fund
The CARES Act includes a $500 billion fund to the Treasury Department that eligible companies, such as struggling airlines, can leverage to support their business.
Who is eligible to receive the funds?
The CARES Act doesn’t provide much oversight on how the $500 billion gets spent, which sectors will be prioritized, or when the money will be repaid. Airlines are the only businesses to receive direct payments as a result of their financial situation. So far, of the $500 billion the fund offers:
- $50 billion will be given in aid to passenger carriers, half in direct payments and half in loans and guarantees.
- $8 billion to cargo carriers, half in direct payments and half in loans.
- $1 billion to $3 billion for the health costs of airline contract caterers.
- $17 billion in loans and guarantees for companies important to national security.
How do I apply for the funds?
The Treasury Department will need to set out the criteria it will use to allocate the funds. A congressional oversight committee and Inspector General will serve as control measures to report back to Congress the nature of the loans and its recipients.
$100 Billion Health Care Provider Grants
The CARES Act gives $100 billion in supplemental awards and grants to hospitals and community health centers as they ramp up efforts to combat the coronavirus outbreak.
Who is eligible for the grants?
Public entities, Medicare or Medicaid enrolled suppliers and providers, for-profit entities, and nonprofit entities that provide diagnoses, testing, or care for individuals with possible or actual cases of COVID-19 are eligible to receive these grants.
How do I apply for the grants?
Health care providers will need to submit an application that includes statements justifying the need for the funds to the Secretary of Health and Human Services. The Secretary will review applications and make determinations about who will receive funds and for what purpose on a rolling basis. The Department of Health and Human Services will need to establish the criteria it will use to allocate the funds.
Business Tax Changes
The CARES Act amended select taxes and tax policies to further ease the burden on businesses impacted by the coronavirus pandemic.
Employee Retention Tax Credit
Who is eligible for the tax credit?
Business are eligible for an employee retention tax credit if:
- Business operations were fully or partially suspended due to a COVID-19 shut down order.
- Gross receipts declined by more than 50% compared to the same quarter in years past.
How much is the tax credit worth?
Qualifying businesses will receive a refundable 50% tax credit on wages up to $10,000 per employee. The credit can be obtained on wages paid or incurred from March 13, 2020 through December 31, 2020.
Payroll Tax Deferment
Who is eligible for the deferment?
Most businesses and self-employed individuals can delay their payroll tax payments. The only businesses who are ineligible for these tax deferments are those with a Paycheck Protection loan forgiven.
When are the deferred payments due?
These payments, the employer share of the 6.2% Social Security tax owed for 2020, can be deferred and paid over the next two years. Half must be paid by the end of 2021, and the other half must be paid by the end of 2022.
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