The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020, and is the third substantial piece of legislation dealing with SARS-CoV-2 (which causes covid-19) in the United States. The International Monetary Fund has remarked that “unprecedented policy actions [have been] undertaken by central banks and governments world-wide.” According to The Economist (The pandemic and the state, March 28, 2020), “…Britain, France and other countries have made credit guarantees worth as much as 15% of GDP, seeking to prevent a cascade of defaults”, noting we are in the early stages of “…a revolution in economic policymaking.” The Federal Reserve “…is now the direct lender of last resort to the real economy, not just the financial system” because of its promises “…to buy unlimited quantities of Treasury bonds and agency mortgage-backed securities.” The Financial Times reported that the number of jobless claims filed in the past week was “…a number without precedent in any previous recession.”
Significant provisions of recently passed legislation that is of benefit to small businesses and individuals include:
1) Paycheck Protection Program Loans (emergency SBA 7(a) loans): Creates an emergency loan program providing loans of up to $10 million for eligible nonprofits and small businesses, permitting them to cover costs of payroll, operations, and debt service, and provides that the loans will be forgiven in whole or in part under certain circumstances. Section 1102.
General Eligibility: Available to entities that existed on February 15, 2020 and had paid employees or paid independent contractors.
Nonprofit Eligibility: Available for charitable nonprofits with 500 or fewer employees (counting each individual – full time or part time and not FTEs). The law does not disqualify nonprofits that are eligible for payments under Title XIX of the Social Security Act (Medicaid), but does require that employees of affiliated nonprofits be counted toward the 500 employee cap, depending on the degree of control of the parent organization.
2) Economic Injury Disaster Loans (EIDL): Creates emergency grants for eligible nonprofits and other applicants with 500 or fewer employees enabling them to receive checks for $10,000 within three days. Section 1110.
3) Employee Retention Payroll Tax Credit: Creates a refundable payroll tax credit of up to $5,000 for each employee on the payroll when certain conditions are met. The entity had to be an ongoing concern at the beginning of 2020, experienced a whole or partial shutdown, and had seen a drop in revenue of at least 50 percent in the first quarter compared to the first quarter of 2019. The availability of the credit would continue each quarter until the organization’s revenue exceeds 80 percent of the same quarter in 2019. For tax-exempt organizations, the entity’s whole operations must be taken into account when determining eligibility. Notably, employers receiving Paycheck Protection Program Loans would not be eligible for these credits. Section 2301.
4) Delayed Payment of Payroll Taxes: Allows employers to delay payment of the employer portion of payroll taxes in 2020; payable in equal halves at the end of 2021 and 2022. Section 2301.
5) Direct Payments to adults of $1,200 or less and $500 per child ($3,400 for a family of four) to be sent out in weeks. The amount of the payments phases out based on earnings of between $75,000 and $99,000 ($150,000 / $198,000 for couples). Section 2201.
6) Expanded Unemployment Insurance: Includes coverage for workers who are furloughed, gig workers, and freelancers. Increases payments by $600 per week for four months on top of what state unemployment programs pay. Section 2104.
You should carefully consider which programs are most beneficial, as participation in certain programs exclude a business from participating in certain others. For instance, participating in Paycheck Protection Program Loans makes you ineligible for Employee Retention Payroll Tax Credits.
Above all, keep calm and look after your health. These provisions are designed to allow the economy to quickly rebound once businesses open again. Historically, “…wars and crises have been an engine of economic development” (The Economist). The current crisis will force a critical, and long overdue examination of policies in the United States of such varied issues as taxation, health-care, employment law, immigration, business supply-chains, homelessness and others.
More later as details become available.