H.R. 748 Coronavirus Aid, Relief, and Economic Security (CARES) Act Passes Congress
Congress has passed its “phase III” more than $2 trillion relief legislation. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed into law by President Trump hours following its passage by the House.
We will be providing additional summaries and guidance on the new law soon.
In the immediate, a few key provisions of the bill are:
Paycheck Protection Program (“’PPP”’) - $350 billion for:
- Small employers with 500 employees or fewer, as well as those that meet the current Small Business Administration (SBA) size standards;
- Administered through the SBA Loan process, and SBA is required to establish regulations no later than 15 days after enactment of this title;
- Requires lenders to, instead of determining repayment ability, which is not possible during this crisis, to determine whether a business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor;
- Requires eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; they will use the funds to retain workers and maintain payroll, lease, and utility payments; and are not receiving duplicative funds for the same uses from another SBA program.
- Waives both borrower and lender fees for participation in the Paycheck Protection Program.
- Waives the credit elsewhere test for funds provided under this program.
- Waives collateral and personal guarantee requirements under this program.
- The remaining loan balance will have a maturity of not more than 10 years, and the guarantee for that portion of the loan will remain intact.
- Sets a maximum interest rate of four percent (4%).
- Ensures borrowers are not charged any prepayment fees.
- The maximum loan amount would be $10 million.
- Covered payroll costs include salary, wages, and payment of cash tips (up to an annual rate of pay of $100,000); employee group health care benefits, including insurance premiums; retirement contributions; and covered leave.
- Loans would be available immediately through more than 800 existing SBA-certified lenders, including banks, credit unions, and other financial institutions, and SBA would be required to streamline the process to bring additional lenders into the program.
- Loan Forgiveness
- Establishes that the borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.
- Amounts forgiven may not exceed the principal amount of the loan.
- Eligible payroll costs do not include compensation above $100,000 in wages.
- Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages:
- Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus and any covered utility payment.
- The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation.
- To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
- Allows forgiveness for additional wages paid to tipped workers.
- Borrowers will verify through documentation to lenders their payments during the period.
- Lenders that receive the required documentation will not be subject to an enforcement action or penalties by the Administrator relating to loan forgiveness for eligible uses.
- Upon a lender’s report of an expected loan forgiveness amount for a loan or pool of loans, the SBA will purchase such amount of the loan from the lender.
- Canceled indebtedness resulting from this section will not be included in the borrower’s taxable income.
- Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest.
Individual Direct Assistance:
- All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible social security number, are eligible for the full $1,200 ($2,400 married) rebate.
- In addition, they are eligible for an additional $500 per child.
- IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return to process the payments.
- The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold.
- The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
Pandemic Emergency Unemployment Compensation
- Provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after weeks of state unemployment benefits are no longer available.
Employee Retention Credit for Employers Subject to Closure due to COVID-19
- The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis.
- The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
Delay of Payment of Employer Payroll Taxes
- The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.
Forbearance and Moratorium on Foreclosures
- Homeowners with FHA, USDA, VA or other federally-backed mortgages including those guaranteed by Fannie Mae and Freddie Mac may request forbearance on payments for up to 12 months with no fees, penalties, or extra interest.
- A 60 day moratorium on foreclosures and evictions of homeowners with FHA, USDA, VA, or 184/184A loans, or whose mortgages are backed by Fannie Mae and Freddie Mac.
- Moratorium on Evictions – Owners of multifamily rental properties with federally-backed loans will be eligible to receive forbearance on those loans for 90 days, during which period they may not evict or charge late fees or other penalties to tenants for nonpayment of rent.
- Owners of federally-subsidized properties or properties with a federally-backed mortgage loan may not evict or charge penalties or fees to a tenant who cannot pay rent for 120 days following this act.
For more:
Final text here. Democratic summary here. Republican section by section here. Committee summaries here:
- Small Business Loans (Title I) – Committee section by section here and one pager here, minority one pager here
- Individual Relief (Title II) – summary here
- Business Tax Relief (Title II) – summary here
- Health Care Infrastructure Support (Title III) – majority summary here, minority summary here
- Education (also Title III) – majority summary here, minority summary here
- Senate Finance Jurisdiction Health Provisions (still Title III) – section by section here
- Economic Stabilization (Title IV) – summary here