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The CARES Act: Providing Fast and Direct Relief for Employers


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The CARES Act: Providing Fast and Direct Relief for EmployersPresident Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act on March 27, 2020. Also called, the coronavirus stimulus bill, the CARES Act provides fast and direct economic relief for businesses and individuals that have been negatively impacted by COVID-19.

The price tag for the entire relief package contained in the Act is in excess of $2 trillion. It is the largest economic rescue plan in the history of the United States. The small business recovery section alone allocates twice as much money as Congress spent to rebuild the entire continent of Europe through the Marshall Plan after World War II.

News coverage of the CARES Act has focused on two aspects in particular: the one-time payments to individuals, and the Paycheck Protection Program. The Act, however, is 880 pages long and contains many other provisions impacting businesses, employment, and individual incomes. Below we have provided you with the highlights from the Act.

Business Provisions

Alternative Provisions to Closure and Layoffs

The Small Business Administration is offering two kinds of loans to help employers with the impacts of the coronavirus.

Small businesses may be eligible for an Economic Injury Disaster Loan of up to $10,000 to cover immediate operating costs. The advance funds will be made available within days of an accepted application, and will not have to be paid back.

The Paycheck Protection Program (PPP) provides loans of up to $10 million per business (those with fewer than 500 employees). This would cover expenses till the end of June 2020. Loans could help pay for payroll costs, group health benefits, retirements, state and local taxes, interest payments of mortgage or other debt incurred, rent, and utilities.

Note: If you take the tax credits outlined in the Families First Coronavirus Response Act (FFCRA), then you would NOT be eligible for forgiveness on the PPP loan mentioned above.

Social Security Tax Employer Share Deferral

Employers and self-employed individuals may defer payment of the employer share of the Social Security tax they are responsible for paying on their employees. The deferred employment tax must be paid over the following two years, with ½ of the amount due by 12/31/2021 and the other ½ due by 12/31/2022.

Employer Tax Credits

To encourage eligible employers to keep employees on payroll during COVID-19 related hardships, the CARES Act includes an employee retention tax credit.

According the the IRS, "The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocated qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000."

See this graphic for a comparison of the FFCRA and CARES Act tax credits.

Mid-Sized Business Loan Program

These loans are subject to an annualized interest rate no higher than 2 percent, and provide for no interest or principal payment for at least the first six months after the loan is made. However, strings are attached to this loan – see article from FordHarrison, "CARES Act Attaches Long-Term Strings to Mid-Sized Business Loans."

Note: Borrower must make good faith certification to remain neutral in union organization efforts during term of the loan.

GP Payroll Users:
Watch our on-demand webinarCoping with COVID-19 Legislation in Dynamics GP

Employer-Sponsored Health Insurances

The Act allows high deductible health plans (HDHP) to cover telemedicine before deductibles are met. It repeals the Affordable Care Act (ACA) exclusion for coverage of over-the-counter drugs with no prescription (includes surgical masks) for health savings accounts (HSAs), health reimbursement arrangements (HRAs), health flexible spending accounts (FSAs) and Archer medical savings accounts (MSAs). It also expands coverage to include menstrual care products as of January 1, 2020.

Unemployment

The Act creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to aid workers who are not usually entitled to unemployment benefits (such as independent contractors and the self-employed). The CARES Act provides an additional $600.00 per week payment to each Unemployment Insurance or Pandemic Unemployment Assistance recipient through July 31, 2020 and an additional 13 weeks of unemployment to help those who remain unemployed after state unemployment weeks are no longer available.

Retirement Savings

Under the Act, there will be options for plan administrators/employers to implement changes to if they so desire. Employers should check to see if they need to make any updates to their Plan Document for any of the changes.

The CARES Act waives the 10% early withdrawal penalty (capped at $100,000.00) for withdrawals after 1/1/2020 from IRA’s or retirement plans by:

  • Individuals who have been diagnosed with COVID-19
  • Anyone with a spouse or dependent who has been diagnosed
  • Individuals who are unable to work due to lack of child care from COVID-19
  • Those who have experienced adverse financial consequences from work disruptions
  • Other factors outlined by the Treasury Secretary

Income taxes will still be owed on these withdrawals, but the 20% federal income tax withholding does not apply. Individuals will be allowed to pay income tax obligations on distributions over three years and permits repayment of such distributions tax-free over the next three years.

Required minimum distributions (“RMD”) rules are waived from employer-sponsored defined contribution retirement accounts, such as 401(k) plans or individual retirement accounts (“IRAs”), in calendar year 2020. This suspension is not limited to participants affected by the Coronavirus.

The current retirement plan loan limits are doubled to the lesser of $100,000 or 100 percent of the participant's vested account balance for the next six months. Individuals with an outstanding loan from their plan with a repayment due between March 27, 2020, and Dec. 31, 2020, may delay their loan repayments for up to one year. Single employer defined benefit pension plan sponsors will be given more time to meet their funding obligations by delaying any contribution otherwise due during 2020 until Jan. 1, 2021. At that time, delayed contributions will be due with interest.

Section 518 of Employee Retirement Income Security Act (ERISA) has been amended to let the Department of Labor postpone certain ERISA filing deadlines for a period of up to one year in the case of a public health emergency.

Federal Student Loans and Employer-Provided Education Assistance

The Act allows most holders of federal student loans to suspend their monthly payments through September 30, 2020 without any interest accruing. In addition, employers can provide a student loan repayment benefit to employees on a tax-free basis.

Individual Direct Payments

One of the most highly advertised pieces of the CARES Act is the federal government is providing taxpayers with economic impact payments (stimulus checks) starting in April 2020.

Individuals
$1,200 to most U.S. adults who earn less than $75,000 and $500 for each child under 17.

Married couples
$2,400 combined for those earning less than $150,000, plus $500 for each child under 17.

Those with income above those amounts
Stimulus payments will be reduced by $5 for each $100 above the $75,000/$150,000 thresholds.

Individuals earning more than $99,000 and couples earning more than $198,000 with no children are not eligible.

Additional CARES Act Resources

In addition to this summary, here are two resources from SHRM that provide great summaries: SHRM CARES Act Summary and the article, "Trump Signs Coronavirus Relief Bill Aiding Employers and Workers."

Integrity Data and our COVID-19 Response Task Force have been keeping up with all of the latest information and providing guidance to our customers along the way. Stay informed by watching our COVID-19 blogs and follow us on social media.

Written by Integrity Data

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