By Joseph Simms, Ian Mitchell, Brian Noethlich, and Kenton Steele

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became effective Friday, March 27, 2020. The CARES Act provides more than $2 trillion of economic relief to American companies, workers, governments and other individuals and entities, but imposes certain workforce retention obligations and other mandates or conditions on companies and employers who receive certain grants or loans under the Act. It is expected that procedures and guidance will be published in the near future regarding minimum eligibility requirements and procedures for applying for applicable financial aid. As always, the attorneys at Reminger stand ready to assist in interpreting and navigating the provisions of the new law and any regulations published thereunder.

For reference, the Act is broken up into six (6) primary titles, as follows:

• Title I – Keeping American Workers Paid and Employed Act (Section 1100, et seq.)

• Title II – Assistance for American Workers, Families and Businesses (Section 2100, et seq.)

• Title III – Supporting America’s Healthcare System in the Fight Against Coronavirus (Section 3100, et seq.)

• Title IV – Economic Stabilization and Assistance to Severely Distressed Sectors of the United States’ Economy (Section 4100, et seq.)

• Title V – Coronavirus Relief Funds (Section 5100, et seq.)

• Title VI – Miscellaneous Provisions (Section 6100, et seq.)

The highlights of the law are as follows:

• Provides a onetime cash payment of $1,200 to individual Americans making $75,000 or less ($150,000 for joint filers and $112,500 for head of household). This amount is altered by income and number of dependents.

• Greatly expands eligibility for unemployment benefits and provides claimants in participating states with an additional $600 per week in addition to the unemployment benefits paid by a state.

• Creates a $350 billion loan program for small businesses that incentivizes employee retention and provides for forgiveness for portions of loans spent on certain expenses.

• Allocates $500 billion for lending to state and local governments and qualifying businesses through yet to be announced programs that will be established by the Treasury Department.

• Allocates $130 billion in relief to the medical and hospital industries and extends Medicare coverage to additional Telehealth services.

This memorandum discusses the relief options for small businesses while navigating the economic challenges posed by the COVID-19 crisis. It is not exhaustive, and does not, for example, address unemployment benefit programs available for individuals, some of the myriad of tax-planning aspects of the Act, such as charitable contribution deductions or employer-provided student loan payments, expanded family and medical leave benefits, or aid to distressed large industry sectors (i.e. hospitality, airlines, etc.).

The relief opportunities available for small businesses include:

• Loans for small businesses that can be used for specified costs, (Notably, portions of these loans that are spent on eligible expenses during a 8-week period after the loan is obtained may be forgiven and will not need to be repaid)

• Changes to tax laws that may allow immediate access to funds through deferral of payments and tax refunds, and

• Changes to unemployment benefit programs that incentivize short-time compensation or workshare programs, which allow an individual whose hours have been reduced to receive a pro-rata portion of unemployment benefits based on the reduction of hours.

Notably, utilization of some relief options forecloses the ability to use other programs that are otherwise available. Specifically, receiving a loan that is subsequently forgiven forecloses the ability to defer tax payments or obtain tax credits for payment of salaries. Similarly, utilizing expanded unemployment benefit programs will reduce the “forgivable” amount of a loan obtained through the programs created by the CARES Act.


Under Title I, the CARES Act provides for the Paycheck Protection Program, Emergency Economic Injury Disaster Loans, loan forgiveness, and subsidies for certain loan payments.

1. Paycheck Protection Program

The CARES Act allocates $349 billion to the Paycheck Protection Program, which greatly increases the number of companies eligible for small business loans. Eligible businesses include (1) companies that employ no more than 500 employees (at all physical locations); or (2) companies that meet the small business size standards.

Under the Paycheck Protection Program, qualifying entities may receive up to 2.5 times average total monthly payroll (up to $10 million), at a low interest rate (specified to be less than 4%). Loan repayments can be deferred for up to a year and the loan can be forgiven (but not taxable to the borrower) if proceeds are used for specified purposes only (during the specified time period of 8 weeks post-origination) and employees are not laid off and salaries are not reduced by more than 25%.

The forgiveness amount is subject to proportionate reduction if the average number of pre-crisis full-time equivalent (“FTE”) employees drops post-crisis (based on the 8-week period beginning on the origination of loan date compared with the average monthly FTE employees for either February 15, 2019 – June 30, 2019 or January 1, 2020 – Feb 29, 2020 (allowing the qualifying entity to select the period of time and not be penalized for business decisions taken during the period to shore up operations and costs during the crisis, so long as personnel are rehired and compensation is restored during the 8-week post-origination period). Also, forgiveness can be reduced, dollar for dollar, if any employee’s salary (who made less than $100,000 in 2019) drops more than 25 percent compared to the average in the most recent quarter prior to the loan origination date. No more than the principal amount borrowed may be forgiven. Thus, interest accrued thereon remains the responsibility of the borrower.

Permissible uses of the proceeds are limited to compensation and other “payroll costs” (as defined in the CARES Act), excluding individual employee compensation above $100,000 per year and compensation to employees based outside the United States; costs of group health care benefits during periods of paid sick, medical or family leave and of insurance premiums; mortgage interest payments (which does not include any payment of principal); rent; utilities; and interest on debt obligations incurred prior to Feb. 15, 2020.

Eligible recipients must make a good faith certification that (1) the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient; (2) the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; and (3) the eligible recipient does not have an application pending for a Section 7(A) EIDL as described below.

An eligible recipient must submit certain documentation to the lender servicing the loan, including payroll tax filings reported to the IRS, state income, payroll, and unemployment insurance filings, and cancelled checks, payment receipts, etc., and a certification the amount for which forgiveness is requested was used to retain employees, make interest payments on a mortgage, make payments on a rent obligation, or make covered utility payments. Any amount forgiven is excluded from gross income.

Borrower and lender fees are waived, as well as prepayment penalties.

2. Emergency Economic Injury Disaster Loans (“EIDLs”)

As applicable, any business that employs no more than 500 employees, is located in declared disaster area, and has suffered substantial economic injury as a result of the coronavirus may qualify for an Economic Injury Disaster Loan (“EIDL”) of up to $2,000,000. Guidance will be forthcoming as to the parameters of “substantial economic injury,” although presently defined generally as “unable to meet its obligations and to pay its ordinary and necessary operating expenses.”

If applicable based on the above factors, an EIDL will be made in a principal amount based on demonstrated economic injury up to $2,000,000 (personal guarantee requirements are waived for loans less than $200,000). The proceeds may be used to provide paid sick leave to employees unable to work due to the direct effect of the virus, maintain payroll, meet increased costs to obtain materials unavailable due to interrupted supply chains, make rent or mortgage payments and repay obligations that cannot be met due to revenue losses. A business applying for an EIDL may also request that an initial advance be made in an amount not to exceed $10,000 within three days of application, which, if approved, need not be repaid (if used for permissible purposes) even if the loan application is subsequently denied.

Repayment terms of EIDLs are based on ability to repay and can extend up to 30 years with no prepayment penalty. Interest rate is limited to 3.75%. Borrowers need to be aware of limitations in conjunction with other programs (i.e. payroll protection loan).


The CARES Act contains tax programs designed to relieve the strain imposed by the COVID-19 crisis. One of the primary ways in which these programs function is increasing the short-term liquidity of businesses. This is accomplished in a number of ways including providing deferral of certain payroll taxes. Additionally, there are provisions retroactively amending tax laws to allow higher deductions to be claimed. These provisions, paired with an ability to amend prior year returns, will give companies an infusion of cash through refunds. There are also provisions that allow businesses to modify how employees are paid to decrease tax burdens on employees. These programs, found in Title II – Assistance for American Workers, Families, and Businesses, Subtitle C – Business Provisions, are as follows:

• Delay of Payment of Employer Payroll Taxes

This portion of the Act permits businesses to retain cash in the short term by allowing a deferral of payment of the employer portion of the social security tax (6.2% of an employee’s first $137,700 of salary). Half of the deferred payments will be due December 31, 2021 and the other half are due on December 31, 2022.

Note: Delay of payment of social security tax is not available if the employer receives a forgivable loan from the Paycheck Protection Loan Program described above.

• Refundable Credit Against Payroll Taxes for Certain Businesses

This provision allows “eligible employers” to claim a refundable tax credit for all wages paid between March 12, 2020 and January 1, 2021. The amount of the credit, and eligibility for the credit, are determined on a quarterly basis and are capped at $5,000 per employee (50% of the first $10,000 of “qualified wages” paid to an employee per quarter).

To be considered an “eligible employer” for a given quarter, the employer must meet one of two qualifying conditions: 1. The employer’s operations were fully or partially suspended due to a COVID-19 shut-down order or, 2. The employer’s gross receipts declined by 50% when compared to the same quarter of the prior year.

For employers with more than 100 full-time employees, “qualified wages” are all wages paid to employees when they are not working due a suspension of operations or a decline in receipts, as described in the employer eligibility section.

Note: This credit is not available if the employer receives a forgivable loan from the Paycheck Protection Loan Program described above.

• Modifications to Net Operation Loss Rules

Provides that a net operating loss from a tax year beginning in 2018, 2019, or 2020 can be carried back five-years. The provision removes the taxable income limitation, which in turn allows a net operation loss to fully offset income. These changes permit businesses to utilizes losses and amend prior year returns. This provision is designed to allow for refunds of previously paid taxes to provide liquidity during the emergency.

• Modification to Business Interest Deduction Limitation

This provision reduces the cost of borrowing by increasing the limitation on interest expense deductions from 30% to 50%.

• Accelerated Cost Recovery of Qualified Improvements to Property

Business can write off certain costs associated with improving facilities. Prior year returns back to 2018 can be amended to take advantage of the change immediately through a refund. The purpose of this section is to induce businesses to continue to make improvements to facilities while the economy recovers from the current crisis.

• Employer Payments of Student Loans as Tax Free Income

An employer may provide a student loan repayment benefit to employees on a tax-free basis. The employer can contribute $5,250 towards an employee’s student loans and that payment is excluded from the employee’s income.

The provisions of the CARES Act are intended to induce and assist business owners to maintain their workforces and operations through and after the coronavirus crisis. The lawyers at Reminger are here to help. Do not hesitate to contact us with any questions.

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