Key Points: The CARES Act – a $2.2 Trillion Coronavirus Rescue Package

On March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The $2.2 trillion emergency economic relief package will provide assistance to American citizens, businesses, hospitals, and state and local governments who have been adversely impacted by COVID-19 through loans, grants and the creation of various tax incentives. The key provisions of the CARES Act are summarized below.

Key Provisions

Individuals: Lower and middle-income Americans will receive direct payments of $1,200 for individuals and $2,400 for joint filers, plus $500 for each child through an advance refundable tax credit against 2020 income taxes. These payments are reduced for higher income taxpayers and begin phasing out after a single taxpayer has $75,000 in adjusted gross income ($150,000 for joint filers) such that individuals with no children and an adjusted gross income of more than $99,000 ($198,000 for joint filers) would be phased out completely. The IRS will base these amounts on 2019 tax returns for those who have filed them and on 2018 tax returns for those who have not. Payments will be made as soon as possible.

Large Businesses: Roughly $500 billion will be used to back loans and provide emergency-lending assistance to various companies, including $25 billion for loans to U.S. airlines, and state and local governments. Any business receiving a government loan will be subject to a prohibition on stock buy-backs and dividend disbursements for the term of the loan, must limit executive bonuses, and must retain at least 90% of its employees that existed as of February 1, 2020.

Small Businesses: More than $350 billion of aid is available to small businesses. Companies with 500 employees or fewer, including sole proprietors and nonprofits, may receive up to $10 million in forgivable small-business loans to assist them in making payroll and paying certain overhead costs. The program provides for 8 weeks of cash-flow assistance through federally-guaranteed loans to qualifying employers who maintain payroll. A portion of the loan used to make payroll, as well as for certain other costs, including rent, mortgage interest, and utilities may be forgiven on a tax-free basis. These loans are available during the period that commenced on February 15, 2020 and ends June 30, 2020.

Federal agencies will extend small-business contract performance periods and pay small business contractors impacted by the virus. If a small business defaults on the terms of the contract in fiscal years 2021 and 2022 due to the coronavirus, federal agencies would be prohibited from canceling the contract.

Taxes: The CARES Act includes a waiver of required minimum distributions and early withdrawal penalties for up to $100,000 from qualified retirement accounts for 2020. Limitations on net operating losses and business interest deductions enacted as part of the 2017 Tax Cuts and Jobs Act are also relaxed. Individuals and corporations both have increased benefits from certain charitable contributions. The “retail glitch” in the Tax Cuts and Jobs Act is fixed, allowing certain restaurants and retailers to immediately expense their qualified improvement property rather than depreciating it over 39 years.

Employers and self-employed taxpayers may defer payment of the employer portion of their 2020 Social Security tax liability over the next two years, with half payable by December 31, 2021 and the remainder due December 31, 2022. Any business forced to suspend operations or close, or that experiences a significant decline in gross receipts, due to the coronavirus may receive a credit against the employer’s 6.2% portion of the Social Security payroll taxes if the business continues to pay its employees during the shut-down. These provisions are intended to help provide employers with additional funds to encourage them to keep employees on the payroll during the crisis rather than firing them.

Heath Care Providers: Hospitals and other health-care providers will receive $150 billion for equipment and supplies. The CARES Act relaxes regulatory requirements for post-acute care providers, including inpatient rehabilitation hospitals, long-term care hospitals and home health agencies.

Unemployed: Eligibility requirements are loosened to cover more workers, including independent contractors and gig workers. An additional $600 per week will be added to normal state benefits for up to four months, and unemployment insurance is extended by an additional four months through the end of 2020. Coverage would be retroactive to January 27. 

State and Local Government Relief: Roughly $150 billion in a Coronavirus Relief Fund will go to state and city governments to assist with expenditures incurred as a result of the coronavirus. Assets will be allocated by population with a guarantee that each state receives at least $1.25 billion.

Elections: States will receive $400 million in election assistance for the 2020 election, which will allow them to expand early voting, online registration, and the ability to vote by mail.

Transparency: The CARES Act establishes the Office of the Special Inspector General for Pandemic Recovery within the Department of Treasury to oversee the lending program. The Special Inspector General will supervise and coordinate audits and investigations with respect to the CARES Act and provide Congress with quarterly reports as to the terms of any loans and aid provided to companies under the Act.

In response to the coronavirus (COVID-19) pandemic, Lewis Rice has formed a COVID-19 Task Force which brings together subject matter authorities from various practice areas within the Firm who stand ready to assist our clients as they navigate these challenging and evolving issues. We will continue to monitor the myriad legal and other developments that may impact our clients. If you have any questions related to the CARES Act or COVID-19, please reach out to one of the members of the Task Force.