Coronavirus Aid Relief and Economic Security (CARES) Act Explained

CARES Act ExplainedA giant stimulus package has been signed into law by the President. The Coronavirus Aid Relief and Economic Security (CARES) Act brings a $2 Trillion dollar shot in the arm to the American economy, reeling from the devastating impact of the COVID-19 (coronavirus) pandemic sweeping the globe.   

The CARES Act contains various broad-reaching provisions, including direct payments to Americans, expansion of the unemployment insurance program and various other provisions to provide much-needed liquidity to our economy. While GJM will be providing future information on many aspects of this act, we feel it’s important to share some key elements of the legislation as it existed once it passed in the U.S. Senate.

SBA Loan Program

Under this Act and as part of Keeping American Workers Paid and Employed Division A, the Small Business Administration (SBA) will administer a modified SBA 7(a) forgivable loan program to fund loans to Companies to keep their employees in lieu of massive layoffs and other working capital needs. This program is called the Paycheck Protection Program. In the Senate Bill any qualified SBA 7(a) lender may elect to participate in this program. Our basic understanding of the bill that was passed by the Senate is as follows:

  • A borrower can get an SBA 7(a) forgivable loan or a direct SBA disaster loan, but not both.
  • Increased eligibility for certain small businesses that employ less than 500 employees per physical location of the business.
  • Loans can be no more than $10,000,000 calculated on a formula of the average monthly payroll costs times 2.5.
  • The loans will have a maximum maturity of 10 years.
  • Allowable uses of the loan are to fund a Company’s payroll costs, group health insurance, interest on mortgage payments, rent, utilities and interest on other debt obligations incurred before the covered period.
  • Good faith certification from the eligible recipient that the uncertainty of the economic conditions make the loan request necessary to support the ongoing operations of the recipient, acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.
  • SBA will waive the guarantee fee required for a 7A loan.
  • SBA will eliminate the requirement that a small business concern is unable to obtain credit elsewhere.
  • Provide a process to allow borrowers to be eligible for loan forgiveness in amount equal to their payroll costs, health benefits, retirement benefits, interest portion of mortgage payments, rent and utility costs for the eight-week period immediately following when the loan proceeds are received. The amount of the debt forgiveness will be reduced proportionally by the number of employees laid off during this time.
  • Any amount forgiven that would normally be included in gross income shall be excluded from gross income.

It’s important to remember that the final legislation isn’t in place. The law may change upon Congress’s process of passing the final law, but many financial intuitions are preparing themselves to accept your applications.  It is our understanding that the application process will be streamlined and that the intentions are to fund these loans as quickly as possible.

Here are some other key provisions in the CARES Act:

Employee Retention Credit:

The CARES Act establishes an employee retention credit for businesses that have been forced to shutdown by the COVID-19 pandemic.  

  • Eligible employers closed or partially closed during the coronavirus pandemic can take a credit against payroll taxes equal to 50% of qualified wages up to $10,000 in wages and health benefits for each employee
  • Credit allowed against employer FICA taxes
  • Employers with greater than 100 employees
    • Qualifying wage amounts between March 12, 2020 and before December 31, 2020 when not able to provide services due to closed or partially closed business
  • Employers with less than 100 employees
    • All wages paid between March 12, 2020 and before December 31, 2020 qualify for credit
  • If taking loans under SBA 7(a) program, retention credit is not allowable

Retirement Plans impact:

The act provides taxpayers a break on penalties for early distributions from retirement plans related to the pandemic.  

  • Take up to $100,000 in distributions from plans for pandemic-related distributions without 10% penalty for early distribution
  • Bill allows distribution income to be taxed over three years or repaid back to the plan over three years with no taxation
  • Suspends RMD (required minimum distributions) for 2020

Payroll Tax Delay:

  • Delays payment of 2020 employer payroll taxes (the 6.2% portion) with 50% due December 31, 2021 and the remainder due December 31, 2022
  • Same delayed payment schedule for self-employment taxes
  • If taking loans under SBA 7(a) program, payroll tax delay is not allowable

Net Operating Losses (NOLs):

  •  2018, 2019 and 2020 net operating losses can elect a five-year carryback

Interest Limitation

  • Sec. 163(j) changes to adjusted taxable income percentage from 30% to 50%.  Eligible for 2019 and 2020 taxes.

Corporate Alternative Minimum Tax (AMT):

  •  The bill allows for refundable credit for 2018 tax year.

 Qualified Improvement Property

  • Technical corrections for previous tax reform bill that now allows for depreciation to be taken over 15 years for qualified improvement property instead of 39 years.

Individual Rebates

  • Individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child.
  • The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals.

We are here…

Gilmore Jasion Mahler professionals are reviewing the law and having discussions with clients about the impact. If you have yet to connect with your GJM team, now is the time to do so and ensure you’re protecting your business and your employees as much as possible from the financial fallout associated with the pandemic. We have also created a GJM COVID-19 Resource Center where you can find updates and links as your business navigates the pandemic.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

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