The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") is a comprehensive economic relief plan designed to stabilize and uplift the American economy during the COVID-19 pandemic. It is unique not only because of the total amount of funding made available (over $2 trillion), but also because of the breadth of industries, sectors, and individuals eligible to receive some form of federal grant aid or federally-backed loan assistance through the stimulus legislation.

This alert summarizes: 1) the key financial assistance provisions of the Act, 2) the key legislative changes of the Act, and 3) key changes the Act makes to employment laws in specific. Detailed industry-specific summaries are also available at the links provided at the end of this alert. This alert also looks ahead, previewing the process of how many of these new major federal grant and loan funds are likely to be disbursed.

  • In terms of financial assistance, the Act acknowledges the direct and indirect effects of the virus on most aspects of the economy and provides both temporary relief and longer-term support for dozens of American industries/sectors. These include healthcare (with specific attention given to providers, biopharmaceutical companies, laboratories and diagnostic companies), education (with specific attention given to institutions of higher education and student debt), transportation, real estate, small business, and many others.
    In addition, the Act provides significant financial assistance to states and municipalities to combat the spread of the virus on the local level as they exhaust their own resources, and makes available significant loan funds to almost all American businesses, both large and small. The Act also provides for direct financial assistance (cash payments) to many Americans and expands temporarily unemployment insurance eligibility to individuals not previously covered.
  • In terms of legislative changes, the Act makes changes in numerous areas in an effort to ease the pressures that the COVID-19 emergency has imposed on certain industries and individuals. For example, certain legislative changes make it easier for healthcare providers to provide care in nontraditional ways (e.g., expanded telehealth flexibilities) in response to the stresses and shortages currently afflicting hospitals and physicians across the nation. At the individual level, certain legislative changes create relief for individuals unable to make mortgage, rent, or student loan payments as a result of financial hardships caused by the COVID-19 emergency.
  • In terms of employment law changes, the Act augments traditional unemployment benefits, provides support for short-term compensation programs, and establishes assistance for nontraditional employees. The Act also creates new obligations—and opportunities—for employers, including implementing payroll tax relief and modifying paid sick leave and FMLA provisions.

By coupling legislative changes with significant financial stimulus funds, Congress believes the =Act will place American industry and the American public on firmer ground for the next several months. We also expect additional legislative responses in the coming months as this public health crisis continues to emerge.

Key Financial Assistance

The Act allocates approximately $2 trillion in emergency relief to mitigate the economic impact of COVID19 on individuals, businesses, and local governments. Our industry-specific summaries provide a more detailed review of the various appropriations. Overall, some of the most significant financial assistance provisions include:

Support for Businesses

Lending to Eligible Businesses and Local Governments: The Act provides $454 billion in low-interest loans, loan guarantees, and other investments in programs or facilities established by the Federal Reserve to support lending to eligible businesses, States, or municipalities. The legislation includes a directive to the Secretary of Treasury to establish a program from these funds to provide low-interest loans to mid-sized businesses with between 500 and 10,000 employees. All businesses receiving loans under this program must agree to certain conditions including maintaining 90% of their workforce on payroll through September 2020, restricting dividends or stock repurchases while the loan is outstanding, and restricting outsourcing or offshoring for two years after completing repayment of the loans.

Airlines and National Security: In addition to the $454 billion in loans available to businesses generally, the Act includes specific loans, operating under similar terms, for airlines and businesses involved in maintaining national security. The Act designates $25 billion in loans and loan guarantees for commercial airlines, and another $4 billion for cargo air carriers. National Security businesses are allocated $17 billion for loans and loan guarantees.

Paycheck Protection Program for Small Businesses: The Act allots approximately $350 billion to help small businesses, including non-profits, maintain their payrolls for eight weeks. The legislation authorizes the Small Business Administration to provide businesses with fewer than 500 employees loans of up to $10 million per business to cover payroll and other authorized expenses. The Government will forgive, on a tax-free basis, the loans for businesses that maintain their payroll and only use the funds to cover authorized expenses. The program is available until June 30, 2020.

Employee Retention Credit for Employers: Congress created a refundable payroll tax credit that generally is equal to 50% of the qualified wages, up to a maximum of$10,000, paid to each employee per calendar quarter. Eligible employers generally are those that have had their operations fully or partially suspended by governmental order due to the COVID-19 pandemic or have seen their gross receipts drop by more than 50% for the same quarter from the prior year. Eligibility subsequently will terminate after the employer has seen a calendar quarter with gross receipts that are more than 80% of the gross receipts for the same quarter from the prior year. For employers with more than 100 full-time employees, "qualified wages" generally are wages that the employer pays employees who are not providing services due to the suspension of the business or a drop in gross receipts. For employers with 100 or fewer full-time employees, all wages paid to employees during the applicable period of a suspension of business or a drop in gross receipts generally are qualified wages. The refundable payroll tax credit only applies to qualified wages paid after March 12, 2020 and before January 1, 2021. An employer that receives a loan pursuant to the Paycheck Protection Program for Small Businesses (described above) is not eligible for this refundable payroll tax credit.

Limited Payroll Tax Deferral: The payment of an employer's share of social security taxes that otherwise would be due between March 27, 2020 and January 1, 2021 generally can be deferred and paid in 2021 and 2022. An employer that receives any loan forgiveness under Section 1106 or Section 1109 of the Act with respect to a loan received under the Paycheck Protection Program for Small Businesses (described above) is not eligible for this tax deferral.

Funding for Health Care and Disease Prevention

Healthcare Providers: In order to allow hospitals, physicians, and other healthcare providers to make the necessary expenditures and cover expenses incurred in order to treat COVID-19, Congress created a $100 billion fund for these providers responding to the coronavirus. The Act also includes $1.32 billion in immediate funding for Community Health Centers to help cover the costs of caring for COVID-19 patients.

Increased Funding for Critical Medical Supplies: In order to address the nationwide shortage of medical equipment needed to combat COVID-19, the Act allocates $16 billion to Strategic National Stockpile to procure personal protective equipment, ventilators, and other medical supplies for federal and state response efforts.

Assistance for Individuals and Families

Recovery Rebate for Individuals: In order to provide additional security to individuals and families, the Act authorizes one-time payments to most lower and middle income Americans. The Recovery Rebate is not available to individuals who are dependents or nonresident aliens, and is also not available to trusts or estates.

  • Individuals with an adjusted gross income ("AGI") of no more than $75,000 ($112,500 in the case of an individual who files as a head of household) will receive a one-time payment of $1,200.
  • Married couples filing jointly with an AGI of no more than $150,000 will receive $2,400.
  • Individuals and couples will also receive one-time payments of $500 for each qualifying child under the age of 17.

The Recovery Rebates phase out for individuals with an AGI of more than $75,000 and up to $99,000, for heads of households with an AGI of more than $112,500 and up to $136,500, and for married couples filing jointly with an AGI of more than $150,000 and up to $198,000. In each case, the AGI at which the Recovery Rebates are totally phased out increases by $10,000 for each qualifying child under the age of 17.

In general, eligibility for the one-time payments will be determined by reference to the individual's AGI for the 2019 tax year (or 2018 in the event a 2019 tax return has not been filed); however, to the extent an individual does not receive a one-time payment due to a 2019 (or 2018, if applicable) AGI that exceeds the applicable limits, an individual's 2020 AGI will be used to determine whether they should receive a refundable credit on their 2020 tax return as a result of a lower 2020 AGI.

Expanded Unemployment Insurance: The Act seeks to provide expanded relief to individuals who lose their jobs as a result of the economic impacts of COVID-19. As described in further detail below, the Act includes expanded unemployment insurance for workers and expands unemployment benefits to many individuals that would not have previously qualified.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.