On March 25, 2020, the Senate approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act, considered “Phase 3” of the federal response to the extraordinary public health emergency. The bill must be approved by the House of Representatives before being sent to the President for approval. President Trump said he will “absolutely” sign the bill into law.
The CARES ACT includes loans to small businesses and corporations, a significant expansion of unemployment insurance, tax provisions, and expansion of the SBA disaster loan program.
While we await the final language of the legislation, the following general provisions have been reported:
Loan Programs to Businesses
- $500 billion loan and loan-guarantee program which the Treasury Department will be responsible for administering to companies, states, and cities.
- $350 billion “paycheck protection” loan program for small businesses with less than 500 employees. These loans are limited to the lesser of 2.5 times average monthly payroll costs, or $10 million. Possible deferment of repayment for at six months, but less than one year.
- The possibility of partial forgiveness of the paycheck protection loans.
- Alternatively, the government may pay the principal and interest on a paycheck protection loan for the first six months for which payments are due. However, this government subsidy does NOT apply to the paycheck protection loans discussed above.
- Expansion of the SBA disaster loan program to include sole proprietors and ESOPS.
Expansion of Unemployment Insurance
- Significant funding and expansion of eligibility for unemployment insurance. This would give jobless workers an extra $600 a week for four months on top of their state benefits.
- Adding up to an additional 13 weeks of unemployment coverage paid for by the federal government.
- Tax provisions including reducing the depreciable life of Qualified Improvement Property from 39 to 15 years, with 100% bonus depreciation available for all assets with a life of 20 years or less.
- Changes to net operating loss rules which temporarily suspend the 2018 TCJA limitations.
- A one-year only credit against the employer’s 6.2% share of Social Security payroll taxes for any business forced to suspend or close its operations due to COVID-19, but that continues to pay its employees during the shut-down.
- Exclusion from income of employer payment of employee student loan debt up to $5,250.
Relief for Individuals
- Directly sending checks worth up to $1,200 many Americans.
- Temporary suspension of student loan payments through September 30, 2020.
- Pushing back the deadline to obtain a REAL ID.
- Housing protections against foreclosures on mortgages and evictions for renters.
- The bill provides $450 million for The Emergency Food Assistance Program.
- Independent contractors and so-called gig workers will be eligible to receive federal aid.
- $150 billion for state and local stimulus funds, and $130 billion for hospitals.
The unprecedented legislation seeks to inject capital into a distressed American economy coping with the impact of COVID-19. Over five days of negotiations the plan more than doubled in size.
Prior to the deal, negotiations had stalled over the $500 billion loan and loan-guarantee program the Treasury Department will be responsible for administering. Of that total amount, $425 billion is allocated to go to businesses, cities and states. Approximately $25 billion would go to passenger airlines, $4 billion for cargo airlines, plus loans and loan guarantees. Critics are concerned with the scope of Treasury Department authority and the lack of congressional oversight.
We will continue to monitor the legislation and analyze its provisions as more details become known.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Author Patrick McKnight is an associate in the Litigation Department at Klehr Harrison.