COVID-19: Obtaining Relief for Employers and Employees
Most people have read or heard about the CARES Act, signed into law on March 27, 2020, (the ‘Act’). This is the third COVID-19 focused relief bill and is expected to cost more than $2 trillion dollars. In this overview, we identify the key provisions noting that many items are subject to further clarification such as application processes and minimum requirements.
This will help business leaders focus on what may be available and get the necessary support to access the relief.
Employer Payroll Taxes
- For the period March 27, 2020, through December 31, 2020, most companies can defer paying their portion of payroll taxes, though these will need to be paid in two equal installments on December 31, 2021, and December 31, 2022. Note that a company that has accepted the forgiveness of a 7(a) loan obtained under the Paycheck Protection Program (‘PPP’) (more on that below) is not eligible for the deferral.
- Eligible companies (which exclude those with a 7(a) loan under the PPP) can obtain a credit against payroll taxes for each calendar quarter equal to 50% of qualified wages. The credit cannot exceed $10,000 per quarter per employee and the aggregate credit cannot exceed the company’s owed payroll taxes (net of credits otherwise allowed under the Internal Revenue Code) for the quarter.
- Companies can benefit from advance refunding of tax credits for paid sick leave and paid family leave required by the Families First Coronavirus Response Act.
Income Tax Relief
- A company can benefit from additional carryback opportunities for net operating losses (NOLs). 100% of its taxable income can be offset with NOLs (as opposed to 80% before the Act’s enactment).
- The interest deductibility threshold is temporarily increased from 30% to 50% of adjusted taxable income.
- Refunds of any remaining alternative minimum tax (AMT) carryforwards are accelerated to the 2019 tax year from 2020 and/or 2021.
- The depreciable life of qualified improvement property is changed to 15 years for income tax purposes, which makes it eligible for bonus depreciation.
Paycheck Protection Program (PPP)
- PPP is derived from the Small Business Administration’s (SBA) general business (7(a)) loan program and provides a 100% guarantee of 7(a) loans, up to a maximum of $10 million per company (or a lesser amount depending on the company’s payroll).
- It allocates $349 billion in total, for companies with up to 500 employees that are affected by the economic uncertainty arising from COVID-19.
- The loan amounts are allocated to make ‘eligible payments’: payroll, rent, mortgages, insurance premiums, utilities and interest on the pre-existing debt (incurred before February 15, 2020).
- The loans provide for deferred repayments for up to 6 months, attract a low-interest rate (1%), waive personal guarantees, collateral requirements and borrower fees.
- The entire principal amount and any accrued interest on the loan are eligible for forgiveness provided the proceeds are used to make eligible payments (no more than 25% may be forgiven for ‘other eligible payments’). The forgivable portion is reduced if the company reduces its workforce or compensation levels.
- Lenders can process and service the 7(a) loans for pre-determined fees.
- A borrower (single or multi-family) with a federally backed mortgage loan, who is experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency, may request leniency on that loan.
- Loan servicers of federally backed mortgage loans may not initiate new foreclosure processes, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sales for 60 days beginning on March 18, 2020 (unless the property is vacant or abandoned).
Lease Eviction Moratorium
- For 120 days from March 27, 2020, Landlords of housing properties that participate in a covered housing program, participate in the rural housing voucher program or have a federally backed mortgage loan are prohibited from initiating new eviction proceedings for non-payment of rent or other fees, or charging fees or penalties related thereto.
- These landlords cannot issue an eviction notice until the end of the 120-day moratorium and an eviction notice must give tenants at least 30 days’ notice of eviction.
Industry-specific Loan Program (ISLP)
- ISLP supports passenger airlines (and related businesses, such as those that provide maintenance services or replacement parts), cargo air carriers and ‘businesses critical to maintaining national security’ with loans and loan guarantees, not to exceed 5 years and to bear interest based on pre-COVID-19 market levels.
- A company obtaining a loan or a guarantee under the ISLP must meet specified requirements, including that it has incurred losses arising from COVID-19 and cannot easily access other business credit.
- Unlike the 7(a) loans under the PPP, no portion of an ISLP loan is forgivable.
- To obtain the loan or loan guarantee, the company must agree to several conditions regarding restrictions on share repurchases and dividend payments, employee retention and stock warrants granted to Treasury.
Loan Programs for other Larger Businesses (LPLB)
- LPLB is designed to provide loans and loan guarantees to businesses NOT eligible under the PPP or ISLP.
- No portion of the loans is forgivable.
- Certain conditions apply to a borrower under the LPLB including restrictions on share repurchases or dividend payments, employee retention and restrictions on outsourcing or offshoring jobs for two years after the loan is repaid.
Pandemic Relief for Aviation Workers (PRAW)
- PRAW provides grants to passenger airlines, cargo air carriers, and related contractors exclusively for payment of employee payroll and payroll-related costs.
- Treasury can receive warrants, options, preferred stock, debt securities or other financial instruments issued by recipients of this financial assistance.
Government Grants to Healthcare Providers
- The Act provides support to hospitals and community health centers responding to the COVID-19 pandemic.
Optional Credit Losses Standard (CECL) Deferral
- Insured depository institutions, bank holding companies, and their affiliates can defer compliance with credit loss requirements until the earlier of the date the COVID-19 national emergency comes to an end and December 31, 2020.
Troubled Debt Restructurings (TDRs)
- A ‘financial institution’ may elect not to apply the TDR guidance related to loan modifications that would ordinarily be subject to that guidance, and determine whether a new loan modification is a TDR.
- This relief from TDR accounting applies only to loans that were not more than 30 days past due as of December 31, 2019, AND have resulted from the effects of the COVID-19 pandemic.
- This provision applies from March 1, 2020, to the earlier of 60 days after the date the COVID-19 national emergency ends AND December 31, 2020.
So that’s a lot of information (and a lot of abbreviations!!) We can help you identify a plan suited to your business, follow the appropriate process and ensure accurate accounting and reporting.
Please give us a call for further details and assistance in putting the required documents together — 559-924-1225.