3-26-20 Client Alert - CARES Act Proposed Bill
Posted on March 26, 2020
In the early morning hours of March 25, 2020, the Senate announced that it had reached a bipartisan agreement on the terms of the Coronavirus Aid, Relief and Economic Security Act ("CARES" Act"). Shortly before midnight on March 25th, the passed the CARES Act bill by a unanimous 96-0 vote. It will now proceed to the House before being presented to President Trump for signature. The House is expected to vote on the bill on Friday, March 27th. We will provide additional updates to this Alert as there are further developments on the bill.
The text of the final bill has not been released but below are some of the highlights of the CARES Act in its proposed state:
Unemployment Insurance Supplement: Employees who are eligible for unemployment insurance (with a current New York State max of $504/week) would receive an additional $600/week, so as to allow employees who make $57,408 or less to receive their full compensation (and some in excess of their regular compensation) for a period of up to 4 months. The unemployment period will be extended to 39 months. *Although some Senators expressed concern prior to the Senate vote that this was a "drafting error" as it will allow some workers to collect more on unemployment than if they were working, several news outlets have reported that the final bill, as passed, did not alter this section.
SBA 7(a) Loan Program: Employers with less than 500 employees would be eligible for loans in an amount up to the lesser of the average total monthly payments for payroll (up to the $33,333/individual cap during the measurement period of March 1, 2020 through June 30, 2020 discussed below), mortgage payments, rent payments and payments on any other debt obligations incurred during the 1 year period before which the loan was made times 4 OR $10M. These loans can be used to cover payroll support, employee salaries (excluding payments to individual employees of more than $33,333 between March 1, 2020 and June 30, 2020), rent, utilities and any other debt obligations incurred during the covered period.
Companies will be eligible for loan forgiveness equal to the value of the cost of payroll during the emergency with forgiveness decreasing by the following formula. The covered period for loan forgiveness consideration purposes is March 1, 2020 through June 30, 2020. The amount of loan forgiveness shall be reduced by a % equal to the difference arrived at by subtracting (1) the quotient obtained by dividing the average number of full-time equivalent employees per month during the period March 1, 2020 through June 30, 2020 by (2) the average number of full-time equivalent employees employed during the period beginning on March 1, 2019 and ending on June 30, 2019 from 1.
The average number of full-time equivalent employee's shall be determined by calculating the average number of employees for each pay period falling within a specific month.
The amount of loan forgiveness shall also be reduced by the amount of any reduction in excess of 25% of compensation in the most recent full quarter in which the employee was paid during the covered period, for any employee who was compensated in an amount less than $33,333 beginning March 1, 2019 and ending June 30, 2019 or not more than $100K annualized basis during 2019.
No collateral or personal guarantees shall be required.
The government will issue separate criteria for FDIC insured institutions to participate as lenders in this program. Lenders will be permitted only to charge minimum fees associated with such loans.
Decisions from lenders will be required within 15 days of application submission.
Any canceled indebtedness under the program shall be excluded from gross income.
Any payments due may be eligible for deferment for up to 1 year. Within 30 days after enactment, the government will issue guidance on the deferment process.
Direct Payments to Individuals: Individuals making up to $75,000/year would receive a check from the government for $1200. Those with a joint income up to $150,000 will receive a check for $2400. There will also be payments of $500/child. There would be no phase in for minimum income. Phase outs would occur above the $75,000/$150,000 limits. These payments will be capped at $99,000/individual earner and $198,000 joint earners.
Waiver of RMD's: Temporarily waives the required minimum distributions for pension plans.
Waiver of Penalties for Loans from Retirement Plans: Temporarily waives existing 10% penalty for early withdrawals from qualified retirement plans up to $100,000. Increases amounts that can be taken on loans from qualified employer plans from $50,000 to $100,000.
Payroll Tax Deferral: Provides for deferral of the 6.2% payroll tax paid by both employers and self-employed individuals for Social Security.
Net Operating Losses: Allows businesses to carry back losses for 5 years and removes the taxable income limitation for carry forwards.
Alternative Minimum Tax Credits: Accelerates the ability for corporations to use Alternative Minimum tax credits and allows businesses to claim a credit as a result.
Deductible Interest Expenses: Temporarily increases the amount of interest expenses businesses are allowed to deduct from the current 30% limitation to 50%.
Student Loans: Suspends all payments due for loans made under the Higher Education Act for 6 months, during which time no interest will accrue.
Individual Tax Payments: Formalizes the extension of time to file 2019 taxes until July 15, 2020 and specifies that 2020 estimated tax payments need not be paid until October 2020.
We will continue to monitor progress of the CARES Act and will keep you updated as additional developments occur.
 As set forth both in the text of the proposed bill and as reported by various national news outlets.
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Please contact your Woods Oviatt attorney or the following attorneys regarding COVID-19 related issues:
COVID-19 Multidisciplinary Crisis Group Co-Leaders
Gordon E. Forth, Esq.
Chris R. Rodi, Esq.
Cell: 585- 472-6474
Government Business Regulations
John F. Liebschutz, Esq.
Employment and Labor
Gordon S. Dickens, Esq.
Lorisa D. LaRocca, Esq.
Donald (Dan) O’Brien, Esq.
Gregory G. Broikos, Esq.
Christopher R. Rodi, Esq.
Cell: 585- 472-6474
Katarina B. Polozie, Esq.
Liquidity - Capital Calls
Christian J. Henrich, Esq.
Liquidity - Credit Facilities
W. Stephen Tierney, Esq.
William F. Savino, Esq.
Litigation and Disputes
Warren B. Rosenbaum, Esq.
Brian D. Gwitt, Esq.
Brian J. Capitummino, Esq.
Kristopher J. Vurraro, Esq.
Benjamin M. Keller, Esq.
Thomas M. DiPiazza, Jr., Esq.
Danielle B. Ridgely, Esq.
Family Wealth and Estate Planning
Philip L. Burke, Esq.
David P. Shaffer, Esq.