March 26, 2020

3-26-20 Client Alert UPDATE to CARES Act Proposed Bill

CARES Act Proposed Bill

Update to Alert from 3/26/20

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.

Upon review of the text of the final bill that was approved by the Senate, below are some of the highlights of the CARES Act in its current proposed state[1]:

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. The one week waiting period has been waived. Although the requirement to "engage in an active search for work" has not been waived for eligibility purposes, the Act does provide that the individual states can be flexible when reviewing this criteria to recognize that individual workers' searches may be impacted by the COVID-19 pandemic.

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 product obtained by multiplying the average total monthly payments for payroll costs incurred during the 1 year period before the date on which the loan is made by 2.5 OR $10M. These loans can be used to cover qualified payroll, interest on mortgage payments, rent, and utilities. For purposes of the mortgage, rent and utility payments, these would apply only to obligations that commenced before February 15, 2020- no new obligations. The covered period for purposes of the loan eligibility is February 15, 2020 through June 30, 2020.

Companies will be eligible for loan forgiveness equal to the value of the cost of the qualified expenses during the emergency with forgiveness decreasing by the formula specified below. The amount of loan forgiveness shall be calculated by multiplying (i) the sum of payroll costs, mortgage interest, rent, and utility payments during the eight week period after the loan is originated by (ii) the quotient obtained by dividing the average number of full-time equivalent employees who earned less than an annualized $100K during any pay period in 2019 ("FTE's") employed during the covered period by (at the election of the borrower) (1) the average number of FTE's employed per month during the period 2/15/2019 through 6/30/2019; or (2) the average number of FTE's per month during the period January 1, 2020 through February 29, 2020.

The Act specifies that the percentage of loan forgiveness shall be determined without consideration of reductions in staff or salaries that occur between February 15, 2020 and 30 days following enactment of the Act, if those employees that were subject to the reduction are re-employed by June 30, 2020.

The covered period for loan forgiveness purposes (eligible expenses) is the 8 week period following the loan origination date.

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 $100,000 annually.

The amount of the forgiveness shall not exceed the principal amount financed and specifically excludes any interest charged on the loan. Lenders will be able to charge up to 4% interest.

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 a minimum period of 6 months and a maximum of 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 who file a joint return with income up to $150,000 will receive a check for $2400. There will also be payments of $500/ qualifying child (as defined in the IRC). There would be no phase in for minimum income. Phase outs would occur above the $75,000/$150,000 limits at a rate of 5% of the excess income above the threshold limits. There is also a $112,500 head of household threshold.

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. Withdrawals from retirement plans can be repaid over a period of 3 years and the income attributed to such withdrawals can be spread out over the same 3 year period.

Payroll Tax Deferral: Provides for deferral of the 6.2% payroll tax paid by both employers and self-employed individuals for Social Security (50% deferral until 12/31/21 and 50% until 12/31/22).

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 through September 30, 2020, during which time no interest will accrue. If the borrower will otherwise qualify under federal loan forgiveness programs, the suspended payments shall automatically qualify them for consideration and, if they qualify, shall be forgiven.

Payments Under the Families First Coronavirus Response Act: Employers will only be liable to pay to employees the maximum credit amounts ($511/day or $200/day, and applicable aggregates) that the employer can receive.

We will continue to monitor progress of the CARES Act and will keep you updated as additional developments occur.

Please contact your Woods Oviatt attorney or the attorneys below regarding COVID-19 related issues.

[1] As set forth both in the text of the final bill passed by the Senate.

For more information regarding Coronovirus (COVID-19) or to access all of our client alerts go to:

COVID-19 Multidisciplinary Crisis Group Co-Leaders

Gordon E. Forth, Esq.

Phone: 585-987-2801

Cell: 585-330-2862


Chris R. Rodi, Esq.

Phone: 585-987-2820

Cell: 585- 472-6474


Government Business Regulations

John F. Liebschutz, Esq.

Phone: 585-987-2869

Cell: 585-943-2181


Employment and Labor

Gordon S. Dickens, Esq.

Phone: 585-987-2851

Cell: 585-766-1642


Lorisa D. LaRocca, Esq.

Phone: 585-987-2834

Cell: 585-506-5394



Donald (Dan) O’Brien, Esq.

Phone: 585-987-2810

Cell: 585-734-9647


Gregory G. Broikos, Esq.

Phone: 585-987-2805

Cell: 585-208-7060


Commercial Contracts

Christopher R. Rodi, Esq.

Phone: 585-987-2820

Cell: 585- 472-6474


Katarina B. Polozie, Esq.

Phone: 585-987-2910

Cell: 202-262-4368


Liquidity - Capital Calls

Christian J. Henrich, Esq.

Phone: 716-248-3211

Cell: 716-213-7005


Liquidity - Credit Facilities

W. Stephen Tierney, Esq.

Phone: 585-987-2839

Cell: 585-329-1020


William F. Savino, Esq.

Phone: 716-248-3210

Cell: 716-982-2557


Litigation and Disputes

Warren B. Rosenbaum, Esq.

Phone: 585-987-2813

Cell: 585-613-6848


Brian D. Gwitt, Esq.

Phone: 716-248-3213


Brian J. Capitummino, Esq.

Phone: 585-987-2863

Cell: 585-233-1847


Real Estate

Kristopher J. Vurraro, Esq.

Phone: 585-987-2838

Cell: 585-415-3147


Benjamin M. Keller, Esq.

Phone: 585-987-2804

Cell: 716-238-4878



Thomas M. DiPiazza, Jr., Esq.

Phone: 585-987-2861

Cell: 585-615-5690


Danielle B. Ridgely, Esq.

Phone: 585-987-2914

Cell: 585-698-8092


Family Wealth and Estate Planning

Philip L. Burke, Esq.

Phone: 585-987-2850

Cell: 585-748-6198


David P. Shaffer, Esq.

Phone: 585-987-2878

Cell: 585-472-6696