CARES Act: Summary of Key Provisions and Relief
As posted previously, President Trump signed the "Coronavirus Aid, Relief, and Economic Security Act" (the CARES Act) on the afternoon of March 27, 2020, following voice-vote approval earlier in the day by the US House of Representatives and a unanimous 96-0 vote by the US Senate on March 25. The CARES Act’s estimated $2+ trillion price tag includes: extraordinary public health spending to confront the COVID-19 pandemic; immediate cash relief for individual citizens; a broad lending program for small business; and targeted relief for hard-hit industries. The text of the bill can be found here.
The CARES Act is 880 pages long, consisting of several different Divisions and Titles:
A. Division A: Keeping Workers Paid and Employed, Health Care System Enhancements, and Economic Stabilization
Title I: Keeping American Workers Paid and Employed Act, which includes paycheck protection and loan forgiveness, and small business contracting relief.
Title II: Assistance for American Workers, Families, and Businesses, which includes unemployment insurance and tax relief.
Title III: Supporting America's Health Care System in the Fight Against the Coronavirus, which includes provisions related to medical supplies, health care coverage, and paid sick and family medical leave.
Title IV: Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy, including relief to airlines, financial institutions, and sectors critical to national security.
Title V: Coronavirus Relief Funds
Title VI: Miscellaneous Provisions
B. Division B: Emergency Appropriations for Coronavirus Health Response and Agency Operations
Below are a few highlights:
CARES Act: Relief for Individuals
Individual Stimulus Rebates
The CARES Act would provide eligible individuals a tax rebate of up to $1,200 ($2,400 for joint taxpayers). The mechanism for paying the rebates is an advance refundable tax credit. The rebates are subject to certain special rules:
Amounts are increased by $500 for each child; and
Amounts are phased out for single taxpayers making $75,000 ($112,500 for heads of household, and $150,000 for joint taxpayers) at 5% per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers with no children and at $198,000 for joint taxpayers with no children.
The rebates are available even if the taxpayer has no income. Aside from filing a tax return for either 2018 or 2019, no action is generally required to claim the rebates. The IRS will use the taxpayer’s 2019 tax return, if filed, or in the alternative, their 2018 return. The CARES Act exempts the rebates from offset to pay debts owed to other federal agencies, state income tax obligations, and unemployment compensation debts (but not for past-due support). It also requires the Treasury and the Internal Revenue Service (IRS) to coordinate with the Social Security Administration and other agencies to conduct a public awareness campaign regarding the availability of the rebates.
Common questions regarding individual rebates and other individual relief provide by the CARES Act can be found here.
Disbursements to Guam Residents
For territories such as Guam that mirror the US income tax laws or have a “mirror code tax system,” the CARES Act provides:
“The Secretary of the Treasury shall pay to each possession of the United States which has a mirror code tax system amounts equal to the loss (if any) to that possession by reason of the amendments made by this section. Such amounts shall be determined by the Secretary of the Treasury based on information provided by the government of the respective possession.” CARES Act, Subtitle B, Sec. 2201(b)(A).
Based on these provisions, it appears that the Government of Guam is responsible for the initial distribution of rebates and must then seek reimbursement for the Secretary of the Treasury.
However, Ricky Hernandez, deputy administrator for the Guam Economic Development Authority, who has been designated as a lead official regarding COVID-19-related aid from the federal government, has represented that he has been working with DRT to provide the documents the federal government needs to release funds to Guam residents. Hernandez also represented that the Government of Guam is awaiting policy guidance from the Trump administration, including how the federal government intends to release the money to Guam and that the federal government may release the funds to the Government of Guam to distribute checks.
As an alternative, Congressman Mike San Nicolas has represented that another option is the U.S. Treasury sending checks directly to Guam taxpayers based on a list Guam DRT will generate.
Coverage of Hernandez and San Nicolas’s discussion regarding CARES Act and other federal relief can be found here. At this point, it is unclear exactly when or how these disbursements will be made. However, CFJ is currently monitoring this situation and will provide updates as they become available.
Modified Rules of Retirement Accounts
As part of its relief for individuals, the CARES Act also suspends the minimum distribution requirements for any individual retirement account or workplace retirement savings plans, such as a 401(k), for the 2020 calendar year.
The CARES Act also provides that individuals can withdraw up to $100,000 in 2020 without the existing 10% penalty, so long as the withdrawal is related to the COVID-19 crisis. Individuals are able to spread out any income taxes owed as a result of the distributions over three years from the date of the distribution. Individuals could also return the distributions to the account before the end of the three years. This exception applies only to COVID-19 related withdrawals.
Additionally, for 180 days after the CARES Act was passed, with certification that they’ve been affected by the COVID-19 crisis, individuals will be able to take out a loan of up to $100,000 from their 401(k) or other workplace retirement plan.
Pandemic Unemployment Assistance Program
Subtitle A of Title II of Division A of the CARES Act, entitled the “Relief for Workers Affected by Coronavirus Act,” creates a temporary Pandemic Unemployment Assistance program to provide payment to individuals not traditionally eligible for unemployment benefits, such as the self-employed or independent contractors, who are unable to work as a direct result of the of the COVID-19 pandemic.
The Act also includes workers on Guam, as the definition of “State” under this provision includes “the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau.” H.R. 748 § 2102 (emphasis added). Under the CARES Act, the Secretary “shall provide the assistance [to covered individuals] through agreements with States which, in the judgment of the Secretary, have an adequate system for administering such assistance through existing State agencies.” 2102(f)(1). As for federal reimbursements to States for payment of unemployment benefits, the CARES Act states: “There shall be paid to each State which has entered into an agreement under this subsection an amount equal to 100 percent of—(A) the total amount of assistance provided by the State pursuant to such agreement; and (B) any additional administrative expenses incurred by the State by reason of such agreement….” 2102(f)(2). The sums paid by the State under its agreement with the Secretary of Labor is payable “either in advance or by way of reimbursement (as determined by the Secretary….”
The Act would therefore give Guam employees affected by the COVID-19 pandemic unemployment benefits if the Guam Department of Labor (GDOL) presents a plan agreeable to the Secretary of Labor on how unemployment benefits under the CARES Act would be administered.
On March 29, Governor Lou Leon Guerrero signed an Agreement with the U.S. Department of Labor (USDOL) to implement the provisions of the Relief for Workers Affected by Coronavirus Act on Guam. The GDOL and the Guam Economic Development Authority (GEDA) will be leading efforts to create a new PUA program that will be administered by the GDOL on Guam. To ensure compliance with the Governor’s social isolation directive, the program will be sensitive to existing social distancing mandates.
Under the Act, a covered individual is one who is otherwise able to work and available for work within the meaning of applicable Guam law, except the individual is unemployed, partially unemployed, or unable or unavailable to work because:
the individual has been diagnosed with COVID–19 or is experiencing symptoms of COVID–19 and seeking a medical diagnosis;
a member of the individual's household has been diagnosed with COVID–19;
the individual is providing care for a family member or a member of the individual's household who has been diagnosed with COVID–19;
a child or other person in the household for which the individual has primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of the COVID–19 public health emergency and such school or facility care is required for the individual to work;
the individual is unable to reach the place of employment because of a quarantine imposed as a direct result of the COVID–19 public health emergency;
the individual is unable to reach the place of employment because the individual has been advised by a health care provider to self-quarantine due to concerns related to COVID–19;
the individual was scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of the COVID–19 public health emergency;
the individual has become the breadwinner or major support for a household because the head of the household has died as a direct result of COVID–19;
the individual has to quit his or her job as a direct result of COVID–19;
the individual's place of employment is closed as a direct result of the COVID–19 public health emergency;
the individual meets any additional criteria established by the Secretary for unemployment assistance under this section; or
is self-employed, is seeking part-time employment, does not have sufficient work history, or otherwise would not qualify for regular unemployment or extended benefits under State or Federal law or pandemic emergency unemployment compensation under section 2107 of the CARES Act.
Covered individuals will receive benefits for weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 beginning on or after January 27, 2020 and ending on or before December 31, 2020, for as long as the unemployment, partial unemployment or inability to work caused by COVID-19 continues. The weekly benefit amount would be equal to the amount authorized under Guam law. For self-employed individuals, the weekly benefit is calculated under 20 C.F.R. § 625.6.
COVID-19 Testing and Treatment
The CARES Act expands the types of testing that would be covered without cost-sharing beyond the types of testing contemplated by the Families First Act. In addition to the FDA-approved in vitro diagnostic testing, the CARES Act covers 1) tests provided by clinical labs on an emergency basis (including public health labs); and 2) state-developed labs. The CARES Act also requires group health plan providers and insurers to reimburse the provider for either the negotiated cost of the testing or, if there is no negotiated price between the group health plan/insurer and the provider, for the cash price of the diagnostic testing as reflected on its website. The provider is required to publicize that price on a publicly available website. If a provider fails to publicize the price of the testing, it is subject to a fine of up to $300 per day.
CARES Act: Relief for Certain Sectors
Loans and Guarantees for Severely Distressed Sectors
Title IV of the CARES Act, Subsection A – entitled “Coronavirus Economic Stabilization Act of 2020” – provides $500 billion to Treasury’s Exchange Stabilization Fund for loans, loan guarantees, and investments in the Federal Reserve’s lending facilities to support states, municipalities, and “eligible businesses.” $500 billion is allocated as follows:
$25 billion in loans and loan guarantees for passenger air carriers;
$4 billion in loans and loan guarantees for cargo air carriers;
$17 billion in loans and loan guarantees for businesses critical to maintaining national security; and
$454 billion for loans, loan guarantees, and investments in support of facilities established by the Federal Reserve to support lending to eligible businesses, states, and municipalities.
Under the CARES Act, the Treasury Secretary must publish application procedures and minimum requirements for loans, loan guarantees, and other investments within 10 days of enactment.
$10 Billion in Grants to Airports
The CARES Act provides grants to airports funded through the Treasury’s General Fund “to prevent, prepare for, and respond to coronavirus.” The funding is made available until expended and includes:
$500 million to pay for a 100 percent federal share for Airport Improvement Program (AIP) grants issued under FY 2020 appropriations
$7.4 billion, with a 100 percent federal cost-share, “for any purpose for which airport revenues may lawfully be used. Of this amount:
$3.7 billion shall be allocated among all commercial service airports based on the airport’s calendar year 2018 enplanement percentage and
$3.7 billion distributed "based on an equal combination of each sponsor's fiscal year 2018 debt service as a percentage of the combined debt service for all commercial service airports and each sponsor's ratio of unrestricted reserves to their respective debt service…"
Additional $2 billion allocated by the AIP formula, at 100 percent federal share
$100 million for general aviation airports “for any purpose for which airport revenues may lawfully be used”
The FAA may retain 0.1 percent of the funding for administrative support. The Act requires that all airports that receive this funding continue to employ, through December 31, 2020, “at least 90 percent of the number of individuals employed by the airport.” The US DOT may waive this retention requirement if an airport proves “economic hardship as a direct result of the requirement,” or the requirement “reduces aviation safety or security.”
CARES Act: Relief for Small Businesses
Paycheck Protection Program (“PPP”) Loans
The PPP provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during the COVID-19 crisis. Features of PPP loans include forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities are able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program is retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
A. Eligible Businesses
Among other individuals and entities, businesses with fewer than 500 employees are eligible for PPP loans. This includes 501(c)(3) nonprofit organizations, 501(c)(19) veterans organizations and Tribal business concerns that have fewer than 500 employees, or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher, individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
SBA affiliation rules are waived for any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a North American Industry Classification System (“NAICS”) code beginning with 72 – which includes most accommodation and food services.
B. Size of the Loan
The maximum loan size for a PPP loan is $10 million. If the applying business was in operation from February 15 to June 30, 2019, the max loan is equal to 250% of the business’s average monthly payroll costs during that time period. If the business employs seasonal workers, it can opt to choose March 1, 2019 as the time period start date.
If the business was not in operation between February 15, 2019 and June 30, 2019, the max loan is equal to 250% of the business’s average monthly payroll costs between January 1, 2020 and February 29, 2020. Economic Injury Disaster Loans taken out between February 15, 2020 and June 30, 2020 may also be refinanced into a PPP loan by adding the outstanding loan amount to the payroll sum.
C. Costs Eligible for Payroll
For purposes of the PPP loan, payroll costs include:
Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
Payment for vacation, parental, family, medical, or sick leave
Allowance for dismissal or separation
Payment required for the provisions of group health care benefits, including insurance premiums
Payment of any retirement benefit
Payment of State or local tax assessed on the compensation of employees
Payroll costs do not include:
Employee/owner compensation over $100,000
Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
Compensation of employees whose principal place of residence is outside of the U.S.
Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
D. Allowable Uses of Loan Proceeds
Allowable uses of loan proceeds include:
Payroll costs (as noted above)
Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
Employee salaries, commissions, or similar compensations (see exclusions above)
Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
Rent (including rent under a lease agreement)
Utilities
Interest on any other debt obligations that were incurred before the covered period
E. Forgiveness
Forgiveness on PPP loans is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000), plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus any covered utility payment.
Businesses must apply for forgiveness through the lender of the PPP loan. This application must include:
Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.
Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan.
F. Application Process
Businesses must apply for PPP loans through US SBA affiliated lenders. The SBA provides a lender matching services that aids businesses in finding the appropriate lender to meet their needs. Additionally, the SBA has seven commercial lending partners on Guam: ANZ Bank, Bank of Guam, Bank of Hawaii, BankPacific, Coast 360 FCU, Community First FCU, and First Hawaiian Bank. More information regarding the SBA’s Guam District Office can be found here. At this point, it is unclear which of these institutions, if any, are participating in the PPP. However, CFJ is currently monitoring this situation.
Businesses may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, businesses cannot use PPP loans for the same purpose as other SBA loans. For example, if a business uses the PPP to cover payroll for the 8-week covered period, it cannot use a different SBA loan product for payroll for those same costs in that period. However, the business could use it for payroll not during that period or for different workers.
Economic Injury Disaster Loans & Emergency Economic Injury Grants
These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, businesses must first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
Small Business Tax Provisions
A. Employee Retention Credit for Employers Subject to Closure or Experiencing Economic Hardship
As an alternative to the PPP, the CARES Act offers an Employee Retention Tax Credit. This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages.
B. Delay of Payment of Employer Payroll Taxes
In addition to the tax credit, the CARES Act contains provisions that allow taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.
Both of these tax provisions are exclusive of the PPP. Businesses may not both obtain a PPP loan and claim the above tax credit and deferral.
Additional Resources
The US Senate Committee on Small Business and Entrepreneurship’s guide to the CARES Act which contains detailed information on how to apply for relief, including eligibility requirements can be found here. Additional information on relief for small businesses can be found at the House Committee on Small Business’s website here.
CARES Act: Relief for States and U.S. Territories
The CARES Act establishes a $150 billion “Coronavirus Relief Fund” for state, local, territorial, and tribal governments to use to cover any costs related to COVID-19 that had not been previously budgeted for and were incurred between March 1 and December 30, 2020. The bill sets aside $3 billion for Washington, D.C. and U.S. territories of Guam, the Northern Mariana Islands, Puerto Rico, the U.S. Virgin Islands, and American Samoa as well as $8 billion for tribal governments.
The amount of the $3 billion paid to D.C., Guam, and the other named U.S. territories will be an amount equal to the product of each such District’s and territory’s share of the combined total population of the District of Columbia and all such territories, as determined by the Secretary.
The remaining $139 billion will be shared among the 50 states proportionally by population with each State receiving at least $1.25 billion. If a local government applies for and is certified by the Treasury to receive a payment from the fund, it must be made directly to the local government and that amount will be subtracted from the allocation of the state that the local government is in. See estimated state allocations courtesy of Federal Funds Information for States.
The fund prioritizes speed and requires that payments must be made to governments within 30 days of enactment. However, it also establishes an inspector general to monitor the disbursement and use of relief funds and gives the inspector general the authority to recoup any misused funds.