The CARES Act: What it means for Businesses & Individuals

UPDATED: April 16, 2020 at 4:15 PM

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The bill provides much needed relief for individuals and businesses that have been affected by the COVID-19 pandemic that has spread across the country. The $2 trillion bill includes rebates for individuals, expanded unemployment insurance benefits, loans and funding for businesses and healthcare funding.

Below you will find a summary of the key points related to the CARES Act:

For Businesses & Self-Employed Individuals

For Individuals

CARES ACT: Businesses & Self-Employed Individuals

Paycheck Protection Program

NOTE: On April 16, 2020, the SBA announced that they are no longer able to accept applications for the Paycheck Protection Program as they have exhausted the $349 million fund.

Under the CARES Act, a paycheck protection program for small employers, self-employed individuals, and gig workers (workers with income-earning activities outside the traditional employer-employee relationship) has been created to help prevent workers from losing their jobs, as well as help to sustain small businesses who are seeing significant economic losses due to COVID-19. The government guarantee of these loans has been increased to 100% through December 31, 2020 and $349 billion has been allocated.


Small businesses, 501(c)(3) nonprofits and 501(c)(19) veteran’s organizations with 500 employees or less are eligible for the loans, as well as sole proprietors, independent contractors, and other self-employed individuals. Current SBA affiliation rules for eligible nonprofits applies.

Businesses with more than one physical location that employ 500 employees or less per physical location in certain industries are eligible; certain industries would require the business be below a gross annual receipts threshold.

For eligibility purposes, lenders are required to determine whether a business was operational on February 15, 2020 and had employees for whom salaries and payroll taxes were paid or paid independent contractors. This is in lieu of determining repayment ability as that is not possible in the crisis.

There will be limitations on borrowers from receiving benefits under the Paycheck Protection Program and an economic injury disaster loan (EIDL) related to COVID-19 through the SBA. If the borrower has an EIDL unrelated to COVID-19, they are eligible for the Paycheck Protection Program and can refinance their current EIDL into a Paycheck Protection Program loan.

The Paycheck Protection Program provides delegated authority for lenders to make determinations on borrower eligibility and creditworthiness without going through the SBA’s channels.

Where and When to Apply

You can apply for the Paycheck Protection Program at lending institutions that are approved to participate in the program through the existing U.S. Small Business Administration (SBA) 7(a) lending program and additional lenders as approved by the Department of Treasury. Beginning on April 3, 2020, small businesses and sole proprietorships can apply. On April 10, 2020, independent contractors and self-employed individuals can apply. You can submit loan applications through June 30, 2020.

Documentation Needed

Borrowers will need to complete the Paycheck Protection Program loan application and submit that plus payroll documentation and any required documentation requested by their lender.

You will also need to certify:

  • The loan is necessary to support your ongoing operations.
  • You will use the loan to retain employees and maintain payroll; or you will use the loan to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under this program.
  • You will provide documentation to the lender that verifies the number of full-time equivalent employees on payroll, payroll cost amount, covered mortgage interest payments, covered rent payments, and covered utilities for the 8-week period after the loan is received.
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. It is likely that no more than 25% of the forgiven amount can be for payroll costs.
  • You will also need to acknowledge that the lender calculates the eligible loan amount using any tax documentation submitted; and you will have to affirm that the tax documents are identical to those submitted to the IRS.
  • You will need to confirm that all the information provided in your application and in all supporting documentation is true and accurate.

Highlights of the Paycheck Protection Program

  • The maximum 7(a) loan amount is increased to $10 million through December 31, 2020. Eligible applicants can borrow up to 250% of their average monthly payroll expenses, up to $10 million, which is intended to cover 8 weeks of payroll expense and additional amounts for debt obligation.
  • Allowable uses of the loan include payroll support, such as employee salaries, paid sick and medical leave, insurance premiums and mortgage, rent and utility payments.
  • Deferment of 7(a) loan payment is allowed for at least six months and not more than a year. The SBA will issue guidance to lenders on the deferment process within 30 days.
  • The borrower is eligible for loan forgiveness equal to the amounts spent by the borrower during the 8-week period after the date of the loan origination on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.
  • The amount forgiven cannot exceed the principal amount of the loan. Compensation above $100,000 in wages is not included in eligible payroll costs. Forgiveness on a covered loan is equal to the sum of the payroll costs incurred during the covered 8-week period compared to the same time period in the previous year, proportionate to maintaining employees and wages:
  • The amount forgiven will be reduced proportionally by any reduction in the number of employees retained compared to the same number from the prior year, as well as by the reduction in pay of any employee beyond 25% of their prior year compensation.
    • If an employer already laid off employees, they can still be forgiven for the full amount of their payroll if they rehire their employees by June 30, 2020.
  • The covered loan period is the period beginning on February 15, 2020 and ending on June 30, 2020.
  • Borrower and lender fees, collateral and personal guarantee requirements, and the credit elsewhere test for funds are all waived.
  • The interest rate is 1%.
  • Any loan amounts not forgiven at the end of one year are carried forward as an ongoing business loan with a maximum term of 10 years and a maximum interest rate of 4%. The 100% government loan guarantee of this loan will remain intact.


Current 7(a) Loans

The SBA will be required to pay the principal, interest and any associated fees that are owed on existing 7(a), including Community Advantage, 504 or microloan products for a six-month period starting on the next payment due.

The SBA is required to encourage lenders to provide deferments and allow lenders, up until one year after enactment, March 27, 2020, to extend the maturity of SBA loans in deferment beyond existing statutory limits.

Emergency EIDL Grants

Changes are permitted to the EIDL loans to expand eligibility and limiting requirements:

  • Cooperatives and ESOPs with fewer than 500 employees or any individual, who is operating as a sole proprietor or independent contractor for the period of January 1, 2020 to December 31, 2020 are now eligible, as well as private nonprofits.
  • The SBA will waive any personal guarantee on advances and loans below $200,000, the requirement that businesses be operating for a 1-year period prior to the disaster, and the credit elsewhere requirement.
  • An Emergency Grant has been established to allow eligible entities to request an advance, not to exceed $10,000, which the SBA must distribute in three days. The advance has restricted uses such as payroll, sick leave, rent or mortgage and repaying obligations that cannot be met due to loss in revenue. The Emergency Grant can be forgiven if spent on these qualifying expenses.

Expansion of Unemployment Insurance and Benefits

The CARES ACT provides temporary support for those impacted by COVID-19. $250 billion has been allocated to give workers better access to unemployment. Summarized below are key sections from the CARES Act that relates to unemployment insurance.

Eligible Employees

A temporary program, the Pandemic Unemployment Assistance, has been created beginning on January 27, 2020 through December 31, 2020. The coverage has been expanded and allows workers, who are unable to work due to COVID-19 related reasons, access to unemployment benefits, including:

  • self-employed workers and independent contractors such as gig workers (i.e., musicians, Uber and Lyft drivers);
  • furloughed employees;
  • workers who have been laid off from churches and religious institutions, who may not be eligible under a state’s program; and
  • workers who were scheduled to start a new job but are now unable to start due to COVID-19 related reasons.

Payments will be made to states to reimburse nonprofits and governmental entities for half of the costs they incurred through December 31, 2020 to pay unemployment benefits.

Unemployment Benefits

Unemployment benefits are increased by an additional $600 per week until July 31, 2020, regardless of how much an individual made prior to unemployment. This means that a person would receive what is currently available to them through Unemployment Insurance plus an additional $600 per week.

An additional 13 weeks of unemployment will also be provided. This would be in addition to what is currently provided based on your state. In Pennsylvania and Maryland, the maximum available benefit period is 26 weeks. Under the CARES Act, individuals would be eligible for up to 39 weeks of unemployment.

Most states, including Pennsylvania and Maryland, have suspended the typical week waiting period. Eligible claimants may receive benefits from the first week they are unemployed.

Tax-Related Provisions for Businesses

Employee Retention Credit

A temporary, refundable, 50% employee retention credit is provided for employers subject to full or partial business suspension due to the COVID-19 emergency or for employers whose gross receipts have significantly declined due to COVID-19 (a significant decline is a reduction in gross receipts of more than 50% when compared to the same quarter in the prior year).

This credit will be applied against the employer’s share of payroll taxes. The amount of qualified compensation (including health benefits) eligible for this credit with respect to any individual employee is limited to $10,000 and limited to employment taxes on wages paid (reduced by work opportunity credit, payroll research credit and payroll tax credits under the Families First Coronavirus Response Act).

Delay of Employer Payroll Tax Payments

Employers and self-employed individuals are allowed to delay payments of the employer share of the Social Security tax that they are responsible for paying, generally 6.2% of tax on employee wages. The delay would begin on the date of enactment, March 27, 2020 through December 31, 2020. One-half of this deferred tax is to be paid by December 31, 2021 and the remaining half is to be paid by December 31, 2022.

Modification of Net Operating Losses (NOL)

A NOL from tax years beginning in 2018, 2019 or 2020 can be carried back for five years. This will temporarily remove the taxable income limitation on the use of the NOL and allow the NOL to fully offset income. Companies can utilize these loss carryback provisions and amend prior year returns.

Corporate Alternative Minimum Tax (AMT) Credit Refunds

Corporate AMT was repealed as part of the Tax Cuts and Jobs Act; however, corporate AMT credits were available as refundable credits over several years ending in 2021. Under the new bill, the AMT Credit Refund is accelerated for tax years beginning in 2019.

Modification of Limitation on Business Interest

The 30% adjusted taxable income limitation is temporarily increased to 50% for tax years beginning in 2019 and 2020. For 2019, this limitation does not apply to partnerships; instead partners may deduct 50% of their distributive share of the excess in interest limitation in 2020. The provision would allow a taxpayer (including partnerships) to elect to use their 2019 adjusted taxable income for their 2020 limitation year.

Qualified Improvement Property Amendment

The new bill corrects an oversight from the Tax Cuts and Jobs Act, which had depreciation for certain restaurant and retail businesses’ qualified improvement property inadvertently lengthened to 39 years. The qualified improvement property will now be classified as 15-year property or 20-year property under the alternative depreciation system. This correction will allow such property to be eligible for bonus depreciation.

Tax Accounting Considerations

ASC 740 requires that tax effects of changes in tax laws or tax rates be recorded discretely as a component of the income tax provision related to continuing operations in the period of enactment. The enactment date is March 27, 2020, the date the President signed the bill into law. The NOL carryback and the modification of limitation on business interest could have an impact on the financial statement reporting.

Charitable Contributions

There is an increase in the limitations on deductions for charitable contributions for corporations. The 10% limitation is increased to 25% of taxable income in 2020. A deduction for food inventory contributions is increased from 15% to 25%.

CARES ACT: Individuals

Recovery Rebate for Individuals

U.S. residents will receive a $1,200 rebate ($2,400 married filing jointly) if they have an adjusted gross income that is not more than $75,000 ($150,000 married filing jointly), a Social Security number, and are not dependents on another taxpayers return. Additionally, eligible individuals will receive up to $500 per child. For many, no action will be required in order to receive their rebate check. The IRS will be using 2019 tax returns, if filed, or 2018 tax returns, if 2019 is not yet filed. If an individual does not typically file a tax return, they will need to file a simple tax return to receive the rebate.

The rebate will be reduced by $5 for every $100 of an eligible individual’s adjusted gross income that exceeds $75,000. Individuals are not eligible for the rebate if their income exceeds $99,500 ($146, 500 for head of household filers with one child or $198,000 for joint filers with no children).

The IRS will be depositing the payment directly into the bank account reflected on the return used to calculate the payment (2019 or 2018). If direct deposit information is not available, the IRS will be instructing taxpayers to visit a website and provide their banking information so that they can receive payments immediately as opposed to checks. The Treasury will be developing the website in the next few weeks.

Waivers Related to Retirement Funds & Plans

The 10% early withdrawal penalty is waived for distributions up to $100,000 made on or after January 1, 2020 from qualified retirement accounts for COVID-19 related purposes. Additionally, the required minimum distribution rules are waived for certain defined contribution plans and IRAs for calendar year 2020.

Charitable Deductions

Individuals are permitted to deduct up to $300 of cash contributions to churches or charitable organizations, regardless of whether they are eligible to take itemized deductions.  Additionally, there is an increase in the limitations on deductions for charitable contributions for individuals. For individuals, the 60% of adjusted gross income limitation is suspended for 2020.

If you have any questions, please contact your BSSF advisor.

Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.