An Employer’s Guide to Understanding the Coronavirus Aid, Relief, and Economic Stability (CARES) Act

On March 27, 2020, the President signed into law the largest stimulus bill in history. This $2 trillion bill provides incentives and support to help retain the American workforce, assist American workers, families, and businesses, including tax relief and expanded unemployment insurance, support to the health care system to fight the disease, action to promote economic stabilization, and the appropriation of funds to accomplish these goals.

This overview will help provide employers with an understanding of what is in the stimulus package, specifically the provisions that have a direct impact on employers and their workforce.

Part I/Title I: Keeping American Workers Paid and Employed Act

Paycheck Protection Program

This provision provides 100% guaranteed covered loans available to businesses and self-employed individuals through the Small Business Association (SBA), credit unions, or banks, during the period of February 15, 2020 through June 30, 2020 – loan programs will be available to small businesses and sole proprietors on Friday, April 3 and to independent contractors and self-employed individuals on Friday, April 10. The application is available through the U.S. Small Business Administration (SBA).

• Eligible employers are businesses whose principal place of residence is in the United States, who were in operation on February 15, 2020 and had 500 or fewer employees, (500 or fewer employees per location for franchisees or businesses in the accommodation and food service industries), for whom they paid salaries and payroll taxes
• Eligible individuals include independent contractors and self-employed individuals
• Allowable uses for covered loans includes payroll costs, continuation of group health care benefits during periods of paid sick medical or family leave, and insurance premiums, salaries, commissions, interest payments for mortgage obligations, rent, utilities, and interest on any other debt obligations incurred prior to 2/15/20
• Payroll costs includes compensation for employees and compensation for sole-proprietors and independent contractors. It does not include compensation of an individual that exceeds $100,000 of annual salary as prorated over the covered period, taxes withheld during the covered period, i.e. 2/15/20-6/30/20, any compensation for employees whose principal residence is outside the US, or qualified sick leave or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act (FFCRA)
  • Note: Compensation for employees includes payment for salaries, wages, commissions, tips, vacation, parental, family, medical, or sick leave, group health care benefits, retirement benefits, and state and local taxes assessed on employee compensation. Compensation for sole-proprietors and independent contractors include wages, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year as prorated over the covered period, i.e. 2/15/20-6/30/20.
• Maximum loan amount is the lesser of:
  • $10,000,000; or
  • 2.5 times the average monthly payroll costs incurred during the 1-year period before the date on which the loan is made, or January 1 2020 – February 29, 2020 if not in business during the timeframe listed above [special rules apply to seasonal businesses];
  • “Seasonal businesses” will be defined by the Administrator in forthcoming guidance. For these businesses the amount of the loan is 2.5 times the average total monthly payments for payroll for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019 along with any outstanding loan amounts made
  • PLUS the amount of a loan made between January 31, 2020 and the ending date loans are made available to be refinanced under the covered loan
• Loan Repayment and Maturity - the remaining balance of the loan after reduction based on the loan forgiveness provision of the law shall continue to be guaranteed and l have a maximum maturity date of 2 years from the date on which the borrower applies for loan forgiveness
• Interest Rate and Payment Deferral - covered loan interest is 1% and lenders must provide at least 6 months (possible for Departments to defer payments up to 12 months in future guidance), but not more than one year, payment deferral of principal, interest, and fees

Loan Forgiveness

Provision allows waiver of payback of an amount that is equal to the sum of payroll costs, payment of interest on any covered mortgage obligation (not including any prepayment of or payment of principal on a covered mortgage obligation, rent, and utilities incurred (mortgage, rent, and utilities must be in place prior to February 15, 2020) during the covered period. However, not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. Note, the term “covered period” refers to the 8-week period beginning on the date of the origination of a covered loan.

Limits on Forgiveness Amount

• Reduction in Number of employees = Loan forgiveness x Average employees per month (Cannot increase the forgiveness amount above 100% of indebtedness, can only reduce the amount)
• Average Employees =
  • Average number of full-time equivalent employees/mo. → during covered period
  • Average number of full-time equivalent employees/mo. → 2/15/19-6/30/19*
  • *Borrowers, except for seasonal employers, (to be determined by the Administrator) may choose to use this period or January 1, 2020 – February 29, 2020
• Reduction Relating to Salary and Wages
  Any reduction in total salary or wages of an employee during the covered period that is in excess of 25% of the total salary or wages as compared to the most recent full quarter the employee was employed prior to the covered period
  • Rehire exemption
    Any reductions in full-time equivalent employees made during the period beginning 2/15/20 and ending 30 days after the date of enactment, i.e. March 27, 2020 with elimination of the reduction happening not later than June 30, 2020 will be added back in to the numerator negating any adverse outcome on loan forgiveness
• No forgiveness on taxes on indebtedness for tax purposes

Guidance forthcoming in the next 30 days
* Cannot increase the forgiveness amount above 100% of indebtedness, can only reduce the amount

Part II/Title II Relief for Workers Affected by Coronavirus Act

Pandemic Unemployment Assistance

This provision applies for the period of January 27, 2020 through December 31, 2020 to individuals who cannot work or telework, are not receiving paid sick leave or other paid leave benefits, and who are not eligible for regular compensation or extended benefits under state or federal law or pandemic emergency unemployment compensation

Eligibility - individuals who provide self-certification that:

• they are otherwise able to work and available for work within the meaning of applicable State law, except the individual is unemployed, partially unemployed, or unable or unavailable to work because-
  • the individual, or a member of the individual’s household, has been diagnosed with COVID–19 or is experiencing symptoms of COVID–19 and seeking a medical diagnosis;
  • 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 or 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; or
  • the individual meets any additional criteria established by the Secretary for unemployment assistance under this section; or
• they are self-employed, seeking part-time employment, do 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

Limited Duration - only available for a maximum of 39 weeks including any week for which the individual received regular compensation or extended benefits under an Federal or State law unless the duration of extended benefits is extended after the date of enactment, i.e. March 27, 2020

Amount of Assistance - generally, the weekly benefit amount authorized under the unemployment compensation law of the State where the covered individual was employed, but not more than the maximum of that state as described in 625.6 of title 20.Disaster Unemployment Assistance

Emergency Increase in Unemployment Compensation Benefits

Provides options for states to enter into agreement with the DOL to provide an additional $600 per week to otherwise eligible unemployment compensation recipients and will apply to weeks of unemployment from the date the State enters into the agreement with the DOL and July 31, 2020

Temporary Full Federal Funding of First Week of Regular Unemployment

Entering into this optional agreement with the DOL entitles States that provide compensation their first week of employment, with no waiting period, to 100% of the total amount of regular compensation for the first week of regular unemployment and any administrative expense and will apply to weeks of unemployment from the date the State enters into the agreement with the DOL and December 31, 2020

Pandemic Emergency Unemployment Compensation

This provision allows States to enter into an agreement with the DOL to provide additional unemployment compensation up to 13 additional weeks for those individuals who:

• have exhausted all rights to regular compensation under the State law or under Federal law with respect to a benefit year (excluding any benefit year that ended before July1, 2019);
• have no rights to regular compensation with respect to a week under such law or any other State unemployment compensation law or to compensation under any other Federal law;
• are not receiving compensation with respect to such week under the unemployment compensation law of Canada; and
• are able to work, available to work, and actively seeking work.

Temporary Financing and Grants for Short-time Compensation Payments for Certain States

Allows States, whose laws do not currently allow for "short-time compensation", to enter into an agreement with the DOL for 100% reimbursement of short-time compensation, i.e. reduced hours, that transpires in lieu of employer layoff (unavailable to seasonal, temporary, or intermittent workers) – maximum of 26 weeks – applies to weeks of unemployment from the date the State enters into the agreement with the DOL and December 31, 2020 – additional grants available to States enacting a Short-time Compensation Program

Recovery Rebates for Individuals

For the tax year beginning in 2020, eligible individuals will receive a credit in the amount of

• $1,200 per adults ($2,400 married filing jointly) plus $500 for each child for individuals with adjusted gross income up to $75,000 per taxpayer, $112,500 for head of household, or $150,000 for married filing jointly
• "Each child is referenced as “qualifying child of the taxpayer under 26 U.S. Code § 24.Child tax credit, which is a child of the taxpayer who has not attained age 17
• Incomes over these thresholds are reduced by 5% creating prorated refunds to those with incomes between $75,000 and $99,000 per taxpayer, $112,500 and $146,000, and $150,000 and $198,000 for married filing jointly
• Credits are not available for taxpayers with income over $99,000, $146,000 for head of household, or $150,000 for married filing jointly
• The Treasury Secretary states that direct deposits will be made into the accounts of these individuals within three weeks, for which the IRS has account numbers (there will be an online method for individuals to provide account information in the coming weeks)

Special Rules for Retirement Funds – Hardship Distributions and Loans

Waives the 10% early withdrawal penalty for distributions and plan loans up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020

• Income attributable would be subject to tax over three years – repayment may be made within the three years without worry of exceeding the contribution cap
• A coronavirus-related distribution is a one made to an individual:
  • who is diagnosed with COVID-19,
  • whose spouse or dependent is diagnosed with COVID-19, or
  • who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.

Allowance of Partial Deduction for Charitable Contributions

Applicable to tax years beginning in 2020, individuals who do not otherwise itemize deductions may claim a deduction, up to $300, for cash contributions they make to certain charitable organizations, including churches, certain educational organizations, hospitals and medical research organizations, etc. Also, increases the limit on charitable deductions for those who itemize and corporations (50% of AGI for individuals is suspended for 2020 and 10% limit increased to 25% for corporations)

Exclusion for Certain Employer Payments on Student Loans

Enables employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before January 1, 2021.

Employee Retention Credit for Employers Subject to Closure due to COVID-19

Provides credits to all sized businesses who keep employees on the payroll

• Credit allowed against applicable employment taxes for each calendar quarter equal to 50% of qualified wages up to $10,000 for wages paid to employees 3/13/20-12/31/20
• The maximum credit is $5,000 (50% of first $10,000 of qualified wages) per employee in a calendar year. Note: The definition of “qualified wages” depends on the average number of full-time employees (as defined in section 4980H of the Code) employed by the Eligible Employer during 2019. This is the same counting methodology used to determine status as an applicable large employer (ALE) under the Affordable Care Act.
• Employers with less than 100 employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.
• Employers with more than 100 employees: If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.
• The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19related shut-down order, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year and ending with the subsequent quarter where gross receipts are more than 80% for the same calendar quarter

Delay of Payment of Employer Payroll Taxes

Employers and self-employed may defer their Social Security tax (6.2%) through 12/31/20 and payback over two years (50% by 12/31/21 and 50% due by 12/31/22) with no penalty

Part III/Title III Coronavirus Aid, Relief, and Economic Security Act

Coverage of Testing and Preventive Services

Requires group health plans and health insurance issuers offering group or individual health insurance to cover (without cost-sharing) any qualifying coronavirus preventive service and shall take effect 15 business days after the date on which the recommendation is made relating to the "qualifying coronavirus preventive service"

Confidentiality and disclosure of records relating to substance use disorder

Contents may be used or disclosed in accordance with prior written consent of the patient allowing covered entities, business associates to disclose for purposes of treatment, payment, and health care operation, as allowed by HIPAA regulations

Guidance on protected health information (PHI)

Not later than 180 days after enactment, the Secretary of Health and Human Services (HHS) shall issue guidance on the sharing of PHI during this public health emergency, including applicable policies and procedures

Temporary relief for federal student loan borrowers

Suspends all payments due for loans through September 30, 2020 with no accrual of interest

Telehealth Services

• Allows high deductible health plans (HDHPs) with health savings accounts (HSAs) to allow telehealth services for patients, prior to the deductible, without disqualifying the HSA – applies to plan years on or before December 31, 2021
• Temporary waivers for face-to-face visit requirement for home dialysis patients, hospice, home health care, and Medicare home health services
• Additional grants available to States to support rural areas and small health care providers

Over-the-Counter Medical Products

• Beginning with expenses incurred on or after January 1, 2020, over-the-counter drugs and menstrual care products are qualified medical expenses under FSA, MSA, or HSA without a prescription

Medicare Expansions

• Expands use and reimbursement of telehealth services for Medicare recipients
• Eliminates Medicare Part B cost-sharing for the COVID-19 vaccine
• Allows Medicare Part D to provide up to 90-day supply of prescriptions
• Increases Medicare payments to hospitals by 20% for patients with COVID-19

Part IV/Title IV Coronavirus Economic Stabilization Act of 2020

Loans for Specified Industries

The term "eligible business" means—

• an air carrier; or
• a United States business that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under this Act
• Focus is currently on air carriers and cargo transporters to aid supply chain and medical provisions

Loans for businesses with 500-10,000 employees

• Under the Emergency The Secretary of the Treasury will implement a loan program for U.S. mid-sized businesses, where the majority of its employees are based in the U.S, by providing financing to banks and other lenders to make direct loans to eligible businesses
• Deferral of principal and interest for first six months
• Annual interest cap of 2%
• Applicants must make a good-faith certification that:
  • the uncertainty of economic conditions as of the date of the application makes necessary the loan request to support the ongoing operations of the recipient;
  • the funds it receives will be used to retain at least 90 percent of the recipient’s workforce, at full compensation and benefits, until September 30, 2020;
  • the recipient intends to restore not less than 90 percent of the workforce of the recipient that existed as of February 1, 2020, and to restore all compensation and benefits to the workers of the recipient no later than 4 months after the termination date of the public health emergency declared by the Secretary of Health and Human Services on January 31, 2020, under section 319 of the Public Health Services Act (42 U.S.C. 247d) in response to COVID–19;
  • the recipient is an entity or business that is domiciled in the United States with significant operations and employees located in the United States;
  • the recipient is not a debtor in a bankruptcy proceeding;
  • the recipient is created or organized in the United States or under the laws of the United States and has significant operations in and a majority of its employees based in the United States;
  • the recipient will not pay dividends with respect to the common stock of the eligible business, or repurchase an equity security that is listed on a national securities exchange of the recipient or any parent company of the recipient while the direct loan is outstanding, except to the extent required under a contractual obligation that is in effect as of the date of enactment of this Act;
  • the recipient will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan;
  • the recipient will not abrogate existing collective bargaining agreements for the term of the loan and 2 years after completing repayment of the loan; and
  • that the recipient will remain neutral in any union organizing effort for the term of the loan.
• The loan terms provide a cap for a year after the loan is repaid on compensation for individuals whose total compensation exceeded $425,000 in 2019 cannot receive compensation in excess of their 2019 compensation or more than twice that compensation if it is severance or termination pay and any officers or employees whose annual 2019 compensation exceeded $3 million cannot receive total compensation in excess of $3 million plus 50% of excess of $3 million.

The rapid global spread of COVID-19 has quickly eclipsed modern epidemics in both size and scope. While the full economic shock of this pandemic is yet to be understood, Congress’ historic economic stimulus package has become a beacon of relief for struggling businesses and individuals alike. The business and economic results of the stimulus package as it unfolds has the potential to define the country for a generation. Check back for the latest state and federal guidance that can help blunt the crisis’ impact and enable your organization to emerge stronger.

For more information on how the stimulus package will help businesses weather the storm, watch the on-demand COVID-19 Employer Advisory Session: How Employers Can Make the Most of a 2 Trillion-Dollar Economic Lifeline, where OneDigital’s Executive Leadership will share key next steps employers can take to make the most of this economic lifeline.

For additional insights and workplace resources employers can leverage the wake of the COVID-19 pandemic, visit the  OneDigital Coronavirus Advisory Hub, or reach out to your local OneDigital advisory team.