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Monday, March 30, 2020 – CARES ACT PROVISIONS FOR EMPLOYERS
3/30/2020 | General
On March 27, 2020 the CARES Act, which outlines much publicized small business loans and enhanced unemployment benefits, was passed into law. There are a few main components of the Act which are most critical for employers: Small Business Loan programs (including tax relief, loan deferral and forgiveness), enhanced unemployment compensation (UC) benefits, and changes to employee benefits. The key components are:
Small Business Programs
- Deferral of employer’s share of Social Security tax
- Amount deferred paid in two installments – December 31, 2021 and December 31, 2022
- Payroll tax credit for 50% of wages paid to employees during COVID-19 crisis if:
- Employer’s operations where fully or partially suspended due to COVID-19 shut down order; or
- Employer’s gross receipts declined by more than 50% when compared to the same quarter in 2019.
- Credit amount differs for employers over 100 employees vs. fewer than 100; up to first $10k paid per employee 3/13/20 to 12/31/20
- Loans, Loan Forgiveness, Payment Deferrals
- Employers with less than 500 employees
- Includes full time, part time, and seasonal employees
- Includes self-employed individuals
- Loan proceeds can be used to pay for:
- Wages, health benefits, cost of leave provided
- Wages for employees earning up to $100k/year
- Cash tip equivalents
- State and local employee wage taxes
- Mortgage interest, rent, utility bills
- COBRA premiums
- Wages, health benefits, cost of leave provided
- Loans available until 12/31/20
- FORGIVENESS – loan amounts used for payroll costs may be forgiven if business maintains average number of monthly employees from 2/15/20 – 6/30/20
- Employer must show that maintained same number of employees as employer had before crisis
- Employer who laid off employees may still qualify for forgiveness if rehire employees by 4/1/20
- Deferred payments for one year, fee waivers at loan distribution, no prepayment penalty
- Employers with less than 500 employees
- Coordination of provisions – i.e. wage tax deferral not permitted if employer obtains loan to cover payroll costs
Enhanced UC Benefits
- Allows expanded types of workers to receive benefits including self-employed, independent contractors
- Pays an EXTRA $600/week to each employee receiving benefits (i.e. employee receives state benefit plus $600)
- Funds the traditional “waiting week” of benefits for states which waive that requirement for recipients
- Provides employee with an extra 13 weeks of eligibility after state benefits run out
Employee Benefits Changes
- Change to Emergency FMLA leave benefits (for employees who must stay home with child due to school closure)
- Employees who are laid off and rehired are immediately eligible for leave if they worked for employer for at least 30 days before layoff
- Tax credits for employers who pay for employee leaves
- Employers can obtain advance tax credit to fund those leaves, rather than waiting for reimbursement on tax return
- Regulations coming to establish procedures for obtaining tax credit funds
- Changes to rules on 401(k) withdrawals by employees
- Waives 10% penalty on withdrawals up to $100k if:
- Employee, spouse, or dependent diagnosed with COVID-19; or
- Employee experiences adverse financial consequences due to quarantine, layoff, reduced hours, or unable to obtain childcare due to COVID-19
- Employee taxes on withdrawal can be paid over 3 years OR employee can repay the amount back into the plan over 3 years
- Loan limits doubled to $100k or 100% of vested balance
- Waives 10% penalty on withdrawals up to $100k if:
- Health care benefits
- All testing costs for COVID-19 covered, including costs incurred leading to COVID-19 testing (i.e. doctor/telehealth costs)
- High deductible plans paired with HSA accounts – telehealth services covered PRIOR to patient reaching deductible
- Permits HSA and Flexible Spending Accounts funds to be used for over-the-counter medical products without a prescription
For those of you interested in more information on the Small Business Loan portion of the CARES Act, I recommend that you visit the U.S. Senate Committee on Small Business & Entrepreneurship’s “Small Business Owner’s Guide to the CARES Act.” The link to that Guide is below:
Stay well, and please contact ELDI Founder Kimberly L. Russell, Esquire with any questions. Ms. Russell can be reached by email at krussell@kaplaw.com, by telephone at (610) 941-2541, or through the Contact page at www.ELDI.legal.