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The CARES Act

March 27, 2020
President Trump has signed the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act,” which includes several provisions that impact employers.
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Alert

President Trump has signed the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act,” which includes several provisions that impact employers. These measures are largely aimed at stimulating the economy, and focus on assistance for small businesses, industries that have suffered a more severe impact, and individual taxpayers. Paylocity is already working on product solutions and training to help our clients implement these requirements.

Current Bill at a Glance

  • Delay of payment of employment taxes
    • Employers can defer employer social security taxes from March 27th, 2020 through December 31, 2020.
    • 50% will be due December 31, 2021 and 50% will be due December 31, 2022.
    • Employers who apply for and receive Paycheck Protection Program loans are only eligible to defer from March 27, 2020 through the date the lender issues a decision to forgive the PPP loan.
  • Expansion of Unemployment Benefits
    • Additional $600 per week through July 31, 2020
    • Additional 13 weeks of benefits
  • Employee Retention Credit
    • Certain employers are eligible for a credit against wages paid to employees retained during COVID-19 related business closure, or reduced gross receipts compared to the same prior year period for when the credit is claimed.
    • Credits can be applied to current payroll tax liability.
    • Employers who apply for and receive Paycheck Protection Program loans are not eligible for the credit.
  • Paycheck Protection Program
    • Provides Small Business loans to qualified businesses with less than 500 employees to cover payroll and other business operating expenses
  • Student Loans
  • Individual recovery payments
    • Direct payments to taxpayers under certain income limitations
  • Exclusion for certain employer payments of student loans
    • Adds to the exclusion from income for tuition reimbursements, payments to employees or lenders for amounts paid this year
    • Continues to be limited to the annual limit of $5,250, which is the current limit of exclusion for tuition reimbursement related benefits
  • Numerous provisions related to other corporate taxes

 

Current Bill Details

Delay of payment of employment taxes

Employers are eligible to defer 100% of their Employer Social Security tax for amounts due after March 27 through December 31, 2020. 50% of the deferred amounts will be due December 31, 2021, with the remainder due December 31, 2022. Those who are recipients of loans under the Paycheck Protection Program are only eligible to defer through the date the lender issues a decision to forgive the loan.


Expansion of Unemployment Benefits

Compensation of $600/week for any Worker Eligible for State or Federal Unemployment Compensation (UC) Benefits

  • Through July 31, 2020, the federal government would provide a temporary Federal Pandemic Unemployment Compensation (FPUC) of $600 a week for any worker eligible for state or federal unemployment compensation (UC) benefits.
  • The FPUC would be paid in addition to and at the same time as regular state or federal UC benefits. The FPUC, combined with the underlying state unemployment benefit, would replace 100 percent of wages for the average U.S. worker.
  • The federal supplement would not affect eligibility for Medicaid or the Children’s Health Insurance Program. State UC programs would be fully reimbursed for the cost of administering the supplement and for the cost of the supplement itself.
  • States would be permitted to expand eligibility to provide unemployment compensation to workers who are not normally eligible for benefits, so long as their unemployment was connected to the COVID-19 pandemic, as determined by the state and the Department of Labor.
  • Reimbursable employers would not have charges against their accounts for these benefits.

Expansion of “Work Sharing” Programs to Provide Partial Benefits to Individuals with Reduced Hours

  • The federal government will temporarily provide full funding for states with Short-Time Compensation or “work sharing” programs in law.

13 Weeks of Emergency Unemployment Compensation Available in All States for Workers who Exhaust Regular Benefits.

  • All states would be eligible to provide an additional 13 weeks of unemployment benefits to workers who need beyond what is provided for in state and federal law.

We recommend that you as an employer review the unemployment benefits offered in your states, along with the expansions provided by the CARES Act to help you understand the best path forward for your employees and your business. Paylocity is working on additional resources on this topic to help you with this analysis.

 

Employee Retention Credit

  • Employers who receive Paycheck Protection Program Loans do not qualify for the retention credit.
  • All employers are eligible for a credit up to $5,000 representing 50% of the first $10,000 of wages paid this year.
  • Credit are limited to the total employer social security liability for the quarter, but reduced by the FFCRA credits taken against those same taxes. Limits also apply to Qualified R&D credits and WOTC credit for employment of qualified veterans.
  • Employers with 100 or fewer employees can take credit for all employees.
  • Employers with 100 or more employees can only apply the credit to employees furlough whose wages are continued for business closure relative to COVID-19.
  • Employers are eligible for this credit if:
    • their operations were suspended due to a COVID-19 related order, OR
    • they have 50% less cash receipts for the same period the prior year, unless the quarter prior to the credit period has increased gross receipts of 80% the prior year.
  • Employers may take this credit against their current employment tax liability.

 

Paycheck protection program

The PPP provides short-term cash flow assistance to small businesses to help these businesses and their employees deal with the immediate economic impact of the COVID-19 pandemic. Loans are made by lenders certified by the Small Business Administration (SBA) and guaranteed by the federal government.

Eligibility Period

PPP loans must be made between the date of enactment and June 30, 2020.

PPP Eligible Business

For-profit and nonprofit businesses with 500 or fewer employees (full and part-time) are eligible. Eligible small businesses also include sole-proprietors, independent contractors, or other self- employed individuals, such as “gig economy” workers.

Use of PPP Loan Funds

Small businesses that receive loans under the PPP must use loan funds to pay payroll costs, interest on mortgage obligations, rent, utilities or interest on other debt incurred prior to obtaining the loan, however, PPP loan funds cannot be used for employee annual compensation in excess of $100,000.

Payment Forgiveness

  • Principal amounts on PPP loans, for the first 8-week period from when the PPP Loan is made, may be forgiven.
  • The amount of a PPP loan that may be forgiven cannot exceed the principal amount of the loan.
  • Businesses must keep their employees and pay them at least 75% percent of their prior-year compensation.
  • Other retention provisions apply.

 

PPP Payment Deferral

PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months, not to exceed $10 million; salary compensation in excess of $100,000 are not counted as payroll costs.

 

PPP Loan Terms

PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months, not to exceed $10 million; salaries over $100,000 are not counted as payroll costs.

 

Student loans

  • Exclusion for certain employer payments of student loans
    • Adds to the exclusion from income for tuition reimbursements, payments to employees or lenders for amounts paid this year
    • Continues to be limited to the annual limit of $5,250 which is the current limit of exclusion for student loan benefits

 

Individual recovery payments

  • Eligible individuals will receive a direct payment from IRS of $1,200 per person ($2,400 for married joint filers).
  • Individuals eligible for the credit would receive an additional $500 for each child that qualifies for the child tax credit. The total proposed credit is reduced at a rate of 5% of adjusted gross income above $75,000 ($112,500 for head of household filers and $150,000 for married joint returns).
  • Nonresident aliens and dependents claimed by another taxpayer are not eligible.

 

Health spending account provisions

  • Allows telehealth services to be provided pre-deductible by a high deductible health plan (HDHP)
    • For plans years starting on or after December 31, 2021, telehealth and other remote care services could be covered pre-deductible without violating federal rules for HDHPs paired with an HSA.
  • Allows over-the-counter medicines and drugs to be reimbursed by a health FSA, HSA, archer MSA, or HRA without a prescription for expenses incurred after December 31, 2019
    • The new legislation eliminates the prescription requirement imposed by the ACA.
  • Allows for reimbursement of menstrual care products by a health FSA, HSA, archer MSA or HRA. These items are now defined as an eligible medical expense under Section 213(d) of the Code.