On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law to help businesses and individuals affected by the COVID-19 outbreak. The CARES Act contains the following key provisions that may impact you or your business:
Keeping American Workers Paid and Employed Act
- Broadens the scope of businesses that could qualify for a small business loan. Specifically, the CARES Act expands the eligibility to include many sole proprietors, independent contractors, and eligible self-employed individuals.
- These loans can be used for payroll costs, employee salaries and other compensation, rent, utilities, and certain other obligations.
- During the covered period, covered loans will not require a personal guarantee and no collateral shall be required.
- Subject to certain conditions, the loans are forgivable.
Coronavirus Economic Stabilization Act of 2020
- In addition to loans made available under the Keeping American Workers Paid and Employed Act, the United States Secretary of the Treasury is authorized to provide additional loans and other support to eligible businesses.
- Loans available under this program will be subject to certain restrictions, including certain limitations regarding employee and executive compensation.
Loan Forgiveness for Certain Small Business Act Loans
- The CARES Act also provides for forgiveness of certain loans made pursuant to the Small Business Act.
- The loans are limited to the lesser of: (1) 2.5x the borrower’s average monthly payroll costs; or (2) $10 million.
- The amount of a loan eligible for forgiveness is equal to the payroll costs, mortgage interest payments, rent, and utility payments incurred or paid by a borrower during the 8-week period beginning on the date of the origination of a covered loan, known as the “covered period.”
- The portion of the loan eligible for forgiveness may be reduced proportionately by any reduction in employees during the covered period compared to the prior year or compared to the number of employees between January 1, 2020 and February 29, 2020. It may also be reduced to reflect the reduction in pay of certain employees in excess of twenty-five percent (25%) compared to the employee’s most recent full quarter of employment prior to the covered period. To encourage employers to rehire employees who may have already been laid off, the CARES Act provides an exception to the reduction if the employer rehires employees and/or eliminates the reduction in salaries by June 30, 2020.
- Loan amounts forgiven under the CARES Act will not be considered taxable income.
- The U.S. Small Business Administration has created a web site with loan resource information for businesses impacted by the COVID-19 outbreak.
- In addition to the small business loan programs described above, the CARES Act also gives the FDIC expanded authority to guarantee bank accounts and to ease lending regulations, meaning that regional banks will have an easier time lending to businesses in need of financial assistance.
LABOR AND EMPLOYMENT
The CARES Act modifies the recently enacted Paid Sick Leave Act in H.R. 6201:
- Limits the amount of paid sick leave to $511 per day and $5,110 in the aggregate for an employee who takes leave because the employee (1) is subject to a quarantine or isolation order, (2) has been advised by a healthcare provider to self-quarantine, or (3) is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- Limits the amount of paid sick leave to $200 per day and $2,000 in the aggregate for an employee who takes leave because the employee (1) is caring for an individual subject to a quarantine or isolation order or who has been advised by a healthcare provider to self-quarantine, (2) the employee is caring for a son or daughter whose school or place of care has been closed or is otherwise unavailable due to COVID-19 precautions, or (3) is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services; and
- Institutes an expiration of the employer’s requirement to provide paid sick leave when (1) the employer has provided the employee with paid leave for 80 hours of work or (2) the employee returns to work, whichever comes first.
The CARES Act modifies the Emergency Family and Medical Leave Expansion Act in H.R. 6201 by extending coverage to “rehired employees”, defined as employees who were laid off by an employer on or after March 1, 2020, who worked for the employer for at least 30 of the last 60 calendar days prior to layoff, and who were rehired by the employer.
The CARES Act modifies the Payroll Tax Credit Provisions of H.R. 6201:
- Allows for advances on anticipated tax credits for paid sick leave and family leave (the Department of Labor is expected to provide additional instructions and guidance on this issue); and
- Provides penalty relief for employers who fail to deposit payroll taxes in anticipation of receiving the credit.
The U.S. Department of Labor has created a web site providing fact sheets and frequently asked questions and answers for employers and employees workers impacted by the coronavirus.
Many economists are attempting to predict the short-term and long-term impacts of the COVID-19 pandemic and which sectors of the real estate industry will be hit the hardest.
- As of this posting, the face-to-face retail sectors (such as brick & mortar retail, and food and beverage establishments) and the accommodation industry (hotel and leisure businesses) are expected to be hit the hardest in the short term.
- However, economists are bullish on the medium and long-term recovery (Q4 of 2020 and onward) of these sectors of the real estate industry, due to pent-up demand that is accumulating while most of the country is sheltered at home.
- The CARES Act provides a variety of business loan programs described above in an effort to help businesses survive short-term losses.
Sections 4022 and 4023 of the CARES Act, pertaining to residential and multifamily properties secured by “federally backed mortgages”, proposes to codify the announcements from the Department of Housing and Urban Development and Federal Housing Administration with respect to eviction restrictions, forbearance and foreclosure relief for owners of single-family and multi-family assets secured by federally insured mortgages.
Generally, multi-family borrowers (assets designed for occupancy of 5 or more families) are entitled to a shorter forbearance period and subject to certain other criteria, including temporary suspension of evictions regardless of any forbearance.
As many are aware, the CARES Act provides for individual rebates up to $1,200 for individuals, $2,400 for married couples, with an additional $500 available for each child of qualifying households. However, please note that these rebates phase out for individuals with annual incomes over $75,000 and married couples with a combined income of $150,000 (based on the most recently filed tax returns). Taxpayers filing as head of household are eligible for the full rebate if their income does not exceed $112,500. Generally, individuals (who are not filing as head of household) with income exceeding $99,000 and married couples with a combined income in excess of $198,000 are completely disqualified from these individual rebates. The Treasury Secretary has set a goal of issuing the first rebates to individuals during the week of April 6, 2020, however, most qualifying individuals shouldn’t expect to receive these payments until mid-April, at the earliest.
If you have questions about the impact of the CARES Act on you or your business, please contact your SGK attorney.