CARES Act Signed into Law – $2.2 trillion stimulus package

On March 27, the federal CARES Act was signed into law

This provides over $2.2 trillion in federal stimulus spending to aid the U.S. economy.

The THLA legal team is still reviewing the enormous bill and all the programs it creates, but here is information on the essentials you should know.

Forgivable loans: The Paycheck Protection Program (PPP)

The PPP is perhaps the most valuable program in the CARES Act for businesses with fewer than 500 employees. This SBA loan provides assistance to businesses affected by the COVID-19 crisis to help keep employees working. If the business meets the necessary conditions of the loan, a portion of it will be forgivable.

See our guide on the PPP.

For mid- and large-scale owners, as well as REITs, American Hotel & Lodging Association was able to get an important provision added to the CARES Act:

$350 billion in loans and loan guarantees to small businesses impacted by COVID-19 through December 31, 2020.

AHLA and the major hotel brands advocated making these loans accessible to hotel businesses with less than 500 employees per property (rather than businesses with less than 500 employees, as is consistent with SBA criteria).

The maximum loan amount would equal 250 percent of an employer’s average monthly payroll, up to $10 million. The loans will be forgiven for amounts spent on payroll, interest on mortgage payments, rent, and utility costs during the first 8 weeks – and there will be deferred interest and principal payments for up to one year on any remaining loan balances.

Expanded Unemployment Insurance, Tax Rebates, and Business Tax Provisions for Individuals:

• The CARES Act created a temporary Pandemic Unemployment Assistance Program.

• All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work-eligible social security number, are eligible for the full $1,200 ($2,400 married) check, plus an additional $500 per child. For example, a family of 4 could receive up to $3,400.

• Direct cash assistance

  • $1,200 direct cash payments for individuals (i.e. $2,400 for a married couple) who earn up to $75,000 per year.

    • The amount of the cash assistance scales down for individuals earning more than $75,000, and phases out completely at $99,000.
    • Individuals or couples get an additional $500 paid per child.
    • The $1,200 benefit does not count as taxable income.
    • People filing as “head of household” on their taxes will receive the benefit if they earn $112,500 or less.
  • The IRS will use a taxpayer’s adjusted gross income (gross income, minus deductions) from their 2018 return or their 2019 return (current tax year) to determine the size of the check.
• Enhanced unemployment insurance benefits
  • CARES added thirteen more weeks of UI benefits, and a $600 weekly enhancement of benefit for four months.
  • The UI funding is being released to state agencies for administration. In Texas, the agency is the Texas Workforce Commission (TWC).
  • The “work search” requirement and “waiting week” have been waived, but it can still take two weeks for a person to receive their benefits at this time. The use of direct deposit is highly recommended. 
• Contract/freelance/gig economy/part-time workers will be eligible for unemployment insurance benefits for the first time

Large employers (more than 500 employees): Additional Market Loan Program (Coronavirus Economic Stabilization Act of 2020)

While the Paycheck Protection Program summarized above is the primary loan program for small businesses with less than 500 employees, the Coronavirus Economic Stabilization Act of 2020 under the CARES Act would provide the largest potential impact with up to $454 billion available to provide liquidity to covered businesses, including in the hospitality sector (an additional $46 billion are earmarked for specific industries). 

The program provides $454 billion in financing to banks and other lenders that make direct loans or guarantees to certain eligible businesses on market terms. 

If your business was forced to close by state or local government: 50% Employee Retention Tax Credit (ERTC)

The CARES Act provides eligible employers with a refundable payroll tax credit equal to 50% of certain “qualified wages” (including certain health plan expenses) paid to its employees beginning March 13, 2020 through December 31, 2020, if the employer is engaged in an active trade or business in 2020.

The wages are paid while the operation of that trade or business is fully or partially suspended due to a governmental order related to COVID-19; or, during the period beginning in the first quarter in which gross receipts for that trade or business are less than 50% of gross receipts for the same calendar quarter of 2019 and ending at the end of the first subsequent quarter in which gross receipts are more than 80% for the same calendar quarter of 2019.

• The credit is equal to 50 percent of qualified wages (including health expenses) paid to an employee after March 12, 2020 in each calendar quarter, up to a total of $10,000 per employee for all quarters.
• The credit is taken against employment taxes, with any excess refunded to the employer.
• For employers with 100 or fewer employees (measured by average employment in 2019), the credit applies if the employer had to fully or partially suspend operations due to an order from a governmental authority, or had a decline in revenue for any calendar quarter in 2020 of 50% compared to the same quarter in 2019.
• For employers with over 100 employees, the same conditions apply, but the credit applies only to wages paid to employees who are on the payroll but not working.
• The credit covers qualified wages paid after March 12, 2020 to December 31, 2020. The credit expires when (1) the full $10,000 per employee maximum is reached, or (2) when revenue for a quarter in 2020 is above 80% of gross receipts for the same quarter in 2019.

Other Tax Provisions

Payroll Tax Payment Extensions – The CARES Act will postpone the deadline for payment of the employer portion of the 6.2% employer share of the Social Security tax (but not the 1.45% employer share of the Medicare tax) from the date of the bill’s enactment through the end of 2020. 

The deferred amounts would be payable over the following two years, with 50% payable by December 31, 2021 and the remaining 50% by December 31, 2022.

• Delay of estimated tax payments for corporations until October 15, 2020.
• Defers Payroll Tax payment; half paid on Dec 31, 2021 and other half on Dec 31, 2022.
• 5-year carryback for Net Operating Losses (Includes special treatment for REITS)
• Increases Section 163j business expensing from 30% limitation to 50% of taxable income for 2019 and 2020.