On March 27, 2020, the CARES Act, the most expansive economic stimulus package in American history was signed into law. 

The CARES Act us set to give small businesses some relief from the hit that the economy has taken as a result of the coronavirus pandemic. 

This overview provides information on the impact on employers and includes information on federal loans, payroll costs, loan forgiveness, enhanced unemployment benefits, retirement funds, employee retention credit, tax credits and amendments to FFCRA.

Paycheck Protection Program and Loan Forgiveness

Federally-guaranteed loans will be available to certain eligible businesses and entities who meet the requirements.

Enhancement of Unemployment Benefits

Unemployment benefits will be temporarily expanded to certain “covered individuals” through the creation of the Pandemic Unemployment Assistance Program. This program will be in effect through December 31, 2020.

Retirement Funds

The 10% tax on early distributions from retirement plans will be waived for COVID-19 related distributions. IRAs, tax-qualified retirement plans, tax-deferred annuities, and IRS Code Section 457 deferred compensation plans are all included.

Employee Retention Credit

A payroll tax credit of 50% of “qualified wages” is available to eligible employers who meet the following conditions: 

(1) the employer’s operations are fully or partially suspended due to a government order relating to COVID-19; or (2) the employer’s gross receipts during a calendar quarter are less than 50% of the gross receipts for the same calendar quarter during 2019.

Delayed Payment of Social Security Taxes

All employers can push back their 2020 employer Social Security tax payment, regardless of their individual impact by COVID-19. This is subject to the following conditions:

(1) 50% of the deferred 2020 employer social security tax must be paid by December 31, 2021, and (2) the remaining outstanding 50% must be paid by December 31, 2022.

Amendments to the FFCRA

Employers can now provide additional compensation to their employees above the monetary limits set forth in the FFCRA. Additional compensation will not be subject to a tax credit. 

Advance Refunding of Tax Credits

“Under the FFCRA, employers are required to pay the initial costs of paid family leave and paid sick leave with the understanding that they are to receive a dollar-for-dollar reimbursement from the IRS in the form of a tax-credit.  In order to offset any cashflow problems employers may face, the CARES Act created an “advanced refunding of credits” process. This process allows employers to retain as their tax credit otherwise-owed payroll taxes up to an amount equal to the costs they incurred in providing FFCRA compliant leave.  In the event such payroll tax retention is insufficient to cover the costs of the FFCRA leave the employer provides, the employer may request an advance of anticipated tax-credits and refunds.”

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