Legal Alert

CARES Act: Overview of Major Provisions Impacting Businesses and Individuals

by the Government Relations Group
March 31, 2020

On Friday, March 27, 2020, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.2 trillion economic stimulus package that will make hundreds of billions of dollars available to businesses and individuals hurt by the COVID-19 pandemic and provide $340 billion to federal agencies to combat the virus. The CARES Act marks the third bill Congress has passed to address the public health and economic impacts of the COVID-19 pandemic. The stimulus funds are in addition to the payroll tax credits made available through the Families First Coronavirus Act (FFCRA).

The following is a summary of the major impact of the CARES Act by industry sector.

Financial Support for Small Businesses and Nonprofits

The CARES Act provides significant new resources for small businesses, including $349 billion for a temporary expansion of the Small Business Administration’s (SBA) 7(a) loan program, known as the Paycheck Protection Program (PPP). The PPP will provide 100 percent federally guaranteed loans through qualified, private lenders, up to $10 million, to certain businesses and nonprofits to help them maintain their payroll during the crisis. If employers maintain their payroll, the loans would be forgiven.

The Act also expands SBA’s Economic Injury Disaster Loan program, which provides direct loans of up to $2 million to qualifying businesses and nonprofits to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster’s impact.

Small businesses also can benefit from two important tax provisions in the CARES Act. Businesses may claim a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including nonprofits, the operations of which have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. Taxpayers may also defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. For more information about the tax provisions contained in the CARES Act, see our alert here.

Employers considering these programs should be aware that some contain restrictions or triggers related to such issues as executive compensation, highly compensated employees, workforce complement levels, employee compensation reductions, use of funds for compensation and benefits, outsourcing and abrogation of collective bargaining agreements. 

For more information about the loan restrictions contained in the CARES Act, see our alert here.

The CARES Act includes numerous provisions for health care providers and other industry participants, including delays in certain Medicare reimbursement reductions, liability protection for health care professionals volunteering to assist in the COVID-19 care, telehealth expansion and employment protections for health care workers. For more information about the CARES Act health care provisions, see our alert here.  

Financial Support for Medium and Large Businesses

The CARES Act provides $500 billion to the Treasury Department’s Exchange Stabilization Fund to make loans, loan guarantees, and other investments for eligible businesses. Of that amount, $25 billion in direct loans are available to airline carriers and other eligible businesses in the airline industry, $4 billion to cargo air carriers, and $17 billion to companies considered critical to national security if their continued viability is threatened.

The CARES Act provides $454 billion through new emergency lending facilities at the Federal Reserve for larger companies, with states and cities also eligible. Federal Reserve lending programs have to endeavor to provide financing to banks or other lenders to make direct loans to businesses, including nonprofits, with between 500 and 10,000 employees. Those loans have an interest rate not higher than 2 percent, and do not require interest or principal repayments in the first six months.

Financial Support for Individuals

The CARES Act provides refundable tax credits of as much as $1,200 per individual or $2,400 for couples who file joint tax returns. An additional $500 is provided for each child. The credit is reduced by 5 percent for the amount a taxpayer’s income exceeds $150,000 for joint returns, $112,500 for heads of household, and $75,000 for other filers. The rebate phases out completely for incomes exceeding $198,000 for joint filers, $146,500 for heads of household, and $99,000 for individual filers. For more information, see our alert here.

The CARES Act expands eligibility and payment terms for individuals seeking unemployment compensation (UC) as a result of the COVID-19 pandemic. The Act creates the Pandemic Unemployment Assistance Program for certain individuals who otherwise would not be eligible for UC benefits, including gig workers and independent contractors. For all eligible claimants, the Act provides an additional $600 per week in benefits and extends UC payments from 26 to 39 weeks, pursuant to agreements with the states. The Act also creates funding for a Short-Term Compensation Program under which employees with reduced hours may question for benefits. For more information about the UC changes contained in the CARES Act, see our alert here.

The Act also provides over $40 billion to boost food stamps and school meal programs, child care funding, and rental housing assistance. 

Mortgage Payments, Foreclosures & Evictions

The CARES Act permits borrowers with federally backed mortgages who attest that they are experiencing financial hardship due to COVID-19 to suspend their payments for 180 days, with a possible 180-day extension. They will not accrue additional interest or fees during that period. For more information, see our alerts here and here.

The Act also prohibits foreclosures on homes with federally backed mortgages for at least 60 days starting March 18th. Landlords with federally backed mortgages on multifamily properties could suspend their payments for as long as 30 days, with as many as two 30-day extensions.

Significant provisions provide relief for Section 8 HUD Programs as well. They cannot evict tenants or charge fees during that period. The Act also suspends evictions for 120 days on properties that have a federally backed mortgage or participate in a covered federal housing program. For more information, see our alert here.

For more information about the changes affecting developers and landlords contained in the CARES Act, see our alert here.

Copyright © 2020 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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