Checklist for Businesses (CARES Act/COVID-19)

While the ink on the 800+ page Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) is still drying, businesses are left to decipher what it means for their ongoing operations. The task of interpreting new law is often challenging, and the CARES Act is no exception. While various government agencies charged with implementing the law are still issuing guidelines, businesses are struggling to keep up with the changes and understand what it all means for them. The Law Firm of Conway, Olejniczak & Jerry, S.C. has devoted significant resources toward review of the CARES Act to assist its clients with this endeavor.

The following checklist is designed to help businesses navigate the CARES Act as it applies to their ongoing operations. In most instances, businesses will need to work closely with their lender, accountant, or other professionals, in addition to legal advisors, to obtain the full benefits of the CARE Act, which is made available through a labyrinth of loan availability, tax credits, tax deductions and payment deferrals. The CARES Act authorizes expedited loan programs and grants to assist employers through the immediate cash-flow crunch caused by COVID-19. The CARES Act also includes some modifications to the Families First Coronavirus Response Act (FFCRA) that are not covered in this checklist. Our employment law team has published various newsletters on the FFCRA, which you can find at www.lcojlaw.com, and is ready to assist clients as they implement the new paid sick leave and paid family and medical leave under the FFCRA.

Consider your eligibility for expanded federal loans. The CARES Act expands Small Business Administration (SBA) loan eligibility (now generally available to businesses with less than 500 employees, but there are exceptions that could increase that limit). The Act also implements an expedited application process.

Paycheck Protection Program

• Provides loans to help cover payroll costs, continuation of health care benefits, mortgage interest obligations, utilities, and other authorized expenses.

• Loan size is generally 250% of a business’ payroll costs between 2/15/19 and 6/30/19.

• Caps the interest rate at 4% with no loan fees or prepayment fees (SBA will establish separate application fee cap).

• Potential loan forgiveness capped at the amount spent by the business on rent, payroll for employees earning less than $100,000 annually, and interest during the 8-week period after extension of the loan.

• Loan forgiveness may be reduced or eliminated if the business reduces its workforce as compared to 2019 (businesses that rehire employees previously laid off due to COVID-19 will not be penalized for having previously reduced their workforce).

• Repayment may be deferred for up to one year.

• SBA relaxes or waives many of its standard requirements (such as “credit elsewhere” requirement, length of operations, personal guaranty, and certain collateral requirements).

• Currently available through June 30, 2020.

Emergency Economic Injury Disaster Grant/Loans

• Initial advance (capped at $10,000) to be used for, among other things, payroll, supplies, equipment, and working capital. This initial advance is funded by a federal grant that is not subject to repayment – even if loan application is ultimately denied.

• The remaining loan amount (capped at $2,000,000) bears interest at 3.75% for businesses without credit available elsewhere (businesses that have credit available elsewhere subject to a higher rate).

• Payment terms as long as 30 years, based on ability to repay.

• Available through December 31, 2020

Note: The Department of Treasury also allocated funds to provide low-interest loans for businesses with between 500-10,000 employees who intend to maintain at least 90% of their workforce. While these loans may offer low interest and deferral of payments, note that these loans require the following criteria be met (among others), which may be objectionable to many businesses:

• The business will not outsource or offshore jobs for two years after the loan period;

• The business will not abrogate existing collective bargaining agreements and will remain neutral regarding current or future union organization activity;

• The business will cap compensation on certain key employees and officers.

When determining whether to retain or lay off employees, consider increased and expanded unemployment benefits available to employees (some provisions are subject to Wisconsin entering into an agreement with the Department of Labor) and discuss further with your legal advisors.

• Provides benefits to employees who qualify for unemployment under state law:

  • Individuals currently receiving or that qualify for state unemployment compensation benefits will receive an additional $600 per week while unemployed until July 31, 2020;
  • When an individual’s unemployment benefits are exhausted they can receive an additional 13 weeks of unemployment benefits up to a maximum of 39 weeks; and
  • States may waive the standard one week waiting period requirement before payments of benefits and, if so, the federal government will fund the first week of such benefits.

• Benefits to those who do not qualify for unemployment under state law:

  • Unemployment benefits for those who are not eligible for state unemployment benefits (or who have exhausted such benefits), and are unemployed, partially unemployed, or unable to work for any of the following reasons:

    • The individual has been diagnosed with COVID-19 or has symptoms of COVID-19 and is seeking a medical diagnosis;
    • A member of the individual’s household has been diagnosed with COVID-19;
    • The individual is providing care for a family member or household member who has been diagnosed with COVID-19;
    • The individual is the primary caregiver for a child or other person in the household who is unable to attend school or another facility that has been closed as a direct result of COVID-19 and such school or facility care is required for the individual to work;
    • The individual is unable to reach the place of employment because a health care provider has advised the individual to self-quarantine due to COVID-19 concerns;
    • The individual is unable to reach the place of employment because of a quarantine imposed as a direct result of COVID-19;
    • The individual was scheduled to begin employment and does not have a job or is unable to reach the job as a direct result of COVID-19;
    • The individual has become the breadwinner or major support for a household because the head of household has died as a direct result of COVID-19;
    • The individual has been forced to quit a job as a direct result of COVID-19;
    • The individual’s place of employment is closed as a direct result of COVID-19.

  • Benefits are not available to those who are receiving paid sick leave or other paid leave, or those who are able to work remotely from home;

  • Those who qualify will receive the regular state unemployment benefits plus $600 per week (this additional payment expires on July 31, 2020);

  • The standard one-week waiting period is waived; and

  • These benefits are retroactive back to January 27, 2020 and may last until December 31, 2020.

If you have an existing SBA 7(a), 504, or microloan loan, consider requesting temporary payment relief.

• SBA is encouraging private lenders to provide deferment (for example, on third-party lender portion of 504 loan).

• SBA will pay principal, interest and fees on loans on guaranteed portion of debt (assuming that existing debt is not in default) for a 6-month period.

• SBA will extend maturity dates.

Maximize your credits against employment taxes.

• Businesses are eligible to receive a credit against employment taxes, starting with Q1 2020.

• Businesses qualify during quarters for which their operations were suspended due to COVID-19 or their gross receipts are less than 50% of those compared to the same calendar quarter of the prior year. Eligibility ends the quarter wherein the business’ gross receipts are at least 80% of that compared to the same calendar quarter of the prior year

• Capped at the lesser of 50% of qualified wages or $10,000 per quarter.

• Businesses can defer their share of applicable employment taxes which accrue through December 31, 2020. One-half of the deferred amount will be due on 12/31/21 and the remaining one-half will be due by 12/31/22.

• Businesses that take advantage of other business interruption loans may not be eligible for this deferment.

Maximize your payroll tax deferral benefits.

• Employers (including self-employed individuals) can defer their share of applicable employment taxes that accrue through December 31, 2020. One-half of the deferred amount will be due on December 31, 2021 and the remaining one-half will be due by December 31, 2022. This amounts to an interest-free loan from the federal government.

• In the case of self-employed individuals, the payroll tax that may be deferred is the 6.2% “employer portion” of the employment taxes. Employers are not allowed to defer the 6.2% “employee portion” of the employment taxes.

Talk to your accountant or tax return preparer about the following additional tax deductions that the CARES Act has made available to past, present, and future tax years:

Modification for Net Operating Losses.

• Rule prior to CARES Act: A business could not carryback net operating losses and deduct net operating losses against taxable income in prior years. Additionally, a business was restricted from using any carryforward net operating losses up to 80% of taxable income.

• Rule under CARES Act: A business can carryback, for a period of five years, any net operating losses incurred in tax years 2018 through 2020. Additionally, there is no restriction from using any carryforward net operating losses up to 80% of taxable income.

Modification of limitation on excess business loss limitations for non-corporate taxpayers.

• Rule prior to CARES Act: An individual’s ability to use business losses to offset non-business income was limited to $250,000 for individuals ($500,000 for joint return filers).

• Rule under CARES Act: These excess business loss limitations for tax years beginning in 2018, 2019 and 2020 are suspended.

Increased business interest expense deduction allowable.

• Rule prior to CARES Act: The amount of business interest expenses that a taxpayer could deduct was limited to 30% of EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization).

• Rule under CARES Act: The amount of business interest expenses that a taxpayer could deduct is increased limited to 50% of EBITDA. For tax partnerships, including many LLC’s, this increase is only applicable in tax years beginning in 2020 and does not include 2019.

Business Depreciation for Qualified Improvement Property.

• Rule prior to CARES Act: A business could not take 100% bonus depreciation for the amount of capitalized improvements to an interior portion of an existing nonresidential building. Instead, a business could only depreciate such improvements over a 39-year useful life of the building.

• Rule under CARES Act: A taxpayer can now take 100% bonus depreciation for the amount of capitalized improvements to an interior portion of an existing nonresidential building.

Charitable Deductions.

• Rule prior to CARES Act: The amount of charitable contributions that a corporation could deduct was limited to 10% of such corporation’s taxable income.

• Rule under CARES Act: The amount of charitable contributions that a corporation could deduct is increased to 25% of such corporation’s taxable income in 2020.

Employer Student Loan Payments. Employers are allowed to provide a limited student loan repayment benefit to its employees on a tax-free basis. Specifically, employers may contribute up to $5,250 annually to each employee on a tax-free basis.

The CARES Act also contains several provisions that are outside the scope of this checklist and that provide individuals with tax relief, rebate payments and other means to obtain loans or utilize their retirement funds without penalty.

Through many different means, the CARES Act provides a safety net and a means to keep businesses operating and employees paid. You should consult with your tax advisors, payroll preparer and banks to take advantage of the aspects of the CARES Act that are applicable to you. In addition, the attorneys at the Law Firm of Conway, Olejniczak & Jerry, S.C. stand ready to assist with any step in the process.

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Law Firm of Conway, Olejniczak & Jerry, S.C.