Coronavirus Aid, Relief, and Economic Security CARES Act

The federal government recently passed the CARES Act which contains a few options for employers related to COVID-19 relief. Below is a summary of the three main options included in the CARES Act including the Payroll Protection Program loans now available for small businesses.

Small Business Administration (SBA) Paycheck Protection Loan Program

A new streamlined SBA loan program to provide eligible businesses with cash to meet payroll, employee benefits, and other fixed costs such as rent, interest on mortgages, and utility payments for up to eight weeks.

The maximum loan amount would be 250% of the employer’s average monthly payroll costs, capped at $10 million.

Additionally, after the borrowing business demonstrates that the loan proceeds were actually used to maintain previous payroll (including maintain the same number of full time equivalent employees) or pay those other fixed costs, then the loans and any interest due would be eligible for very generous loan forgiveness and the forgiven amounts would not be taxable.

Additional information regarding the PPP loans are available later in this post.

50% Employee Retention Tax Credit

Allows employers that are uniquely affected by COVID-19 to claim a refundable tax credit against the employer portion of Social Security tax equal to 50% of certain wages paid to an employee between March 13, 2020 through the end of the year. Only $10,000 of wages could be considered for any employee, meaning maximum credit is $5,000 per employee.

This 50% credit would be available to businesses (i) that have had their operations fully or partially suspended by government order due to COVID-19 or (ii) that experienced a 50% decline in gross receipts during a 2020 calendar quarter when compared with the same quarter in 2019.

Social Security Tax Deferral

Another provision that is available to employers of all sizes is the ability to defer the payment of the employer portion of Social Security taxes (6.2% of wages) for the remainder of 2020. Fifty percent of those deferred taxes would have to be repaid by the end of 2021, with the remainder due by the end of 2022.

You Can’t Choose All of the Above For example, if you apply for the SBA loan you can NOT apply for the Employee Retention Tax credit or the Social Security Tax Deferral.


Highlights on the SBA Paycheck Protection Program

The information provided in this article is not financial advice. We recommend consulting with your financial advisor or accountant also reviewing some of the resources listed below prior to applying for these PPP loans.

Loan Terms Potentially forgivable SBA loans will be made available to eligible employers. Applies to loans made between 2/20/20 and 6/30/20

  • Maximum Loan Amount: 250% of average monthly payroll costs (based on 12-month look back)
    • Maximum loan amount capped at $10 million
    • Payroll costs include:
      • Salary, wage, commission, or similar compensation (capped at $100,000/employee
      • Cash tips or equivalent
      • Pay for vacation, parental, family, medical, or sick leave
      • Allowance for dismissal or separation
      • Group health care benefits “including insurance premiums”
      • Retirement benefits
      • Employer paid state and local taxes on compensation
  • Generous Loan Terms:
    • Loans will be 100% guaranteed by the SBA
    • No application fees allowed
    • No closing costs allowed
    • First 6 months of principal and interest automatically deferred
    • Maximum interest rate of 4%
    • Loan is not subject to tax
    • Nonrecourse; no collateral; no personal guarantees
    • Waiver of requirement to explore credit availability from other sources
    • Borrower must only certify that:
      • a) loan is necessary to support ongoing operations;
      • (b) funds will be used to retain employees and maintain payroll or make mortgage payments, lease payments, or utility payments; and
      • (c) no prior loan under this program has been received and there are no applications pending for duplicate amounts

Loan Forgiveness

Loans will be forgiven to the extent the borrower demonstrates that the proceeds were used to cover the following for 8 weeks after receiving the loan funds and during the period between 2/15/20 through 6/30/20.

  • Payroll costs (as defined above) must be 75% of the loan amount.
  • Rent obligated under a lease in effect before 2/15/20
  • Utility costs for services which began before 2/15/20
  • Interest on the business’ mortgage obligations


Reductions in Loan Forgiveness:

The portion of the loan that will be forgiven will be reduced if there is a reduction in the employee count and/or the extent to which there is a significant reduction in wages paid to an employee.

Employee Count Reduction: The loan forgiveness amount will be reduced based on the ratio of

  • the average number of full-time equivalent employees (FTEEs) during the 8-week period beginning on origination date of Paycheck Protection Program loan (the “covered period”); divided by the average number of FTEEs during a choice period.
  • For this purpose, the choice period will, at election of borrower, be either (a) 2/15/19 to 6/30/19, or (b) 1/1/20 to 2/29/20
  • Wage Reduction: In addition, the amount of loan forgiveness will be further reduced by the amount of reduction in total salary and wages of any employee during the covered period when compared to the most recent full quarter during which the employee was employed before the covered period. This reduction would not apply to any employer or salary at an annualized rate of more than $100,000 for any pay period in 2019.


Helpful resources:

Small Business Association:

Department of Treasury FAQs: