The Coronavirus, Aid, Relief, and Economic Security (CARES) Act Summary

The CARES Act provides much-needed financial assistance to a wide-variety of businesses, self-employed persons and sole proprietors. Here’s a summary of the key aspects of the Act.

Self-Employed, Sole Proprietors and Independent Contractors Now Eligible for Unemployment Compensation Benefits – The CARES Act makes unemployment compensation benefits available for persons not traditionally eligible (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.

Small Business Relief for Maintaining Payroll – Under the CARES Act, eligible businesses (companies with up to 500 employees) that maintain their payroll while workers are forced to stay home would be able to receive up to 8 weeks of cashflow assistance. Small businesses would get loan guarantees while workers must stay home. This is delivered through the SBA Economic Injury Disaster Loans (EIDL) or expanded 7(a) Program loans. Employer can qualify to have a certain amount of the 7(a) loans forgiven with no tax consequences.
Grants of up to $10,000 – These are available as part of the SBA’s EIDL program. The SBA must distribute EIDL emergency grants within 3 days. Applicants are not required to repay emergency grants, even if they are ultimately denied EIDL.

Payroll Tax Deferrals – Employers and self-employed individuals may also defer payment of the employer share of the Social Security tax on employee wages. Deferred employment tax must be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

Payroll Tax Credit – The Act provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit would be available to employers whose: (1) operations were fully or partially suspended, due to a COVID-19 related shutdown order; or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. The credit would be provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit would be provided for wages paid or incurred from March 13, 2020, through December 31, 2020.

Penalty-Free Withdrawals from Retirement Accounts – The Act creates a new emergency retirement plan distribution option dubbed the “coronavirus related distribution,” or “CRD” for short. Small business owners could use this money to help them through the COVID crisis while waiting on another form of assistance mentioned above. A CRD can be drawn from an employer sponsored retirement plan such as a 401(k) or from individual retirement accounts (IRAs), in any amount up to $100,000. The normal 10% penalty tax levied on early plan distributions by the Internal Revenue Service (IRS) is waived. Furthermore, the individual taking a CRD can spread the reported income over three years for tax purposes, and the distribution also can be repaid within three years to avoid taxation.

If you are a small business owner and want to know more about financial assistance available to you in the CARES Act, please call your LegalShield Provider Law Firm.

Posted on April 1, 2020