Early Wednesday morning, Senate Majority Leader Mitch McConnell announced that Senate Democrats and Republicans reached an agreement on the $2 trillion relief bill known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“Act”). Late last night, the U.S. Senate approved the historic rescue plan which calls for $250 billion for direct payments to individuals and families, $350 billion in small business loans, $250 billion in unemployment insurance benefits and $500 billion in loans to distressed businesses. The House is scheduled to vote on the legislation Friday. President Trump urged Congress to act “without delay” and said he would sign the legislation immediately. The CARES Act includes the following provisions: Direct Payments to Individuals – If passed, the Act would include payments to lower- and middle-income individuals of $1,200 for each adult (up to $2,400 for a married couple) and $500 for each child. Individuals who earn $75,000 or less and married couples earning $150,000 or less in adjusted gross income are entitled to the full payment. The payment would be reduced if income exceeds these amounts, phasing out entirely at $99,000 for singles, and $198,000 for couples without children. The income thresholds would be based on 2019 income tax returns, or 2018 if a 2019 return has not yet been filed. Expansion of Unemployment Insurance – The Act would also extend coverage for unemployment insurance to four months, and increase the eligibility and amount provided by an extra $600 per week. Limits and Oversight – There would be additional oversight on how companies use government loan funds, protecting workers and preventing companies from providing executive bonuses. Paycheck Protection Program – The Act would increase the government guarantee of loans made for the Payment Protection Program under section 7(a) of the Small Business Act to 100 percent through December 31, 2020. It would increase the maximum 7(a) loan amount to $10 million through December 31, 2020, and provide a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan. The Act specifies allowable uses of the loan include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments. Any loan amounts not forgiven at the end of one year (as discussed below) would be carried forward as an ongoing loan with a maximum term of 10 years, and a maximum interest rate of four percent (4%). The 100 percent loan guarantee would remain intact. Loan Forgiveness – The Act would establish that the borrower will be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. The amount of eligible loan forgiveness would be reduced proportionally by any reduction in employees retained compared to the prior-year and reduced by the reduction in pay of any employee beyond 25 percent of their prior-year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, the Act provides that borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Employee Retention Credit – This provision would provide a refundable payroll tax credit for 50 percent 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 shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. The credit would be based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. 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. Delay of Payment of Employer Payroll Taxes – This provision would allow employers and self-employed individuals to defer payment of the employer‘s share of the Social Security tax than they would otherwise be responsible for paying to the federal government with respect to their employees. Employers are generally responsible for paying a 6.2 percent Social Security tax on employee wages. The deferred employment tax would 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. Additional Business Tax Provisions – The following would be changes to the tax code aimed to assist businesses with cash flow:

• Increase to the net operating loss (NOL) carryback period to five years for NOLs arising in 2018, 2019, or 2020
• Modification to the limitation on losses for taxpayers other than corporations
• Make corporate alternative minimum tax credits immediately refundable
• Increase the limitation on business interest expense from 30 percent to 50 percent
• Technical correction to allow for the immediate write off of qualified improvement property
• Temporary exception from the alcohol excise tax for alcohol used in hand sanitizer
• Increase to the corporate income limitation on charitable contributions to 25 percent

  Additional Individual Tax Provisions – the following would be changes to the tax code aimed to assist individual taxpayers and families:

• Waiver of the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts, income would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to contribution limitations
• Waiver of the required minimum distributions rules for 2020
• Allowance of a $300 above-the-line deduction for charitable contributions
• Elimination of the income limitation for charitable contributions

  Since this is a developing story, we will continue to provide additional information as it becomes available. If this Act is signed into law, we will be providing a more comprehensive overview of these provisions and what they may mean for our clients. If you have any questions, or would like to discuss any of these provisions, please contact your HBK advisor.

On March 20, U.S. Secretary of Education Betsy DeVos announced that borrowers with federally issued student loans will receive temporary relief relative to their payments due to the COVID-19 national emergency. Relief applies only to federal loans, not loans granted by an educational institution or commercial lender.

Borrowers with federally held student loans will have the option to suspend payments for at least two months without accruing additional interest, as interest rates have been set to 0% for at least those 60 days. Borrowers can request this forbearance by contacting their loan servicer online or via telephone. Additionally, an automatic suspension has been granted to borrowers more than 31 days delinquent as of March 13, 2020, or who become more than 31 days delinquent after March 13.

Borrowers who continue to make payments will not see their payment amount decline, but their full payment will be applied to the principal, once interest accrued for the time prior to March 13 is paid. Those seeking Public Service Loan Forgiveness or who have enrolled in a repayment plan should consider continuing payments or at least seeking more information from their loan servicer to ensure they are not violating the terms of their program.

Those who have experienced a decrease in their income for any reason should contact their loan servicer to learn of any opportunities to lower their payments.

For more information, visit these resources from the U.S. Department of Education:

• For the press release regarding student loan payment suspension, visit https://www.ed.gov/news/press-releases/delivering-president-trumps-promise-secretary-devos-suspends-federal-student-loan-payments-waives-interest-during-national-emergency.
• For answers to other student financial aid questions, visit gov/coronavirus or call 1-800-4-FED-AID; TTY 1-800-730-8913.
• For information on resources for schools and school personnel, visit gov/coronavirus.

 

If you have questions or would like to discuss COVID-19’s effect on you or your business, contact a member of the HBK CPAs & Consultants team.

On March 18, 2020 the President signed into law the Emergency Families First Coronavirus Response Act (“Bill”), H.R. 6201, which provides relief related to the coronavirus. The Bill amends the Family Medical Leave Act of 1993 (FMLA) to provide for two separate paid leave requirements, which will only apply to employers with fewer than 500 employees, and payroll tax credits to help offset the cost. Here is what you need to know:

Brief Overview of the FMLA
Currently, the FMLA provides eligible employees with up to 12 work weeks of unpaid leave per year, and requires group health benefits to be maintained during the leave. An eligible employee is required to have been employed by their employer for a year, worked for 1,250 hours, and worked in a location where there are 50 other employees within a 75-mile radius. Employers subject to the FMLA are those who employ 50 or more employees or at least 20 work weeks in the current or preceding calendar year.

Emergency Paid Sick Leave
The Bill creates a new emergency paid sick leave section within the FMLA that requires employers with fewer than 500 employees to provide a portion of an employee’s 12 work week FMLA leave as paid leave time. The Department of Labor has the ability to issue regulations that would exempt small businesses with fewer than 50 employees from this requirement. This new section only applies through December 31, 2020. To qualify for the paid leave time, an employee must have been employed for 30 calendar days, which is different from the normal FMLA eligibility requirement.

The employer must provide up to 80 hours (10 business days) of emergency paid sick leave for full-time workers (pro-rated for part-time employees or employees with varying work schedules), subject to the following limitations.

For the following situations, the employee must be paid at their regular rate of pay, with a daily limit of $511, and an aggregate limit (total amount paid) of $5,110:

• The employee is subject to a federal, state, or local quarantine or isolation order due to COVID-19;
• The employee has been advised by a health care provider to self-quarantine due to COVID-19 concerns; or
• The employee has COVID-19 symptoms and is seeking a medical diagnosis.

For the following situations, the employee must be paid 2/3 of their regular rate of pay, with a daily limit of $200 and an aggregate limit of $2,000:

• The employee is caring for an individual who is subject to or has been advised to quarantine or self-isolate;
• The employee is caring for a son or daughter under the age of 18 whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions; or
• The employee is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries for Labor and Treasury.

 

The federal government will be providing a model notice which employers will be required to post at their workplace, informing employees of their right to emergency paid sick leave. Additional guidance will be provided by the Department of Labor detailing how the emergency paid sick leave will be calculated.

It should be noted that eligible employees can use the emergency paid sick leave before using the new public health emergency paid family and medical leave time discussed below.

Emergency Family and Medical Leave Expansion Act – Amendment to FMLA
The Bill amends the FMLA to allow employees who have been employed for at least 30 days by employers with fewer than 500 employees with the right to take up to 12 weeks of job-protected leave, through December 31, 2020, if the employee is unable to work due to having to care for a son or daughter under age 18 if the child’s school or place of child care has been closed due to the COVID-19 public health emergency. Employers have the ability to elect to exclude health care workers and first responders from taking the public health emergency FMLA.

The first 10 days of the public health emergency leave may be unpaid, though employees may choose to use accrued paid leave. An employer cannot require employees to use this accrued paid leave time before using the public health emergency 12 weeks of leave time. After this 10 day period, employers are required to pay employees 2/3 of their regular rate of pay, capped at $200 per day ($10,000 in the aggregate per employee). Adjustments may be made for employees with varying schedules.

During this 12 week leave time, the covered employers are required to hold an employee’s job open. An exception to this general rule applies for employers with fewer than 25 employees, if the employee’s position no longer exists due to economic conditions or other changes in the employer’s operations that are caused by the COVID-19 crisis, so long as the employer makes reasonable efforts to restore the employee’s job. If those reasonable efforts fail, the employer must agree to reinstate the employee if an equivalent position becomes available within one year.

Payroll Tax Credits
The Bill creates a refundable tax credit against the employer’s portion of Social Security or Railroad Retirement Tax Act (RRTA) tax for amounts paid under the these amendments and additions to the FMLA. The credit is equal to 100% of the compensation paid to employees under these provisions in each calendar quarter, subject to the following:

• Credit cap of $511 of eligible wages per employee per day for emergency paid sick leave that is paid to employees who need time off for a quarantine or isolation order by federal, state, or local governments or by a health care provider, or if the employee has symptoms and is awaiting diagnosis of COVID-19.
• Credit cap of $200 of eligible wages per employee per day for emergency paid sick leave that is paid to employees who need time off to care for a son or daughter under the age of 18 whose school or place of care is closed.
• The credit for emergency paid sick leave wages is only available for a maximum of 10 days per employee for the duration of the program.
• Credit cap of $200 of eligible wages per employee per day for the expanded emergency family and medical leave, with an overall cap of $10,000 for all calendar quarters.

The payroll tax credit is increased by amounts paid or incurred by the employer in order to maintain a group health plan, to the extent that the amounts paid are excluded from the employee’s gross income under the internal revenue code, and are properly allocable to the respective emergency paid sick leave time, or expanded FMLA wages required to be paid under the Bill. Regulations will provide additional guidance on how this allocation may be made, though the Bill indicates that a pro rata allocation among covered employees and periods of coverage would be treated as properly made.

In addition, the payroll tax credit is increased by the amount of the employer’s liability for Medicare tax on wages that are required to be paid under the Bill.

In order to avoid a double benefit, any amount received as a credit will not be deductible. In addition, to the extent a credit in connection with the wages is allowed under another provision (e.g. the credit for paid family and medical leave under IRC § 45S), the new payroll tax credit will not be available.

Payroll Tax Exemption
Wages that are paid in connection with the above provisions will not be considered wages for the purposes of calculating the employer’s portion of the Social Security or RRTA tax. They are still considered wages for other taxes, including the employee’s portion of Social Security, RRTA, and Medicare taxes.