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CARES Act explained

VIN's general counsel unpacks the latest federal coronavirus legislation

March 30, 2020 (published)
Raphael Moore

This story has important updates

Photo by Netania Moore
Raphael Moore, JD, LLM, is general counsel of the Veterinary Information Network, an online community for the profession.

The Coronavirus Aid, Relief, and Economic Security Act was signed into law March 27 to help employers and employees weather the financial fallout from COVID-19. This is a summary of provisions relevant to the veterinary community.

Use of retirement funds

The normal 10% penalty for early distributions from qualified retirement plans is waived for amounts withdrawn from your retirement account — up to $100,000 — in 2020, provided:

  • You, your spouse or your dependent are diagnosed with COVID-19; or
  • You experience adverse financial consequences because of COVID-19-related quarantine, furlough, layoff, reduction in work hours, inability to work due to lack of child care, or closure of business.

You may repay the distributions within three years of withdrawal. Whether or not repaid, the distributions will be taxable for federal income tax purposes; you may spread the income over a three-year period.

Interaction with the Families First Coronavirus Response Act (the new paid-leave law)

On March 18, a federal law known as the Families First Coronavirus Response Act (FFCRA) was enacted to provide paid leave for those who need to stay home to take care of a minor child whose school or day care closed, and for those who have COVID-19 symptoms or are taking care of others with COVID-19 symptoms (see summary here). Members of the Veterinary Information Network may view a discussion of the subject here.

The CARES Act amends portions of the FFCRA. Of special importance:

  • Employers covered by FFCRA may receive an advance on the payroll tax credits they would be entitled to, to help cover the costs of providing employees with paid leave. So rather than waiting for quarterly 941 payroll tax filing/remittance, employers may ask for that money "now.” We are waiting for regulations, guidance and forms from the U.S. Department of Labor (DOL) and IRS.
  • FFCRA coverage applies to employees who were laid off as of March 1 and onward, provided they worked for the employer for at least 30 of the past 60 calendar days prior to being laid off and are rehired by the employer.

Student loan exclusion

Through year-end 2020, employers may provide their employees with a student loan repayment benefit of up to $5,250 per employee on a tax-free basis.

Unemployment assistance

Unemployment insurance benefits are expanded under the CARES Act. In addition to providing coverage to those who are self-employed, it essentially increases the benefit any person receives by $600 per week (known as the Federal Pandemic Unemployment Compensation), with the actual benefit dependent on state rules. The benefit applies to anyone who becomes unemployed, partially unemployed or is unable to work due to COVID-19 on or after January 27 through year-end.

Employee retention credit for employers

While the FFCRA helps employers who are required to pay employees on leave, the CARES Act aims at rewarding employers who keep employees by providing an employee-retention credit.

For wages paid after March 12 and through year-end, covered employers are allowed a new refundable payroll tax credit equal to 50% of the qualified wages paid, with a cap of $10,000 in wages per employee – so the maximum credit is $5,000 per employee.

To be eligible for this credit, the employer's trade or business must either:

  • be partially or fully suspended because of a government order limiting commercial transactions, travel or meetings; or
  • receive gross receipts for at least one calendar quarter that is less than 50% of the gross receipts received during the same calendar quarter in the prior year. This qualifying event will be deemed continuous until the gross receipts exceed 80% of the gross receipts for the same calendar quarter in the prior year.

The calculation of the credit differs depending on the number of employees the employer has:

  • For employers with 100 or fewer full-time employees in 2019, the sum of gross wages paid to all employees is eligible for credit.
  • For employers with more than 100 full-time employees, qualified wages are limited to the sum of gross wages paid to employees who are unable to provide services due to the pandemic.

Also note that employers who receive some of the newly created or modified U.S. Small Business Administration loans (discussed below) are not eligible for the employee-retention credit. 

Delay in payroll and self-employment taxes

The FFCRA already allows employers to dip into payroll tax deductions and use them as a credit against paid leave (see summary here) and, for VIN members, a discussion here.

The CARES Act further provides that depositing the employer's share of Social Security tax that otherwise would be due between now and year-end may be delayed as follows:

  • 50% of such taxes must be deposited by Dec. 31, 2021.
  • The remainder is due by Dec. 31, 2022.

For those self-employed, the CARES Act provides that they must still pay 50% of the self-employment tax (i.e., the employee's share) as before but they similarly may delay the other half as listed above.

Note that if an employer benefits from any SBA loan forgiveness (see below), they may not participate in this tax-delay program. 

SBA loan program

The SBA provides loans to small businesses. The CARES Act changes how those loan programs function. There are multiple programs affected, with substantive changes.

The CARES Act requires the SBA to issue guidance and regulations on how these loans will be implemented within 15 days of the law's enactment, and they have 30 days to provide that guidance to the lending financial institutions, so none of this is expected to be clarified immediately. Absent those details, by pulling the relevant provisions from both the new legislation and how the programs run now, we can provide this summary:

Economic Injury Disaster Loans

The SBA's Economic Injury Disaster Loan program (EIDL) is an existing program that is now available for COVID-19-affected businesses. The CARES Act changes how it functions and who can apply:

  • An eligible entity now includes sole proprietors, whether or not they have employees. It also includes independent contractors and any business with no more than 500 employees.
  • You must have been in operation as of Jan. 31 — the requirement of being in business for at least one year has been waived.
  • The requirement of not being able to get credit elsewhere has been waived.
  • It provides up to $2 million to cover accounts payable, payroll and debt obligations that cannot be paid because of a declared disaster.
  • You can also apply for an advance of up to $10,000, to be funded within three days of submission, by certifying that you are eligible for the EIDL program. If you are later denied the full loan, you do not have to pay it back.
  • Interest rate is capped at 3.75%, with terms up to 30 years and payment deferral for up to 12 months.
  • There is no application fee.
  • The underwriting standards have been modified, with current guidance stating that approval and funding will be done within three to four weeks. If an employer has a bridge loan from another source during this approval period, it is eligible to be refinanced with EIDL funds.
  • The current guidance is also that real estate will no longer be needed for collateral. There also is no need for a personal guarantee on loans of up to $200,000.
  • If an initial EIDL loan isn't enough, additional funds may be requested to cover continuing injury.
  • You may apply for the loan and decide later not to accept it, so it doesn't hurt to get in the processing line. Apply here.

SBA Express Loans

The SBA Express Loan program also is an existing program. The CARES Act increased the amount available for loans from $350,000 to $1 million through Dec. 31, 2020.

SBA is supposed to respond to these "express" loans within 36 hours, although they have yet to provide the mechanism for this. We expect more details from the agency will be posted here.

Paycheck Protection Program

Under the SBA's existing "7(a)" loan program, the CARES Act added a new Paycheck Protection Program (PPP) that has drawn lots of attention because of a potential for loan forgiveness.

PPP loans are available to all employers with up to 500 employees, including self-employed individuals, sole proprietors and independent contractors. Unlike the EIDL loans, which are funded through the SBA, these loans are run through financial institutions selected by the U.S. Department of the Treasury. The loans work as follows: 

  • The amount of the loan is based on the lesser of 2½ times the average monthly payroll costs during the previous 12 months; or $10 million. 
  • The proceeds can be used for payroll costs (excluding individual employee compensation above $100,000 per year), rent, mortgage or other debt interest (provided not "advanced payment of interest," and provided the debt was incurred before Feb. 15, 2020), and utilities.
  • The proceeds may not be used to cover qualified sick leave or FMLA wages for which a credit is allowed under the FFCRA (again, see summary here and full discussion accessible to VIN members here).
  • A personal guarantee is not required.
  • Repayment can be deferred for at least six months.
  • Payments that are not forgiven are subject to maximum interest of 4%, with a maturity of up to 10 years.

The PPP loan principal may be forgiven, dollar-for-dollar, for eligible costs and payments incurred during an eight-week period following loan origination.

Stated another way, whatever you spend of the loan proceeds during the eight-week period after you receive the funds will be forgiven if you use it on the eligible items described above. If the loan is forgiven, it won't be treated as taxable gross income to you.

But there's a catch, to make sure the promise of forgiveness serves as an incentive to employers to keep employees working.

The amount of forgiveness will be reduced through a complex penalty system if the borrower reduces the number of employees, their salaries, or both, during the same eight-week period:

  • For terminations, the reduction will be based on multiplying the forgiveness amount by the quotient of the borrower's average number of full-time employees per month during the eight-week period divided by either:
    1. the average number of full-time employees per month employed during the period of Feb. 15, 2019, through June 30, 2019; or
    2. the average number of full-time employees per month employed during the period of Jan. 1, 2020, through Feb. 29, 2020.

The borrower can choose which period to use. The "average number of full-time employees” is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.

For example, say the forgivable amount is $100,000 and the average monthly employment for the year prior was 10. If the number of employees during the eight-week period is seven, then only $70,000 is eligible to be forgiven (30% reduction in workforce = 30% reduction in loan forgiveness).

  • If salaries are reduced, the amount of forgiveness likewise will be reduced. The amount of reduction will be based on any reduction in wages of employees earning $100,000 or less on an annualized basis using 2019 figures: For each such employee who has their pay reduced during the eight-week period, the amount of forgiveness will be reduced by the amount such reduction exceeds 25% of the employee's pay for the quarter most recently completed prior to the loan origination.

For example, say an employee's salary was reduced by 30% as compared to the most recent quarter. In that case, the forgivable amount would be reduced by 5% (i.e., 30% minus 25%).

If an employer is subject to forgiveness reduction but is able to increase their employee count and salaries by June 30, 2020, to the levels they had on Feb. 15, 2020, they will not be subject to the reduction.

If both the number of employees and salaries are reduced, the amount of forgiveness will be reduced by both triggers (reduction of employees and reduction of salaries), if applicable.

A lender's decision on forgiveness must be made within 60 days after the lender receives a completed application for forgiveness. The application will need, at a minimum, verification of full-time equivalents (e.g., IRS payroll tax filings); proof of expenses (e.g., cancelled checks, receipts, etc., verifying rents, mortgage, etc.); and relevant certification and documentation as the SBA deems necessary once this program is fully implemented.

If the borrower received an advance under the EIDL program, the amount of the advance will reduce the amount of allowable loan forgiveness. Furthermore, if an employer gets a PPP loan, they are no longer eligible for the employee-retention credits and are not allowed to delay their share of payroll taxes under the tax-delay program. 

Net Operating Loss rules

The CARES Act changes how a business can benefit from net operating losses (NOLs):

  • Losses arising in tax years 2018, 2019 and 2020 can be carried back five years now.
  • The rule limiting NOLs to 80% of the taxpayer's taxable income is suspended for tax years that began prior to Jan. 1, 2021, so that employers may completely offset their income both on a carryback and carryforward basis.

Other tax-relief provisions

Several other provisions have been modified by the CARES Act to give businesses in unique situations better cash flow. Some examples:

  • The 30% limit on business interest expense deduction has been temporarily increased to 50% of adjusted taxable income (ATI) for taxable years 2019 and 2020, while allowing a business to use their 2019 ATI for 2020 if they wish. This reduces the cost of capital and increases liquidity.
  • An accelerated bonus depreciation is allowed for qualified improvement property, retroactive to 2018. This gives qualifying taxpayers the possibility of receiving a refund by filing an amended 2018 return.
  • Refundable Alternative Minimum Tax (AMT) credits can be accelerated, making them fully recoverable in 2019, versus in 2021.

For those with student loans

The CARES Act provides a number of relief measures to those with outstanding student loans. Some examples are:

  • The federal government will suspend, through Sept. 30, the requirement of borrowers to make payments on federal student loans that the government owns (e.g., Direct Loans). No interest, penalties or late fees will apply, and the missed payments will not disqualify the borrower for loan rehabilitation and forgiveness programs.
  • No interest will accrue on any federal student loans, including those that are in default, through Sept. 30.
  • Student-loan debt collections by the federal government are suspended. That means garnishment of tax refunds, Social Security benefits, and wages, is halted.

Note that the above applies only to federal student loans owned by the government (e.g., Direct Loans). It does not apply to private loans. For a more detailed discussion of the impact of COVID-19 on student loans, see the VIN Foundation Blog and, for VIN members, the VIN Student Debt Folder.


Correction: This article has been changed from the original to correct the date by which debts must be incurred to qualify for the Paycheck Protection Program.

March 31 update: To learn more about the Paycheck Protection Program and the Economic Injury Disaster Loan program, click here for a side-by-side comparison.

April 13 update: Read a summary of federal unemployment benefits provided under the CARES Act.

April 16 update: The Small Business Administration no longer is accepting applications for the Economic Injury Disaster Loan program or the Paycheck Protection Program, owing to a "lapse in appropriations," according to agency posts. In other words, the programs ran out of money.

April 23 update: Congress today authorized additional funding for the Paycheck Protection Program (PPP). Meanwhile, the Small Business Administration has provided new guidance for the program relating to self-employment and partnerships. See summary here.

Further updates are posted in VIN's COVID-19 Information Center.


About the author: Raphael Moore, JD, LLM, has been general counsel of the Veterinary Information Network since the 1990s. He enjoys figuring out esoteric legal issues and is a frequent contributor to VIN legal and practice management discussions. An avid hiker, he has a knack for being attacked by bears in Yosemite. He lives with his wife and two daughters in their geodesic dome on the outskirts of Davis, California, where he raises alpacas and chickens.


VIN News Service commentaries are opinion pieces presenting insights, personal experiences and/or perspectives on topical issues by members of the veterinary community. To submit a commentary for consideration, email news@vin.com.



Information and opinions expressed in letters to the editor are those of the author and are independent of the VIN News Service. Letters may be edited for style. We do not verify their content for accuracy.



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