CARES Act Eligibility and Program Overview

Paycheck Protection Program

Eligibility

The Paycheck Protection Program eligibility requirements include:

The business was in operation before 2/15/20
The business has 500 or fewer employees (or 1,500 or fewer employees for certain businesses), which includes affiliated companies
The business does not have to show an inability to borrow from another lender.

A business may be disqualified from the PPP if:

The company’s applicant or any 20% owner is ineligible or excluded from participation by any federal department or agency
The company’s applicant or any 20% owner is in bankruptcy
The company’s applicant or any 20% owner or any business owned by any of them has been in default on a direct or guaranteed loan from the SBA or other federal agency in the past 7 years
If any 20% or more owner is:

Incarcerated, on probation or parole;
Is not a U.S. Citizen;
Within the past 7 years has been convicted of certain disqualifying crimes.

Certification Requirements

Lenders may also ask for a good-faith certification that the loan is necessary to support the ongoing operations; the borrower will use the funds to retain workers and maintain payroll, mortgage, lease, or other utility payments; and that the borrower does not have a duplication loan for the same purpose or has applied for the same loan.

Loan Amount

The PPP allows for a company to receive up to 2.5x or 250% of the borrower’s average monthly payroll costs. This amount, however, cannot exceed $10 million.

It is important to note that certain items are excluded from payroll calculations including any compensation over $100,000 per employee; payroll taxes, income taxes, compensation for an employee who resides outside the United States; and qualified sick leave or family leave wages which are allowed under the Families First Coronavirus Response Act.

Loan Restrictions

The Loan can only be used for the following purposes:

Payroll Costs from 2/15/20 – 6/30/20
Mortgage interest payments, rent on property or equipment leases and utility payments
Interest on existing debt, including SBA debt
Companies must represent that to the extent feasible it will purchase only US-made equipment and products

Repayment

Any balance remaining after loan forgiveness can have a maximum maturity of 10 years from the date on which the borrower applied for debt forgiveness.

Forgiveness

Under the CARES Act, a PPP loan borrower may be eligible for loan forgiveness for certain eligible costs. Those costs include payroll, rent, utilities, and certain interest on debt. On 5/18/20 the SBA released the PPP Loan Forgiveness application for companies utilizing the program.

Congress recently passed the Paycheck Protection Program Flexibility Act, which changed the payroll ration required for forgiveness on the loan. A company can now have the loan forgiven if the amount spent in the first 24 weeks (Until 12/31/20) of the program for those eligible costs could be forgiven so long as 60 percent was attributed to payroll costs.

Please view the SBA and Treasury new guidance and FAQs on PPP forgiveness that was release on 5/13/20.

Economic Injury Disaster Loans

Eligibility

The Economic Injury Disaster Loan eligibility requirements include:

The business must have 500 or fewer employees, including employees of affiliated companies
The business must have been in operation by 1/31/20
The business does not have to show an inability to borrow from another lender

Loan Advance

The Small Business Administration is also offering an Economic Injury Disaster Loan advance of up to $10,000, capped at $1,000 per employee. This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available following a successful application. This loan advance does not have to be repaid.

Loan Amount

The EIDL allows a company to apply for up to $2 million loan.

Loan Restrictions

The Economic Injury Disaster Loan has fewer restrictions than the PPP. Some important notes from the SBA on the loans eligible uses include:

The loan can only be used for general working capital necessary until resumption of normal operations and to alleviate economic injury
The loan can be used for paying sick leave to employees unable to work due to the direct effect of COVID-19
The loan can be used for maintaining payroll to retain employees
The loan can be used for meeting increased costs to obtain materials unavailable from the business’s original source because of supply chain issues
The loan can be used for rent or mortgage payments
The loan can be used for repaying certain obligations that cannot be met due to revenue losses

Repayment

The EIDL program requires terms of up to 30 years and provides that no payments must be made in the first year.

Forgiveness

The EIDL program does not have any forgiveness provisions.

Employee Retention Tax Credit Program

Eligibility

Employers are eligible for the credit that carry on a business during the calendar year that:

Fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority; or
Experienced a significant decline in gross receipts during the calendar quarter.

Certification of Qualified Wages

Wages that are paid by an eligible employer after March 12, 2020 and before January 1, 2021.

Wages can include qualified health plan expenses that are properly allocable to wages.

If an employer averages more than 100 full-time employees in 2019, qualified wages are the wages paid to an employee for the time that employee is not providing service due to either:

Full or partial suspension due to a governmental order; or
A significant decline in gross receipts.

For employers with more than 100 full-time employees in 2019, the qualified wages taken into account may not exceed what the employee would have been paid for working during the duration over the immediately preceding 30 days.

If an employer has 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during either:

A full or partial suspension due to a governmental order; or
A significant decline in gross receipts.

The IRS has provided additional information on how to determine qualified wages and to determine the amount of allocable qualified health plan expenses.

Tax Credit Requirements

The CARES Act does not require employers to pay qualified wages. In addition, eligible employers do not have to claim the Employee Retention Tax Credit.

The credit is only available for wages paid after March 12, 2020 and before January 1, 2021.

Please note: This tax credit is allowed against the employer’s share of social security taxes under and the portion of taxes imposed on railroad employers that corresponds to the social security taxes.

Tax Credit Amount

The Employee Retention Tax Credit applies to qualified wages for all calendar quarters but is limited to $10,000 per employee and is a 50% tax credit. In other words, the maximum credit amount for an eligible employer is for qualified wages paid to an employee up to $5,000. Again, the limiting factor is that it must be fore wages paid after March 12, 2020 and before January 1, 2021.

Tax Credit Restrictions

The Employee Retention Tax Credit program is limited as a sole source of relief under the Federal CARES Act. Put another way, an employer may not receive both the Employee Retention Tax Credit and the Paycheck Protection Program.

An employer, however, may receive the tax credit for qualified leave wages under the Families First Coronavirus Response Act (FFCRA) and the Employee Retention Tax Credit program. The caveat, however, is that an employer cannot use the same wages. The amount of qualified wages for which an eligible employer may claim the Employee Retention Tax Credit does not include the amount of qualified sick and family leave wages for which the employer receives tax credits under the FFCRA.

Repayment

The Employee Retention Tax Credit is a fully refundable tax credit and there are norepayment requirements. A fully refundable credit means that the employer could receive a refund that exceeds the federal taxes owed for the employee.

If for any calendar quarter the amount of the credit the Eligible Employer is entitled to exceeds the employer’s share of the social security tax on all wages paid to all employees, then the excess is treated as an overpayment and refunded to the employer.

Please note: Consistent with its treatment as an overpayment, the excess will be applied to offset any remaining tax liability on the employment tax return and the amount of any remaining excess will be reflected as an overpayment on the return. Like other overpayments of federal taxes, the overpayment will be subject to offset prior to being refunded to the employer.