The CARES Act: A Simple Summary

By Erica Gellerman, CPA on August 12, 2020

Editor’s note: The PPP and PUA programs have expired. We recommend small businesses needing working capital to consider the EIDL program. If you need 2019 bookkeeping completed for your application, Bench can help.

In March, the U.S. federal government signed into law a $2 trillion relief act aimed at providing relief to individuals, businesses, and government organizations. If you’ve been hit hard by the effects of COVID-19, relief is here with the passing of The Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The CARES Act is long and detailed, so we’ve summarized everything you need to know about support that is coming your way.

Title 1: Keeping American Workers Paid and Employed Act

Highlights include:

  • Creation of the Paycheck Protection Program
  • Emergency grants for businesses applying for SBA Economic Injury Disaster Loans
  • Increased funding for business education programs
  • Relaxed criteria for filing Chapter 11 bankruptcy

Paycheck Protection Program: The aim of this section of the act is to provide the critical funding needed to keep small businesses running. The most impactful portion of this is the Paycheck Protection Program (PPP), a $349 billion loan program available through the Small Business Administration. These loans are designed to keep employees on payroll and give employers a loan to help them cover the costs.

This program is available to:

  • Small businesses with 500 or fewer employees or fall within the SBA’s size standards
  • Restaurant, hotel, or business that falls within the North American Industry Classification System (NAICS) code 72, “Accommodation and Food Services,” and each location has 500 or fewer employees
  • Tribal businesses
  • 501(c)(19) veteran organizations
  • 501(c)(3) nonprofits
  • Independently owned franchises with less than 500 employees
  • Sole proprietors, independent contractors, gig economy workers, and self-employed individuals

Loan expenses related to payroll (up to $100,000 per employee), mortgage interest, rent, and utilities can be entirely forgiven as a non-taxable grant. How much can be forgiven will depend on whether you keep all of your employees during the covered period of the loan.

We have a full rundown of the Paycheck Protection Program and the loan forgiveness options available.

Entrepreneurial development: This frees up additional funding to Small Business Development Centers and Women’s Business Centers to help them train and educate businesses struggling with the effects of COVID-19.

State Trade Expansion Program: Awards that were given to states in 2018 and 2019 to help fund their export development are now available to be used through 2021. If any of their events were cancelled due to COVID-19, they can be reimbursed for the losses.

Waiver of Matching Funds under the Women’s Business Center Program: For the next three months, Women’s Business Centers (WBC’s) will have the requirement waived that they need to get cash contributions from non-Federal sources (matching funds) to provide assistance.

Minority Business Development Agency: Similar to the WBC’s, these agencies will have their matching fund requirements waived for three months. Any fee-for-service requirements are also waived until September 2021.

Emergency Economic Injury Disaster Loan Grants: To get money to businesses that need it quickly, anyone who applies for an Economic Injury Disaster Loan (EIDL) can request an emergency grant on that loan of up to $10,000. This money will be distributed by the SBA within three days.

The grant can be used for maintaining payroll, providing sick leave, buying materials, paying your mortgage or rent, and repaying any obligations you can’t currently pay because you’ve lost revenue from COVID-19. This is truly a grant — even if you’re not approved for the loan, you won’t be required to repay the grant.

Further reading: The EIDL Grant is Closed. What Now?

Subsidy for certain loan payments: If you have an SBA 7(a) loan, 504 loans, or microloan, the SBA will pay the principal, interest, and fees on the loan for six months.

Further reading: SBA Loan Payment Coverage (During COVID-19)

Bankruptcy: Businesses have typically only been able to file for subchapter V Chapter 11 bankruptcy if they had debt up to $2,725,625. For the next year, businesses with up to $7.5 million will qualify. Subchapter V gives small businesses a cheaper and faster bankruptcy option.

Title 2: Assistance for American Workers, Families, and Businesses

Highlights include:

  • Pandemic Unemployment Assistance changes
  • Recovery rebates of up to $1,200 per person
  • Retirement account early withdrawal penalty waived
  • Credits for keeping employees on payroll
  • Net Operating Loss carryback options

Changes to Unemployment Assistance

Previously unemployment benefits haven’t been available to self-employed people, independent contractors, or people with limited work history. Under the CARES Act, these people now qualify for unemployment benefits.

In addition, anyone who is unable to work because of COVID-19 will also qualify for unemployment benefits. That includes people who have been diagnosed with COVID-19, are providing care for someone who is diagnosed with COVID-19, are required to self-quarantine, need to stay home to care for their children, or someone who has quit their job because of COVID-19.

If you’re receiving paid leave benefits, like sick leave, you won’t qualify for unemployment.

Additional changes include:

  • An additional $600 per week for up to four months for anyone receiving unemployment benefits
  • For states that waive the first week waiting period, the government will cover that cost
  • Once your state unemployment benefits run out, if you are still unemployed, you can qualify for an additional 13 weeks of unemployment benefits

Plus, states will now have funding available to them to hire additional workers to help process the increase in unemployment claims they’re now struggling with.

To apply, find your state unemployment resources, or view our state-by-state summary of unemployment insurance benefits.

Short-term compensation programs: Some states offer shared work arrangements, where they reduce an employees hours and pay, and the employees are able to offset their reduced pay with unemployment benefits. States with programs already in place will get 100% of the costs of this program covered through December 31, 2020. States that start a shared work program will get 50% of their program covered through December 31, 2020.

Rebates and other individual provisions

Recovery rebates for individuals: Some of us may soon be getting a relief check in the mail. If your income is $75,000 or less (or $150,000 or less if you’re married), you’re eligible for a $1,200 individual or $2,400 married couple rebate. If you have dependent children under age 17, you’ll also be eligible for an additional $500 per child.

If you make over $75,000 or $150,000, your rebate will be reduced by $5 for every $100 over $75,000 that you make. But if you make over these threshold amounts, you won’t receive a rebate:

  • Individual: $99,000
  • Head of household with one child: $146,500
  • Joint filers with no children: $198,000

To qualify, you can’t be claimed as a dependent by someone else and you need to have a work eligible social security number. If you don’t have any taxable income, don’t worry, you’ll still qualify for the rebate.

You won’t have to file anything to receive the rebate — the government will use your 2019 tax return (if filed) or your 2018 tax return to see if you qualify.

Further reading: Will I Get a Stimulus Check If I Owe Taxes? (And Other FAQs)

Special rules for use of retirement funds: Normally, when you take an early withdrawal from your retirement plan, you’re hit with a 10% early withdrawal penalty. That penalty is being waved for withdrawals up to $100,000 that happen after January 1, 2020 for coronavirus-related purposes.

You will pay income tax on the distribution, but that tax will be paid over three years. You also have the opportunity to re-contribute the amount that you withdraw from your retirement within three years.

Here are the conditions for qualifying:

  • You, your spouse, or your dependent is diagnosed with COVID-19

  • You experience adverse financial consequences from being quarantined, furloughed, laid off, having your work hours reduced, being unable to work because of lack of childcare, or closing or reducing hours of a business that you own

Waiver of required minimum distribution rules: If you’re over age 72 (or you turned 70.5 before January 1, 2020), you are normally required to take minimum distributions from your retirement account. Those minimum distributions are suspended for 2020. If you don’t want to take a retirement distribution this year (while the stock market is down), you can skip it.

Charitable contributions: The government wants to make it easier for you to donate to charities and get a tax break for it. If you make any charitable contributions this year, you can deduct up to $300 in cash donations without having to itemize your deductions. Also, limits on how much you can deduct this year are waived.

Someone who can normally deduct contributions up to 50% of their adjusted gross income (AGI), no longer has that maximum limit for 2020. And businesses that can normally deduct up to 10% of their adjusted gross income can now deduct contributions up to 50% of their AGI.

Employer payments of student loans: If an employer offers student loan repayment benefits or any other educational assistance, up to $5,250 of their contribution in 2020 won’t be included in an employees taxable income.

Further reading: Will I Get a Stimulus Check If I Owe Taxes?

Business provisions

Under this section of the act, businesses get additional help to free up cash flow and incentives to keep employees working.

Employee retention credit: The government wants you to keep employees on payroll, even if they aren’t working. If your business operations were fully or partially suspended from COVID-19 or your gross receipts declined by more than 50% when compared to the same quarter last year, you’re eligible for a payroll tax credit if you continue to pay your employees.

The tax credit is 50% of qualified wages paid to your employee and is capped at $5,000 per employee.

If your business has 100 or fewer employees, all wages paid to employees count towards the credit, whether or not your business is open. If you have more than 100 employees, qualified wages are wages that are paid to employees when they aren’t working.

Delayed payment of employer payroll taxes: Employers are generally responsible for paying 6.2% Social Security tax on their employees wages. You can now delay paying this payroll tax. Half of the deferred payroll tax will be due by December 31, 2021 and the other half will be due by December 31, 2022.

Modifications for net operating losses: If your business experienced a net operating loss, you typically can only carry them forward to future years to offset taxable income. And they are subject to a taxable income limitation of 80%—that is, your net operating loss deduction that you carry forward usually can’t exceed 80% of your current year taxable income.

Those two rules are being relaxed. If you had a net operating loss in 2018, 2019, or 2020, you can now carry that loss back five years. It’s also not subject to a taxable income limit. This gives you the opportunity to amend previous years returns to claim the loss and receive a refund, freeing up valuable cash flow.

Excess business losses for non-corporate taxpayers: Normally passthrough businesses and sole proprietors can’t claim business losses of more than $250,000 for a single taxpayer and more than $500,000 for a married couple filing jointly. That limit is now suspended for tax years 2018 and later.

Modification of credit for minimum tax liability: If you have corporate alternative minimum tax (AMT) credits, you can now accelerate those credits to claim them all at once, and claim a refund immediately.

Business interest deduction: Businesses are usually allowed to deduct interest expense up to 30% of taxable income. For 2019 and 2020 that deduction limit is increased to 50%.

Qualified property improvement: Because of an error in the Tax Cuts and Jobs Act, businesses weren’t able to immediately write off costs related to improving facilities. The CARES Act corrects this and lets businesses go back and amend tax returns for 2018 and 2019 to claim the write off, potentially giving them a welcome tax refund.

Alcohol used to produce hand sanitizer: For 2020, the federal excise tax on distilled spirits is waived if it is being used for hand sanitizer. That provides valuable help to distilleries who are now producing alcohol that can be used for hand sanitizers

Title 3: Supporting America’s Health Care System in the Fight Against Coronavirus

Included in this title are provisions to review supply issues with medical equipment and drug shortages as well as prioritize the review of drug applications.

It also sets guidelines for access to coverage, including:

  • Testing for COVID-19 is 100% covered by private insurance plans with no cost to patients
  • Uninsured people can be tested for COVID-19 for free if their state Medicaid program elects to offer this
  • Once a vaccine is created, it will be provided for free within 15 days

To ensure that everyone gets the help they need, the remainder of this part provides additional funding for healthcare centers, provides grants for telehealth technologies, and limits the liabilities for any volunteer healthcare providers during the COVID-19 crisis.

It also waives nutrition requirements for Older Americans Act meal programs to ensure seniors still have access to meals if certain foods aren’t available. And it reauthorizes the health start program grants to improve access for women and their families that need help during the crisis.

Some additional provisions that you’ll want to take note of include:

Limits on paid leave and emergency sick leave: Benefits from the Family and Medical Leave Act (FMLA) are expanded for employees who aren’t able to work due to COVID-19. Building off the expanded benefits outlined in the Families First Coronavirus Response Act, the CARES Act outlines the limitations to paid leave.

These limits include:

  • If the employee is sick, the maximum an employer is required to pay is $511 paid per day, or $5,110 in total

  • If the employee is caring for a quarantined individual or child, the maximum an employer is required to pay is $200 per day, or $2,000 in total.

Over-the-counter medical products: Funds in an HSA or flexible spending account can be used to purchase over-the-counter medical products without a prescription.

Temporary relief for student loan borrowers: People with federal student loans can defer student loan payments, principal, and interest payments until September 30, 2020 without penalty.

Title 4: Economic Stabilization and Relief to Severely Distressed Sectors

Title 1 and 2 focused on relief for individuals and small businesses. Title 4 is focused on supporting mid sized and large businesses. This title provides $500 billion in emergency relief to businesses, states, municipalities, and tribes.

The relief includes loans and loan guarantees of:

  • $25 billion for passenger air carriers, aviation repair stations, and airline ticket agents
  • $4 billion for air cargo carriers
  • $17 billion for businesses critical to maintaining national security
  • $454 billion to support the Federal Reserve’s lending facilities

A Federal Reserve program to support mid-sized businesses with between 500 - 1,000 employees with loans that charge no more than 2% interest. The Federal Reserve may also establish the Main Street Lending Program, or another similar program to support small and mid-sized businesses.

This title also provides individual protections including:

Credit Protection during COVID-19: If a lender agrees to loan forbearance or modification, they have to report the account as “current” (or the status before the agreement took place) to credit reporting agencies.

Foreclosure moratorium and consumer right to request forbearance: Starting March 18, 2020, foreclosures aren’t allowed for 60 days on properties with federally-backed mortgages. Forbearance of up to 180 days are offered for borrowers with these federally-backed mortgages who have experienced financial hardship. This includes mortgages purchased by Fannie Mae and Freddie Mac, insured by HUD, VA, or USDA, or directly made by USDA.

You can use these lookup tools to see if you have a Fannie Mae or Freddie Mac mortgage.

Moratorium on evictions: For 120 days, landlords are prohibited from starting eviction or charging penalties and fees related to their tenant not paying rent if their mortgage is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994.

Title 5: Coronavirus Relief Funds

$150 billion will be given to States, Territories, and Tribes to help pay for expenses related to COVID-19. The money will be allocated based on population, with a minimum of $1.25 billion given to states with the smallest population.

Title 6: Miscellaneous Provisions

Up to a $10 billion loan will be provided for the United States Postal Service with terms set by the Treasury department.

More COVID-19 Resources


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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