On March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, offering a comprehensive relief package in response to the economic distress caused by the coronavirus (COVID-19) pandemic. Paychex, Inc., a leading provider of HR, payroll, benefits, and insurance solutions, is helping business owners understand what the CARES Act means, both for their business and employees, as well as offering support and resources during this time of need.
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“We know that many of our clients are struggling with business disruptions, making hard decisions every day about whether to keep, furlough, or lay off employees due to the financial pressure of the pandemic. This historic financial stimulus package is designed to help,” said Martin Mucci, Paychex president and CEO. “While the passage of the CARES Act is certainly a significant step, the next piece will be ensuring this money quickly gets to those who need it most. National payroll providers such as Paychex are uniquely positioned to help with this, using existing banking relationships and our service connection and experience with our clients.”
The CARES Act provides a comprehensive package including measures and appropriations aimed, in part, at providing financial relief to individuals, families, and businesses. The law, following the Families First Coronavirus Response Act and the Small Business Administration’s Economic Industry Disaster Loan Program, is the third relief package offered by Congress to assist businesses and individuals in navigating the economic hardships caused by the pandemic. The law carries numerous provisions affecting businesses and individuals.
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A complete overview of the CARES Act is available on Paychex WORX. Below is an overview of key elements:
Provisions for Businesses
- Small Business Loans: Generally, businesses with 500 employees or fewer are eligible for Small Business Administration (SBA) emergency grants and the forgivable loan program.
- Through the Paycheck Protection Program, the SBA will be providing loans up to $10 million to qualified and eligible small businesses for up to 2.5 times the borrower’s average monthly payroll costs to assist in covering certain expenses, including payroll. The loans may be forgiven under the conditions set forth.
- Qualified small businesses that apply for a loan under the Economic Injury Disaster Loan Program due to COVID-19 will be eligible for SBA emergency grants of up to $10,000 to provide immediate relief for covered costs, including payroll, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.
- Small business development centers and women’s business centers may be receiving grants to assist in educating, training, and advising small businesses on various items such as accessing and applying for resources provided by the SBA.
- Delay of Payment of Employer Payroll Taxes: The bill allows some employers to defer payment of the employer share of the Social Security tax.
- All employers are responsible for paying the Federal Insurance Contributions Act (FICA) 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.
- Employee Retention Credit: Some employers may be eligible to obtain a payroll tax credit for retaining employees during the pandemic.
- Eligible employers will be able to claim 50 percent of qualified wages paid up to $10,000 per employee.
- Several rules were established to determine eligibility for the credit. Businesses must be impacted by forced closures or quarantines and have seen a 50 percent drop or more in revenues in order to qualify.
- A business would not be eligible to take both this credit and a forgivable small business administration loan.
- It is expected that the Treasury Department will be advancing this credit in order to provide the funds back to employers more quickly.
Provisions for Individuals
- Recovery Rebates for Individuals: This provision allows for direct payments to individuals in two waves.
- Payments of $1,200 will be issued, with an additional $500 added for each dependent child, under age 17.
- These payments are based on 2019 tax return filed, or the 2018 return if 2019 has not yet been filed.
- The payments are based on individuals whose adjusted gross income was $75,000 or less ($150,000 for married filing jointly, $112,500 for head of household).
- People with an adjusted gross income (AGI) over $75,000 ($150,000 for married filing jointly) will have their rebate reduced by $5 for $100 over the threshold. Once AGI reaches $99,000 ($198,000 married filing jointly, $146,500 head of household), the rebate will no longer be applicable.
- Unemployment Insurance Expansion: Federal Pandemic Unemployment Assistance in the amount of $600 per week may be provided to qualifying covered individuals, in addition to any benefits currently offered by their state, as outlined in the Act.
- Although benefits will vary by state, the expanded assistance provides an additional 13 weeks of unemployment benefits through December 31, 2020 for covered workers who remain unemployed after the weeks of state unemployment compensation expire.
- Expanded unemployment compensation now includes those not traditionally eligible for those benefits under state or federal law such as self-employed individuals, independent contractors, those with limited work history, etc., who are unable to work as a direct result of COVID-19 health emergency.
- Funding is provided to pay the first week cost of unemployment benefits through December 31, 2020 for states that choose to pay recipients immediately upon becoming unemployed in lieu of the one-week waiting period before the individual becomes eligible for compensation benefits.
- Temporary financing to support “short-time compensation” (STC) programs will be provided for employers who opt to reduce employee hours rather than lay off workers. Employees with reduced hours will receive pro-rated unemployment benefits. The provision will pay 100 percent of the incurred costs to provide STC through December 31, 2020.
- Retirement Plan / S125 / HSA Relief: The plan provides tax relief to retirement plan participants impacted by COVID-19. The main provisions include:
- Allow in-service distributions to COVID-19 qualifying participants
- Remove early withdrawal penalty for COVID-19 related distributions
- Increase in loans available amount to COVID-19 qualifying participants
- Delay in loan repayments for COVID-19 participants with outstanding loans
- Permit repayment period for COVID-19 related distributions
- Suspend the tax penalty on Required Minimum Distribution (RMDs) for retirement accounts for calendar year 2020
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