Congress recently passed and President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27, 2020. The Act contains a multitude of provisions on a number of different topics. Pharmacists Mutual is providing this summary to help you implement the requirements under the Act. Since every business has unique circumstances, this Alert is for general information and is not intended to provide legal or tax advice. Due to the complexities of the law, members are encouraged to contact their attorney and/or tax advisor for specific advice on requirements and limitations of the provisions.
High-Level List of Provisions
- Paycheck Protection Program - $349 billion forgivable loan program for small businesses that works through the expansion of Small Business Act eligibility and Emergency Economic Injury Disaster Loans.
- Assistance for American workers, families, and business through changes, among others, to unemployment insurance, loans and minimum distributions from qualified retirement plans, tax credits, employee retention credits for employers, deferral of payment of employment taxes, and modification of the limitation on business interest deductions.
- Changes to our health care system regulations to mitigate drug and device shortages through changes in the approval process and requiring manufacturers to develop plans to address shortages.
- Improve access to health care for COVID-19 patients through changes in health plans and limiting liability for volunteering health care professionals. There are also provisions that amend Medicare regulations to increase access to telehealth services and prescription refills under Part D.
- Assistance for severely impacted sections of the economy through a loan program available to businesses not eligible for loans under other provisions of the Act.
Next, we will take a more in-depth look at some of the provisions that affect you as a business owner. The sheer length of the Act prohibits exploration of every detail of every provision, but it should alert you to some of the provisions for further exploration.
Small Business Loans
The Paycheck Protection Loan program expands the eligibility of businesses with no more than 500 employees to apply for loans under the Small Business Act. It raises the maximum amount of the loan to 2.5 times the business's average monthly payroll with a maximum interest rate of 4%. The proceeds of the loan may be used to pay employee compensation, payroll costs, costs to continue health care benefits (up to $100,000 per employee for these three expenses), mortgage interest, rent, utilities, and interest on debt incurred prior to the covered period of February 15 to June 30, 2020.
The provision also waives some of the personal guaranty and collateral requirements to qualify for a loan. An important provision is that some of the loan principal is eligible to be forgiven. The amount eligible to be forgiven is the amount spent during an eight week period after the loan is granted for the business items listed above. The amount of the loan to be forgiven can be affected by the incentives to retain employees and re-hire employees that are contained in the provision.
This section of the Act also expands eligibility for Emergency Economic Injury Disaster Loans (EIDL). These loans are directed to businesses operating as sole proprietors, cooperatives, ESOPs, and tribal small business concerns. Applicants for EIDLs may ask for an advance of $10,000 within three days after their application is received by the Administrator. These proceeds can be used for the same purposes as the small business loans above. The $10,000 advance is not subject to repayment, even if the loan is later denied.
Eligible individuals will receive direct payments from the Treasury Department under Assistance for American workers, families, and businesses. Payments on student loans that are held by the Department of Education are suspended for six months. Involuntary collection activities on these loans are also suspended during this period.
Employers need to be aware of changes to retirement plans that will benefit employees. Employees may withdraw a total of $100,000 from eligible retirement plans without incurring the 10% tax penalty. The loan limit on qualified retirement plans is also raised from $50,000 to $100,000. Any required Minimum Distributions due to be made in 2020 are waived for qualified retirement plans.
Employer Tax Benefits
For employers, there are also a number of tax changes here. Employers can receive credit against applicable employment taxes if their business is fully or partially suspended due to a government order related to COVID-19. The credit is available for each calendar quarter after December 31, 2019, in which receipts are at least 50% less than the same quarter the prior year. The credit is equal to 50% of qualified wages for each employee. This credit is not available if the employer is taking advantage of the Small Business interruption loans above.
The Act also allows for an employer to defer payment of the employer's share of applicable employment taxes from March 27, 2020, until December 31, 2020. The first half of these taxes are payable before December 31, 2021, and the second half are payable by December 31, 2022.
There are a number of changes to income and credit calculations for tax returns. These include modifications for Net Operating Losses and modifications of credit for prior year minimum tax liability for corporations. An important modification that could affect most any business is an increase in the limitation of deductible business expenses from 30% to 50% of eligible expenses for 2019 and 2020.
Changes to Health Care Plans
Access to health care for COVID-19 patients is improved by allowing health plans and insurers to cover and reimburse providers for diagnostic COVID-19 testing. Health plans are also required to provide rapid coverage for qualifying coronavirus preventative services. The Act also permits High Deductible Health Plans (HDHP) to waive deductibles for telehealth and other remote care services and still qualify as an HDHP. There are also changes to the Public Health Service Act grants for telehealth and rural health care programs.
Limitations on Liability for Volunteers
As a way to incentivize health care professionals to respond to the crisis, the Act limits state and Federal liability for volunteer health care professionals for harm to patients related to diagnosis, prevention, and treatment of COVID-19.
There are also some changes to Medicare and Medicaid contained in the Act. The Secretary can waive some portions of the Social Security Act for telehealth services furnished during the emergency period in an emergency area. The Act also allows Part D enrollees to obtain a single refill of their prescription or the total days supply prescribed for a covered Part D drug.
Other Business Loans
The Act also provides another category of loans for eligible businesses that do not qualify for any other type of loan pursuant to this Act. These are businesses that employ between 500 and 10,000 employees. There are limitations on dividends, stock repurchases, and caps on employee compensation. These loans are available only for U.S. based companies.
If any of these provisions appear to apply to your business, consult your attorney and/or tax advisor to get more details about requirements and limitations.