Federal Action Including the Coronavirus Aid, Relief, and Economic Security Act
From Navigating COVID-19
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The federal government has been acting swiftly since the health crisis began, and a lot of legislation has been passed in haste. Not all of it falls within the scope of this guide, and much of it pertaining to employers in California primarily is about financial matters. We advise businesses to become familiar with all available federal remedies and to review them daily. Every employer should have accountants and financial advisers to walk them through the details of the law and guide them during a chaotic and uncertain time. This section and the next three introduce readers to some of the most significant federal legislation.
EMPLOYEE RETENTION CREDIT
There's an alternative to the Paycheck Protection Program (discussed in a later section), which is an initiative of the CARES Act that enables small businesses to cover certain payroll and other costs. Its funds were depleted in a matter of days, so Congress pumped another $310 billion into the program on April 23. Employers whose operations are fully or partially suspended during the COVID-19 pandemic, or whose quarterly receipts dropped by more than 50% compared with the same quarter last year, may receive a refundable payroll tax credit for 50% of wages (up to $10,000 per employee) paid during each calendar quarter during the COVID-19 pandemic. As with all provisions of the CARES Act, tax credits and deferrals are complicated, and businesses that take advantage of the tax credit should consult their accountant or tax adviser.
Employers that qualify for loan forgiveness under a Paycheck Protection Program loan are ineligible for the employee retention credit.
The credit is based on qualified wages paid. For employers with more than 100 employees, "qualified wages" are all wages to employees who are being paid not to work. For employers with 100 or fewer employees, qualified wages are those paid to all employees regardless of whether they worked or not. Such wages also include contributions to health insurance costs, up to to the $10,000 cap, exclusive of amounts already received as a tax credit.
Happily, employers needn't apply –– they simply take the credit which, for most employers, is reported on Form 941. Businesses are reimbursed immediately, because employers reduce their required deposits of payroll taxes withheld from employees' paychecks by the credit amount.
EMPLOYER PAYROLL TAX DEFERRAL
Employer tax deferral is another alternative to the Paycheck Protection Program. Employers who receive PPP loans and qualify for loan forgiveness are not eligible for the tax deferral once the loan is forgiven.
Under this program, employers may defer the deposit and payment of applicable employment taxes due for the remainder of the year without penalty. Fifty percent of the deferred taxes must be paid by Dec. 31, 2021, and the balance by Dec. 31, 2022. Employment taxes subject to deferral include the employer's portion of the Social Security tax due from March 27 to Dec. 31, 2020.
MAIN STREET LENDING PROGRAM
The Main Street Lending Program was established to provide loans to small- and medium-sized businesses that were financially sound prior to the coronavirus pandemic. The lending program has two branches –– the Main Street Lending Facility and the Main Street Expanded Loan Facility. The program is expected to offer loans from $1 million to $150 million to businesses with as many as 10,000 employees or $2.5 million in revenue.
The lending program is run by the Federal Reserve and is considered an alternative to the programs available through the Coronavirus Aid, Relief, and Economic Security Act. Business owners who did not receive a loan under the CARES Act should monitor the availability of the loans under this program, and apply when they become available. Businesses should consult with their banking and financial consultants for more information about this program.
FUNDING FOR PROGRAMS
States, like California, that have or will implement certain work sharing programs for employees are eligible to receive additional funding. Under such programs, employers reduce the average hours of current employees across the board rather than impose layoffs or furloughs. The employees receive prorated unemployment benefits known as Short-Time Compensation (STC) benefits. The federal government will reimburse participating states 100% of the STC paid under a state’s existing work sharing program, through Dec. 31, 2020.
Review California's work sharing program at https://www.edd.ca.gov/unemployment/Work_Sharing_Program.htm.
THE CARES ACT
The Coronavirus Aid, Relief, and Economic Security (CARES) Act primarily is intended to provide benefits and relief for small business owners (fewer than 500 employees) and employees eligible for unemployment insurance benefits. The three main provisions of the CARES Act and associated federal legislation are discussed in the next sections of this guide. They are:
- federal supplement to each state's unemployment insurance benefits system (UI) to provide an extra $600 per week to all employees receiving any UI;
- Paycheck Protection Program (PPP) to provide loans to small businesses of 250% of their monthly payroll, up to $10 million (fully forgivable if the funding is spent on payroll and rent in the two months following funding; otherwise there's a six-month grace period, and the loan is repayable over 10 years at maximum 4% interest); and
- small business emergency loans and grants for as much as $2 million to be used only where the coronavirus has a demonstrated negative effect on the business. It has been overshadowed by the PPP, as the loans/grants cannot be in addition to one another.
These provisions have greatly taxed the resources of the SBA, banks and the state's Employment Development Department. Funding limit pressure is intense and access is difficult. The conception and administration of these measures has been contentious.
For a full text of the CARES Act see https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf (PDF).
For additional guidance see https://home.treasury.gov/policy-issues/cares.
- Federal and California Worker Adjustment and Retraining Notification Acts
- Federal Health and Safety Orders: Centers for Disease Control and Prevention Guidance
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