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.
EMPLOYER RETENTION CREDIT
As an alternative to the Paycheck Protection Program, which was depleted in a matter of days only to be replenished on April 23, when Congress pumped $310 billion into the program, 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 in the previous 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 any business taking advantage of the Employer Tax Credit should consult its accountant or tax advisor.
An employer who qualifies for loan forgiveness under a Payroll Protection Program loan is ineligible for the Employer Retention Credit.
The Credit is based on qualified wages paid. "Qualified wages" for employers with more than 100 employees are all wages paid to those employees who are being paid not to work. For employers with 100 or fewer employees qualified wages are defined as wages paid to all employees regardless of whether they worked or not. Qualified wages also include contributions to health insurance costs, up to to the $10,000 cap, exclusive of amounts already received as tax credit.
To simplify the process, no application is needed and employers simply take the credit which, for most employers, is reported on Form 941. An added benefit is that the credit is immediately reimbursable to the business by allowing employers to reduce their required deposits of payroll taxes withheld from employees paychecks to the amount of the credit.
EMPLOYER PAYROLL TAX DEFERRAL
The Employer Tax Deferral is another alternative to the Paycheck Protection Program as employers who receive PPP loans and qualify for loan forgiveness are not eligible for the tax deferral once the loan is forgiven.
Without penalty employers can defer the deposit and payment of applicable employment taxes due for the remainder of the year. Fifty percent (50%) of the deferred taxes must be paid by December 31, 2021 and the remainder must be paid by December 31, 2022. Applicable employment taxes subject to deferral include the employer's portion of the social security tax from March 27, to December 31, 2020.
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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