On March 27th, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act which provides businesses and people who have been impacted by COVID-19 with various forms of financial relief.

Many of the provisions directly and indirectly impact businesses, especially payroll teams, so it’s important for organizations to understand how they may need to adapt to take advantage of some of the relief packages and regulatory changes included in the act. 

As always with any of our posts, this article does not provide any legal or financial guidance or advice. We always recommend organizations seek out counsel to understand if or how their organization may take advantage of or be impacted by the CARES act. 

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1. Payroll tax deferment

What is it?

Some organizations will be able to defer the payment of the employer’s share of social security taxes owed for 2020 over the next two years.

Who's eligible for the deferment?

Most organizations could be eligible and can delay their payroll tax payments. However, organizations that take advantage of a Paycheck Protection loan program, which we'll talk about later, will not be eligible for the deferment. 

How does it work?

Organizations should not remit their share of the social security tax as they normally would if they want to take advantage of the deferment. The IRS is expected to issue a revised Form 941 to be able to track organizations that choose to take advantage of it. 

Deferred payments are due over two years. Half of the amount owed must be paid by the end of 2021 and the remaining half must be paid by the end of 2022.

You can learn more about payroll tax deferment on the IRS website.

2. Employee retention tax credit

What is it?

Eligible organizations can receive a refundable 50 percent tax credit on wages – up to $10,000 per employee – on wages and the employer portion of health benefits paid from March 13th, 2020 through December 31st, 2020.

Who's eligible?

Any organization is eligible regardless of their size if they meet one of the following criteria:

  • Operations were fully or partially suspended due to a COVID-19 government order
  • Gross receipts are below 50 percent compared to the same quarter in 2019

Organizations with more than 100 full-time employees who are being paid but not working or providing service can be counted towards the credit, while organizations with fewer than 100 full-time employees can include all employees, regardless of whether they’re working or providing service.

How does it work?

Organizations receive the tax credit by reducing their portion of payroll taxes. As mentioned earlier, the IRS is expected to revised Form 941, and those changes should accommodate this credit as well as the tax deferment we already discussed.

If the payroll tax reduction doesn’t cover the full credit that an organization should receive, they should complete Form 7200 to receive an advance payment from the IRS.

Important note: if an employee is included in this tax credit, the organization can’t include them in Work Opportunity Tax Credit (WOTC) or Section 45S credit (paid FMLA) claims for the same period.

Learn more about the employee retention tax credit on the IRS website.

3. Paycheck Protection Program (PPP) for small businesses

What is it?

The CARES Act enables small businesses to obtain loans through a new $349 billion Paycheck Protection Program (PPP) that will be overseen by the Small Business Administration (SBA). The loans can be used to cover payroll, healthcare costs, mortgage interest payments, rent, utilities, and debt payments. The payroll cost for an employee can’t exceed $33,333 over a 4-month period.

The total amount of the loan is 2.5 times the business’s monthly operating costs, and salaries are capped at $100,00 per employee. Loans under this program can also be forgiven if certain criteria are met.

Who's eligible?

Any organization that has fewer than 500 employees, was in operation on February 15th, 2020, and has paid employee salaries and payroll taxes is eligible to receive a loan.

An organization is not eligible to receive the loans if they are already receiving an Economic Injury Disaster Loan (EIDL) for the same purpose (i.e. for payroll, healthcare costs, mortgage/rent, etc.).

How does it work?

Organizations can apply for the loan starting on April 3rd, 2020 through their banks and other lenders, and loans are available through June 30th, 2020. Organizations will need to provide documentation of payroll costs to get a loan, which may include:

  • 2019 IRS Quarterly 940, 941, or 944 payroll tax reports
  • Payroll reports for the twelve months of 2019 that show the following information for each employee:
    • Gross wages
    • Paid time off and vacation pay
    • Family medical leave pay
    • State and local taxes assessed on an employee's compensation
  • All health insurance premiums paid by the organization for all employees under a group health plan for 2019
  • All retirement plan funding that was paid by the company

Loans under the program are eligible for forgiveness up to the total amount of payroll, healthcare, mortgage interest, rent, and utility payments made during the eight-week period following loan origination. If loans are used for other expenses, that portion of the loan will not be forgiven, so it’s important to document what the loan ends up being used for.

If an organization lays off employees during the covered period, the amount forgiven will be reduced proportionally. However, if all employees are rehired and their full salaries are restored by June 30th, 2020 the loan will not be reduced.

For example, if a small business reduces a quarter of their workforce, the amount of the loan would be reduced by 25 percent. Additionally, if employee salaries are reduced by more than 25 percent, the loan would be reduced proportionally. 

Learn more about PPP loans on the SBA’s site.

4. Student loan automatic payment suspension

What is it?

The federal government has suspended automatic collections on federal student loans, including loans that are collected via involuntary deduction (aka wage garnishment) through September 30th, 2020.

Who's eligible?

Any employees with federal student loans, including employees with wage garnishments to collect repayment on federal student loans, are eligible for this suspension. However, this does not apply to private student loans or those covered under the Federal Family Education Loan (FFEL) program.

How does it work?

Federal student loans will adjust their next payment due date to after September 30th, 2020. 

For employers, it’s important to know that according to the Department of Education, employers will be responsible for removing the involuntary deductions for federal student loans from employee paychecks

Because of this, it’s important for organizations to review employee garnishments to understand who may be impacted, reach out to employees to notify them of this new regulation, and adjust their paycheck deductions as necessary.

Learn more about the student loan payment suspension on the US Department of Education site.

Conclusion: Make sure you’re on top of the latest regulatory changes 

Staying on top of changing regulations is always a challenge, especially in particularly volatile times – which is why we’re doing our best to keep you updated. Keeping track of things like the CARES Act not only helps protect your organization, they also in some cases give you and your payroll team a chance to help make a real difference for colleagues who may be struggling due to the current situation. 

If you need more tips on how you can manage through this time of uncertainty and help your organization adjust to this unprecedented disruption, please feel free to visit our resource page.

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Published: Monday, April 6, 2020