On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act—the largest stimulus package in United States history. Among other things, the legislation provides economic relief to individuals and businesses.

Jaspan Schlesinger LLP has launched a multi-disciplinary Coronavirus Response Team to assist our clients in navigating the challenges caused by the COVID-19 pandemic. Among other services, our attorneys will assist clients in interpreting the CARES Act and in pursuing benefits and relief available under it. Click here to read more about our team members.

The following is a summary of just some of the CARES Act’s most salient provisions.

Paycheck Protection Program Loans

Title I of the CARES Act expands the Small Business Administration’s (SBA) 7(a) loan program, which provides financial assistance to small businesses. The SBA is now authorized to issue $349 billion in loans to small businesses affected by the COVID-19 pandemic as part of the “paycheck protection program” (PPP). Among other things, the PPP expands the purposes for which a 7(a) loan can be used, relaxes some of the requirements for receiving such a loan, and provides for forgiveness of loan proceeds used for certain purposes.

Businesses with 500 or fewer employees (and some larger employers in certain industries) who otherwise meet eligibility requirements may obtain a “covered loan,” which can be used for payroll costs, interest on pre-existing mortgage obligations, rent, utilities and interest on other outstanding debts. Payroll costs include: salary, wages, commissions or similar compensation; payment of cash tips or equivalents; payment of vacation, parental, family, medical or sick leave; dismissal or separation payments; payments required for the provision of group health care benefits, including insurance premiums; payment of retirement benefits; and payment of state and local taxes assessed on employee compensation.

Borrowers do not have to provide personal guarantees or collateral, nor certify that they are unable to obtain credit elsewhere. Covered loans are guaranteed by the federal government. The borrower must certify that the loan will be used to retain workers, maintain payroll, and make mortgage, rent or utility payments.

Generally, the maximum loan amount is the lesser of $10,000,000 or 2.5 times the employer’s average monthly payroll costs (excluding individual salaries to the extent they exceed $100,000 per year) in the preceding twelve months.  Payments of interest, principal and fees are deferred for at least six months and no longer than one year.

PPP loans issued from February 15, 2020 to June 30, 2020 will be eligible for forgiveness in an amount equal to that spent by the borrower during the 8 weeks after the loan’s origination date on: payroll costs (excluding the compensation of any individual employee in excess of $100,000 prorated during the covered period); interest on mortgages issued prior to February 15, 2020; rent payments for leases in force prior to February 15, 2020; and utility payments for service in force prior to February 15, 2020.

The dollar amount forgiven will be reduced in proportion to the percentage difference between the average number of full-time employees per month during the covered period and either: (1) the average number of full-time employees per month from February 15, 2019 through June 30, 2019; or (2) the average number of full-time employees per month from January 1, 2020 through February 29, 2020. The borrower can choose which of these metrics should be used.

The amount forgiven will also be reduced by the dollar amount of any reduction in salary exceeding 25% for any employee whose annualized pay rate (in all pay periods in 2019) was $100,000 or less.

If, between February 15, 2020 and April 26, 2020, an employer decreases employees or salaries in a manner that would reduce its entitlement to loan forgiveness, there are steps it can take to rectify the situation. Such an employer can re-hire a sufficient number of employees and/or eliminate the offending reductions in compensation by June 30, 2020 in order to restore its entitlement to the maximum amount of loan forgiveness.

To the extent a PPP loan is forgiven, the amount of the forgiveness will not be included in the borrower’s gross income for tax purposes.

Any portion of the loan not forgiven would have a maximum term of 10 years, and an interest rate capped at 4%. There is no pre-payment penalty.

Assistance for Individuals and Businesses

Title II of the CARES Act provides monetary relief for individuals. It provides for $1,200 refundable tax credits for individuals and $2,400 for joint taxpayers, in addition to $500 for each dependent child, subject to certain income limitations.

It also permits individuals to withdraw up to $100,000 from qualified retirement plans for “coronavirus-related” reasons, and waives the 10% penalty ordinarily associated with such withdrawals by persons younger than 59 ½ years old. “Coronavirus-related” reasons include the diagnosis of the plan participant or his/her spouse with COVID-19, or adverse financial consequences resulting from the plan participant’s quarantine, furlough, lay-off or reduction in work hours due to COVID-19, the plan participant’s inability to work due to a lack of child care resulting from the virus, or the closing or reduction in hours of a business owned or operated by the plan participant for such reason.

Withdrawals under this provision are not subject to tax if repaid within three years. If not repaid, individuals are permitted to report the amount of the withdrawal ratably over three years in order to defer some of the tax liability.

Title II also provides for the delay of estimated tax payments for corporations in certain circumstances. It also provides for the deferral of 50% of certain employer payroll taxes until December 31, 2021, and deferral of the remaining 50% until December 31, 2022.

Through December 31, 2020, employers may also provide employees with a student loan repayment benefit of up to $5,250 annually, that can be used for principal and interest. Such disbursements are not taxable to the employee.

The CARES Act also allows some businesses to take net operating losses (NOLs) earned in 2018, 2019 or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is suspended.


These are just some of the benefits provided under the CARES Act. We will continue to provide updates as our attorneys digest this massive piece of legislation.

If you have questions or we can be of assistance, contact any member of our Coronavirus Response Team.