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The CARES Act – Two Significant Programs for Consumers and Businesses Affected by COVID-19

The CARES Act – Two Significant Programs for Consumers and Businesses Affected by COVID-19

By: Landon Van Winkle

Since our last COVID-19 update, Congress has passed, and President Trump has signed into law, the “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act,” Pub. L. No. 116-136 (2020), which provides numerous federal programs designed to provide relief to individual consumers and businesses suffering from the economic effects of COVID-19.

The full text of the CARES Act is available for review here:

Two significant provisions of the CARES Act, the Paycheck Protection Program and Recovery Rebates for Individuals, are discussed below. We will provide additional updates on relevant COVID-19 legislation, executive action, and other resources as they develop.

To view additional information on resources available to consumers and businesses as a result of the COVID-19 pandemic, as discussed in our prior posts, click here.

Information for Businesses and Business Owners:

Paycheck Protection Program. One of the most significant provisions of the CARES Act for small businesses, the Paycheck Protection Program (the “PPP”) authorizes the United States Small Business Administration (“SBA”) to make loans to businesses with fewer than 500 employees, including self-employed individuals, in amounts up to $10,000,000.00, to cover payroll expenses, interest on mortgages, rent payments, and utility payments on a short term basis. These loans are exempt from a number of ordinary SBA loan requirements, and, under certain circumstances, the borrower is eligible for tax-free forgiveness of up to 100% of the principal amount of the loan.

  • Who is eligible?

Any business with fewer than 500 employees, including, for businesses in the accommodation and food services industry, any business with fewer than 500 employees per physical location, as well as sole proprietors, independent contractors, and certain self-employed individuals, are eligible for PPP loans. However, according to interim application forms being circulated by the SBA, the following borrowers will be ineligible for a PPP loan:

  • Any borrower that is currently a debtor in bankruptcy
  • Any borrower which has been suspended, debarred, or facing potential suspension, debarment, or ineligibility to participate in covered transactions with the federal government
  • Any borrower, including, for a business entity, any owner of 20% or more of the entity, who has previously obtained a direct or guaranteed loan from the SBA or any other federal agency which is (i) currently delinquent; or (ii) has been in default within the past 7 years; and (iii) has resulted in a loss to the government.

The currently draft application promulgated by the SBA can be viewed here:

  • How much can I borrow?

An eligible borrower may borrow the lesser of (i) an amount equal to 2.5 times the average amount of the borrower’s monthly payroll costs for the past year; or (ii) $10,000,000.00. Outstanding SBA loans may impact this amount. Further, the CARES Act appropriated only $349 billion for PPP loans, which may be quickly allocated by a flood of applications, so interested borrowers should not delay in applying.

  • Are there restrictions on how I can use the funds?

Yes. Generally speaking, proceeds from a PPP loan may be used for (i) payroll costs (with exceptions for employees earning annual salaries in excess of $100,000.00); (ii) interest (but not principal) on a mortgage; (iii) rent; (iv) utilities; and (v) interest on other debt obligations. Failure to use the proceeds of the loan for these purposes will negatively impact the borrower’s eligibility for a forgiveness of principal.

  • What standards have been relaxed?

Borrowers seeking PPP loans do not need to execute personal guarantees in connection with the loan, nor is collateral required. Affiliation rules governing other SBA loans have been waived for PPP loans. Additionally, borrowers need not show that they have been unable to obtain credit elsewhere, and fees typically charged by the SBA for other types of loans have been waived for PPP loans.

However, the lender originating your PPP loan may still charge a processing fee of up to five percent (5.0%) for loans up to $350,000.00, three percent (3.0%) for loans of more than $350,000.00 and less than $2,000,000.00, and one percent (1.0%) for loans in excess of $2,000,000.00, and an agent assisting a borrower to prepare an application for a PPP loan may also collect a fee.

  • How do I obtain forgiveness of principal?

First, a borrower must apply to their lender for forgiveness, and the final rules for this process have not yet been promulgated—the CARES Act provided for a 30-day period for the SBA to formulate regulations concerning forgiveness of PPP loans.

Nevertheless, the Act itself highlights some of the key requirements for full or partial forgiveness:

  • A borrower must submit documentation demonstrating that the proceeds of the loan were used only for approved expenses (discussed above); any portion of the loan which was not used for approved expenses is not eligible for forgiveness;
  • The approved expenses must have been paid by the borrower during the “covered period,” which is the eight (8) week period beginning on the date the PPP loan is originated—expenses paid outside this period, even if paid for approved expenses, will not be eligible for forgiveness;
  • A borrower will be eligible for 100% principal forgiveness only if it has not decreased the number of its full time equivalent employees during the course of the covered period or decreased salaries or wages of staff by more than 25% during the same time period—the Act provides for a quotient that measures employment levels of the borrower during the covered period with employment levels from prior years and reduces the amount of principal forgiven by this quotient, and a similar calculation for reductions in wages or salary. A borrower which suffered a reduction in staff or a significant reduction in paid wages will be eligible for only partial forgiveness of their PPP loan.
  • In no circumstances may the forgiveness exceed the original principal balance of the PPP loan.
  • The lender receiving an application for forgiveness of all or part of the balance of a PPP loan must issue a decision on the application within sixty (60) days of receipt of the application.
  • What if I qualify for only limited forgiveness, or no forgiveness?

PPP loans will accrue interest at the maximum rate of four percent (4.0%) per annum. Interest accrued on balances which are forgiven are paid by the SBA to the lender.  Any amount of a PPP loan that is not forgiven is still guaranteed by the SBA and must be repaid within ten (10) years from the date the borrower applies for a forgiveness of principal. Further, regardless of whether the borrower qualifies for forgiveness of all or any portion of the PPP loan, all payments (including interest, principal, and fees) are deferred for a minimum of six (6) months from the date of disbursement, and may be deferred for up to one (1) year following disbursement.

  • How do I apply? Is there an application deadline?

Applications should be submitted to participating lenders. According to the SBA, participating lenders may begin processing applications for PPP loans as early as April 3, 2020. However, given the lack of final regulations governing the forgiveness process, many lenders may be reluctant to participate, or may delay participation until final regulations, or at least interim regulations, are in place. PPP loans are only available until June 30, 2020. Further, with the limited funding provided to the program, the appropriation may be exhausted long before that date. Accordingly, interested borrowers should consult with a participating lender without delay.

Additional information on the PPP can be found here:

Information for Individuals:

Recovery Rebates for Individuals. In an effort to blunt the economic impact of prolonged closures and stay-at-home orders on individuals and families, and to assist individuals and families with needed cash to pay basic living expenses during the ongoing pandemic, the CARES Act provides for a one-time advance refund tax credit for individuals and families.

  • Who is eligible?

An eligible individual is any individual except (i) a nonresident alien; or (ii) a person who may be claimed as a dependent by another taxpayer; and (iii) an estate or trust.

  • How much will I receive?

The amount of the rebate depends on (i) your tax filing status; and (ii) your adjusted gross income (“AGI”). Individuals are eligible for a rebate of $1,200, and married couples filing jointly are eligible for a rebate of $2,400. This amount is reduced for individuals with an adjusted gross income over a certain amount and is eliminated entirely for individuals with a high enough gross income. These reductions can be summarized as follows:

Tax Filing Status Allowable AGI for full rebate
Married Filing Jointly $150,000.00 or less
Head of Household $112,500.00 or less
All others $75,000.00 or less


For individuals with an AGI in excess of this threshold, the rebate is reduced by five percent (5.0%) of the difference between the threshold AGI for that tax filer and the filer’s actual AGI. For example, a married couple filing jointly with an AGI of $180,000.00 would be eligible for only $900.00, a reduction of $1,500.00 from the base rebate for married couples filing jointly ($180,000 less $150,000 = $30,000 x 0.05 = $1,500 reduction in benefit). Similarly, if the same couple had an AGI of $198,000.00 or more, they would be ineligible for any rebate.

The amount of the rebate is increased by $500 for each eligible child of the individual entitled to the rebate. For example, a married couple filing jointly with 2 qualifying children and an AGI of less than $150,000.00 would be eligible for a total rebate of $3,400.00.

  • What do I need to do to receive a rebate?

Calculation and payment of the rebates is automatic, and no action is required for the vast majority of taxpayers. However, individuals who have not filed a tax return in recent years, even if they are not required to, have been encouraged by the IRS to file a simple return in order to provide the IRS with the information necessary to process that individual’s rebate. Additionally, the Act authorizes the IRS to direct deposit the rebate into any account in which a taxpayer authorized the deposit of a tax refund for the 2018 or 2019 tax year—if you have not filed a tax return for these years, the IRS may be forced to send you a paper check, although it is purportedly working to devise a web-based portal for such taxpayers to upload their banking information to the IRS for the purposes of receiving this rebate.

  • What if I have not filed my 2019 tax return yet?

First, the tax filing deadline for 2019 has been moved from April 15, 2020 to July 15, 2020. Filing a tax return for the 2019 tax year is not a necessary prerequisite to obtaining a rebate. If you filed a tax return in 2018, the IRS will use that information to calculate your rebate.

  • I owe outstanding taxes to the IRS—will I still receive a rebate?

The CARES Act specifically provides that these rebates are not subject to reduction, offset, or withholding by the IRS for any federal taxes that would ordinarily be subject to levy or collection. However, you should consult with a tax advisor, a tax lawyer, or an accountant to determine how these provisions apply to your particular situation.

  • When will I receive my rebate?

The CARES Act did not specify a timeline for the disbursement of these rebates; instead Congress directed the Secretary of the Treasury to disburse the rebates “as rapidly as possible.” According to the IRS, distributions of rebates should begin by mid to late April, 2020.

Additional information concerning the Recovery Rebate is available here:

This article provides general information only; it is not intended to provide legal advice and should not be relied upon as such. Transmission of this article does not create, nor is it intended to create, an attorney-client relationship. You should consult with a licensed attorney before taking any action in reliance on information provided in this article.

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