CARES Act: Implications for Businesses

COVID-19 Update

Date: March 28, 2020

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a roughly $2 trillion coronavirus response bill signed into law yesterday, is intended to provide widespread emergency relief for Americans and the country’s economy. In addition to its benefits for individuals, the bill provides aid for small businesses, large corporations, hospitals and public health agencies, and state and local governments. Among its provisions for small businesses are emergency grants and a forgivable loan program for companies with 500 or fewer employees, along with revised rules for expenses and deductions designed to help companies keep employees on the payroll and remain open during the crisis. Large corporations stand to benefit from approximately $500 billion in loans and other funding repayable to the government and subject to public disclosures and other requirements. Community and private health systems will receive help to enable them to better respond to the increasing demands they face. Provisions for state and local governments include direct aid to bolster cash reserves depleted by COVID-19 response efforts, along with Community Development Block Grants, school funding and money for programs for children and families. In this bulletin, we summarize some of the key provisions for businesses.

Paycheck Protection Program (PPP)

Pursuant to the PPP, and under Section 7(a) of the Small Business Act, Congress has allocated $349 billion for the Small Business Administration (SBA), through private lenders, to administer loans of up to $10 million to assist employers that maintain their payroll between February 15 and June 30, 2020 (referred to as the “covered period”). Some or all of a loan is forgivable if certain criteria are met.

Eligible employers must have been operational with employees on February 15, 2020, and include:

  • Businesses, nonprofits and others that have fewer than 500 employees or, where applicable, fewer than the SBA’s size standards for employees for certain industries.
  • Under the PPP, new size rules apply for employers that are in the Food and Accommodation sector (NAICS codes beginning with 72), are franchisees, or have received financial assistance from a SBIC-licensed small venture investment company.
  • Venture-backed emerging companies and startups must look to the “affiliation” rules set forth by section 121.103 of title, Code of Federal Regulations to determine their “employee” count for PPP loan eligibility purposes.
  • Sole proprietors and independent contractors.

Loan terms include:

  • Loan availability period: Date of CARES Act enactment to June 30, 2020.
  • Available loan amount: 2.5x average monthly compensation costs (as defined) during the prior 12 months, up to a maximum of $10 million; special rules apply for independent contractors.
  • Interest rate: Not to exceed 4%.
  • Permitted uses of loan proceeds: Compensation costs (as defined), rent, utilities and interest on a mortgage or other pre-existing debt; certain uses are specifically prohibited.
  • No personal guaranty or collateral: No personal guarantee or collateral is required.


  • The amount used during the eight-week period after the loan is made is forgiven if the employer maintains its number of full-time equivalent employees (FTEs).
  • Forgiveness is reduced in proportion to any reduction in FTEs or if compensation decreases by more than 25% as compared to a look-back period.

The amount of forgiveness is not included in the employer’s taxable income.

For additional details, please contact Frank D. Chaiken or Riccardo M. DeBari.

Impact on International Trade

The CARES Act expands State Trade Expansion Program (STEP) subsidies to states to assist small businesses in their export sales and sales in their states. Under the current STEP in the Small Business Act, 15 U.S.C. § 649(l), state entities may receive grants for up to two years for carrying out programs to assist eligible small business concerns in exploring significant new trade opportunities (including participation in foreign trade missions, a subscription to services provided by the Department of Commerce, the payment of website fees, the design of market media, a trade show exhibition, participation in training workshops, a reverse trade mission, procurement of consultancy services, and any other initiative deemed appropriate). Section 1104 of the CARES Act (1) extends the period of a STEP grant to a state available for fiscal year 2018 or fiscal year 2019 to continue through the end of fiscal year 2021, and (2) allows for reimbursement to the state for financial losses relating to a foreign trade mission or a trade show exhibition that was cancelled solely due to a public health emergency declared due to COVID–19 if the reimbursement does not exceed a recipient’s grant funding.

The CARES Act also sets forth domestic presence requirements for any eligible business to receive funds from the $500 billion in emergency relief under Section 4003. This applies to both

  • direct lending up to $46 billion to eligible passenger and cargo air carriers and other eligible businesses critical to maintain national security available under Section 4003 (b)(1), (2), and (3), and
  • the remaining $454 billion and any amounts not used for direct lending that are used for lending facilities pursuant to Section 13(3) of the Federal Reserve Act, which is targeted to larger nonprofit organizations and businesses having between 500 and 10,000 employees.

The eligible business, among other conditions, must be organized under the laws of one of the United States and have significant operations in and a majority of its employees based in the United States. In addition to this requirement, for an eligible business to receive the Section 13(3) lending, it must certify, inter alia, that it is domiciled in the United States with significant operations and employees located in the United States and that it will not outsource or offshore jobs for the term of the loan and an additional two years after that.

For additional details, please contact Michelle Li.

Loan and Bankruptcy Provisions
Loans to Eligible Businesses

The CARES Act sets aside $454 billion for programs and facilities established by the Federal Reserve for businesses that have not otherwise received adequate relief through the CARES Act as well as for states and municipalities and will be administered through the U.S. Treasury’s Exchange Fund.

  • Importantly, the program is subject to Section 13(3) of the Federal Reserve Act, which imposes collateralization, taxpayer protection and borrower solvency standards.
  • Loans are available only to U.S. companies.
  • A company must certify that it has significant operations in the United States.
  • A company must certify that the majority of its employees are based in the United States.
  • Loans and loan guarantees made to certain specified industries such as airline carriers and businesses that are critical to maintain national security are subject to certain restrictions described below in the paragraph titled “Air” under Transportation Industry Assistance.
  • Companies outside the specified industries may obtain loans under other Federal Reserve lending programs. These loans may be subject to prohibitions against stock buybacks and dividend payments, limits on executive compensation during the term of the loan plus one year and may not be forgiven. The Secretary of the Treasury is able to waive these restrictions, however, by providing testimony to Congress that such waiver would be in the interests of the government.
  • The Treasury Secretary can set up a program for midsized businesses (with between 500 and 10,000 employees), including nonprofit organizations, that provides more flexibility on payments and interest rates but attaches somewhat different restrictions from the other programs summarized above.
  • The Federal Reserve also has authority to set up a Main Street Lending Program to lend to small and midsized businesses on terms consistent with the Federal Reserve Act.
  • It is anticipated that the program will be up and running in 10 days to two weeks; FAQs are expected in one week.

Companies with up to $7.5 million in debt may take advantage of streamlined Chapter 11 bankruptcy processes recently enacted through the Small Business Reorganization Act as Subchapter V of the Bankruptcy Code.

Regulatory Relief

Certain transactions will be exempt from the OCC lending limits until December 31, 2020, or the termination of the national emergency declaration related to COVID-19 if the exemption is in the public’s best interest.

For additional details, please contact Katherine D. Brandt, Tarnetta Jones or Curtis L. Tuggle.

Leave and Unemployment Insurance
Paid Employee Leave

The CARES Act amends the Families First Coronavirus Response Act (FFCRA) to make clear that (1) paid emergency family and medical leave is capped at $200 per day and $10,000 in the aggregate for each eligible employee; and (2) paid sick leave is capped at either $511 per day/$5,110 in the aggregate, or $200 per day/$2,000 in the aggregate, for each eligible employee, depending on the circumstance necessitating such leave.

It expands the definition of “eligible employee” under the FFCRA’s emergency family and medical leave provisions to include any employee laid off on or after March 1, 2020, and subsequently rehired by the employer, so long as the employee worked for the employer for at least 30 of the last 60 days prior to being laid off.

Unemployment Insurance

The CARES Act enables certain individuals not traditionally eligible for unemployment benefits to qualify if they are unable to work as a result of the COVID-19 public health emergency and provides additional unemployment benefits beyond what may normally be available through the respective state unemployment offices.

For additional details, please contact M. Scott Young.

Relief for Individuals, Small Businesses and Charities

The CARES Act provides for “stimulus payments” to certain U.S. citizen and resident individuals in 2020 equal to:

  • $1,200 ($2,400 if married filing jointly), plus $500 per dependent child. The rebate is reduced gradually for persons with adjusted gross income in excess of $75,000 (single), $112,500 (head of household), or $150,000 (married filing jointly).

It also provides special relief related to certain retirement accounts (see the Employee Benefits Provisions section below for information on the impact on employers and plan administrators):

  • Waives the 10% early withdrawal penalty for distributions to participants of any age of up to $100,000 during the year from qualified plans for COVID-19-related purposes (e.g., financial consequences from reduced income or business closure, family member receives positive diagnosis). The early withdrawal amount is taxable income but may be spread over a three-year period (and tax may be avoided if the amount is repaid).
  • Increases permissible loan amount from qualified plans – lesser of $100,000 or 100% of vested benefit; delays certain existing loan repayment deadlines in 2020.
  • Required minimum distributions from certain defined contribution plans (including but not limited to 401(k) plans, 403(b) plans, and governmental employer plans) and IRAs are waived in 2020.

The CARES Act also expands taxpayer charitable contribution rules:

  • Cash contributions of up to $300 are deductible “above the line” (no requirement to itemize).
  • 2020 cash contributions are deductible (i) by an individual (other than to a donor advised fund or supporting organization) up to 100% of adjusted gross income, and (ii) by a corporation up to 25% of taxable income. Individuals (including with respect to allocations made to an individual as a partner, member or shareholder of a pass-through entity) and corporations must elect to apply these deduction thresholds.

Note: Individuals age 70½ or older can transfer up to $100,000 annually from their IRA to charity – a “qualified charitable distribution.” The distribution can reduce the individual’s required minimum distribution for the year, but is not included in adjusted gross income, i.e., a pre-tax charitable donation. Under the SECURE Act of 2019, an employed individual over age 70½ can now contribute to their traditional IRA, but such contributions will reduce dollar-for-dollar the qualified charitable distributions the individual can make from their traditional IRA in 2020 and in future years. The CARES Act does not modify these provisions of the SECURE Act.

The CARES Act also provides $350 billion in available funds to guarantee loans made to certain small businesses with fewer than 500 employees, hotels/motels, restaurants and service franchises with 500 or fewer employees at each physical location, sole proprietors, independent contractors, and nonprofit entities (501(c)(3) nonprofits, 501(c)(9) veteran’s organizations, Tribal businesses). See the Paycheck Protection Program section above for details on loan qualifications, limitations and terms.

For additional details, please contact Mark A. Conway.

Employee Benefits Provisions

The CARES Act includes a number of provisions impacting employee benefits and employer sponsors of employee plans, including COVID-19-related distributions from retirement plans, delayed due dates for certain retirement plan loan repayments, waivers of defined contribution plan and IRA required minimum distributions for the 2020 calendar year, and funding relief to sponsors of single-employer defined benefit pension plans. With respect to health plans, the CARES Act expands coverage for COVID-19 diagnostic testing, accelerates the timeline for covering newly recommended COVID-19-related preventive care, allows high deductible health plans to provide first-dollar coverage of telehealth services, and allows the use of various health care spending or reimbursement accounts to purchase over-the-counter medicines and feminine care products without a prescription. Finally, the CARES Act permits employers to provide up to $5,250 in tax-qualified student loan repayment benefits to employees under a Section 127 Education Assistance Program. For more information on these provisions, see our previous client bulletin.

For additional details, please contact David Whaley.

Tax Implications
Payroll Tax Deferrals and Employee Retention Tax Credit for Employers Subject to Closure by COVID-19 and Related Orders

The CARES Act provides a quarterly refundable payroll tax credit equal to 50% of qualified wages paid to employees during the COVID-19 crisis by employers that were carrying on a trade or business in 2020, where the employer’s (1) operations were fully or partially suspended due to a COVID-19-related shutdown order or (2) gross receipts declined by more than 50% when compared to the same quarter in the previous year. The credit is provided for the first $10,000 in compensation (i.e., up to a $5,000 tax credit), including health benefits, paid to an eligible employee, and is provided for wages paid or incurred after March 12, 2020, through the end of the year. This payroll tax credit is available to tax-exempt organizations described in Section 501(c) of the Internal Revenue Code. An employer cannot take this payroll tax credit if it receives a PPP loan (see the Paycheck Protection Program section above).

  • For employers with more than 100 full-time employees (based on the average number of full-time employees in 2019), “qualified wages” are wages paid to employees when they are not working due to either (1) or (2) above.
  • For employers with 100 or fewer full-time employees (based on the average number of full-time employees in 2019), all employee wages qualify for this credit, whether or not the employee is able to work during the quarterly period with circumstances described in either (1) or (2) above.

The CARES Act allows employers to defer payment of the 6.2% employer share of the Social Security tax payable through December 31, 2020, and requires that the deferred payroll tax be paid over the following two years, with half of the tax amount required to be paid by December 31, 2021, and the other half by December 31, 2022. An employer may not defer payroll tax if it received forgiveness of a PPP loan.

Failure to deposit penalties are waived for an employer that fails to deposit payroll taxes due to reasonable anticipation of a payroll tax credit under the CARES Act.

The CARES Act allows employers to receive an advance payroll tax credit on qualified wages paid with regard to its retention tax credit provisions and on paid leave provided under the FFCRA instead of receiving a refund after filing a quarterly payroll tax return; it also creates regulatory authority to implement the tax credit advances.

Other Business Tax Provisions

Net operating losses (NOLs) from 2018, 2019 or 2020 may now be carried back five years. NOLs from tax years beginning after 2017 and ending before January 1, 2021, may fully offset taxable income.

The CARES Act removes limitations on excess business losses applicable to non-corporate businesses such as pass-through businesses and sole proprietorships for tax years ending before January 1, 2021.

Corporations may elect to immediately claim unused AMT credits that had been repealed by the Tax Cuts and Jobs Act. These credits are refundable.

The business interest deduction limitation is increased to 50% of taxable income for tax years beginning in 2019 and 2020. Special rules apply to suspend interest disallowed at the partnership level and passed through to the partners unless the partnership elects out.

Qualified improvement property is now eligible for 100% bonus depreciation. This provision is also known as the “retail glitch fix” and corrects a typo from the 2017 Tax Cuts and Jobs Act that required businesses, especially in the hospitality industry, to depreciate the cost of these improvements over 39 years. Restaurants and retailers may now take an immediate full income tax deduction for the cost of those improvements and may amend tax returns for prior years since enactment of the 2017 Tax Cuts and Jobs Act to take the bonus depreciation for qualified improvement costs in those years.

The CARES Act suspends the excise tax on alcohol used to produce hand sanitizer for production beginning after December 31, 2019, and ending before January 1, 2021.

For additional details, please contact Alexis J. Kim.

Removing the Cap on OTA for Public Health Emergencies

Section 3301 of the CARES Act, “Removing the Cap on OTA for Public Health Emergencies,” requires the Secretary of the Department of Health and Human Services to use competitive procedures to the greatest extent possible during a public health emergency when entering into transactions for projects administered by the Biomedical Advanced Research and Development Authority. The act also relieves the agency of the requirement to issue a written determination for transactions that exceed $100 million under the agency’s other transaction authority (OTA), which provides the agency a more flexible approach to partnering with industry to develop countermeasures to the public health emergency.

For additional details, please contact Francis E. (Chip) Purcell, Jr.

Transportation Industry Assistance

The CARES Act provides multiple financial measures to assist the aviation industry, which has suffered significant losses as a result of COVID-19. These measures include:

  • Passenger air transportation funding:
    • $25 billion in loans and loan guarantees for passenger air carriers (including Parts 121 and 135), certain aircraft maintenance providers, and aviation ticket agents.
    • $25 billion in payroll grants for passenger air carriers.
    • $3 billion for passenger air carrier contractors.
  • Cargo air transportation funding:
    • $4 billion in loans and loan guarantees for cargo air carriers.
    • $4 billion in payroll grants for cargo air carriers.
  • National security business funding:
    • $17 billion in loans and loan guarantees for business critical to maintaining national security.
  • Aviation excise tax suspension:
    • Until January 1, 2021, excise taxes on air transportation and certain jet fuel taxes are suspended.
  • Additional airport funding:
    • $10 billion in additional Grants-In-Aid for Airports funding.

The loans, loan guarantees and grants are subject to multiple conditions, including restrictions on stock buybacks and dividends, restrictions on workforce or benefit reductions, requirements to provide the government with an ownership interest in the recipient’s business, executive compensation limits, and a requirement applicable to passenger air carriers to provide continued air service to certain communities.


Although the CARES Act does not provide dedicated assistance to the trucking industry, it provides general business assistance that may apply to trucking businesses. For example, it provides $454 billion for emergency lending to businesses, states and municipalities under Federal Reserve programs (see the Loan and Bankruptcy Provisions section above). It also provides $349 billion for lending to small businesses (see the Paycheck Protection Program section above).

For additional details, please contact Jason D. Tutrone.

Single-Family and Multifamily Housing Relief

Under the CARES Act, borrowers may request forbearance on enforcement of federally backed mortgage loans secured by one to four family properties, retroactive to March 13, 2020. The borrower must submit a request to its loan servicer and affirm that it is experiencing financial hardship directly or indirectly from the COVID-19 emergency. No additional documentation is required. Upon receipt of the borrower’s request, the servicer will grant forbearance for a period of 180 days.

For multifamily housing properties that are encumbered by a federally backed mortgage, effective starting on the date of passage of the CARES Act and until the earlier of the termination of the national emergency declaration relating to COVID-19 or December 31, 2020, the owner/borrower may submit a request to the servicer requesting forbearance due to financial hardship experienced directly or indirectly due to COVID-19. Relatedly, during a period of forbearance, no borrower shall (a) file any action in court to recover possession of the premises from the tenant for nonpayment of rent or other fees or charges; or (b) charge fees, penalties or other charges to the tenant related to such nonpayment of rent.

For properties occupied by at least one residential tenant (with or without a written lease) that are encumbered by a federally backed mortgage, or are insured, guaranteed or assisted by certain other federal programs, effective starting the date of passage of the CARES Act and ending 120 days thereafter, a landlord is prohibited from (a) filing any action in court to recover possession of the premises from the tenant for nonpayment of rent or other fees or charges; or (b) charging any fees, penalties or other charges to the tenant related to such nonpayment of rent.

For additional details, please contact Patrick Abell.


For more information on these and other provisions in the CARES Act, please contact your primary Thompson Hine lawyer or:

Patrick Abell

Jeffrey R. Appelbaum

Katherine D. Brandt

Frank D. Chaiken

Mark A. Conway

Riccardo M. DeBari

Tarnetta Jones

Alexis J. Kim

Michelle Li

Francis E. (Chip) Purcell, Jr.

Curtis L. Tuggle

Roy L. Turnell

Jason D. Tutrone

David Whaley

M. Scott Young

Additional Resources

We have assembled a firmwide multidisciplinary task force to address clients’ business and legal concerns and needs related to the COVID-19 pandemic. Please see our COVID-19 Task Force page for additional information and resources.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

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