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The law firm of LoFaro & Reiser, LLP is assisting small business owners in applying for COVID-19 financial relief under the CARES Act.  Click here to request a complimentary telephone consultation.

Below is a summary of some of the key provisions of the proposed
CARES ACT as passed by Congress:

Although the funds advanced to businesses under the CARES ACT are considered a “loan”, the repayment will be deferred for a limited time period and the debt will be forgiven if certain requirements are met, as explained below.

Direct Payments to Individuals at Certain Income Levels.

  • Individuals earning up to $75,000 in adjusted gross income would receive a one-time direct payment of $1,200.
  • Couples earning up to $150,000 in gross income would receive a one-time direct payment of $2,400. 

    These amounts are subject to decrease for individuals with net income in excess of $75,000, and subject to increase based on the number of qualifying dependents ($500 per child under the age of 17).

NOTE:  Individuals with income exceeding $99,000, and couples with joint income exceeding $198,000 (without children) are not eligible to receive such payments.

2.  Business Interruption Loans. 
  • Covered Period.  February 15, 2020 to June 30, 2020
  • Eligible Recipients
    • Businesses and non-profits up to 500 employees are eligible to apply to the Small Business Administration (“SBA”) for loans intended to fund ordinary course operating expenses, as further described below.
    • Sole proprietors
    • Individuals acting as independent contractors
    • Certain self-employed individuals
    • No more than 500 employees per physical location
    • Business that are assigned a NAICS Code beginning with 72 (examples include restaurant and hospitality industry) if the business employs no more than 500 people
  • Loans administered through U.S. Small Business Loan Administration (SBA)Click here to access the SBA COVID-19 Small Business Guidance and Loan Resources Center.
    • Maximum Loan Amount. The aggregate loan amount for each applicant will be equal to the lesser of:
      • 5 times the average total monthly payments made by such applicant for payroll costs incurred during the 1-year period before the date on which the loan is made plus the outstanding amount of a loan made under the SBA’s Disaster Loan Program between January 31, 2020 and the date on which such loan may be refinanced under the Act; or
      • For businesses that were not in existence during the period from February 15, 2019 to June 30, 2019, 2.5 times the average total monthly payments made by such applicant for payroll costs from January 1, 2020 to February 29, 2020 plusthe outstanding amount of a loan made under the SBA’s Disaster Loan Program between January 31, 2020 and the date on which such loan may be refinanced under the Act; or
      • $10,000,000
    • Maximum Interest Rate:  Shall not exceed 4%. 
    • Collateral Required:  None
    • No Personal Guaranty Required.
    • Permissible Uses of Loan Proceeds
      • Payroll costs
      • Continuation of group healthcare benefits during periods of paid sick, medical or family leave and insurance premiums
      • Employee salaries, commissions or similar compensations
      • Interest on any mortgage obligation
      • Rent
      • Utilities
      • Interest on any other debt obligations that were incurred prior to the Covered Period.
    • The term “payroll costs” includes: 
      • The sum of all compensation paid to an employee, such as salaries, wages, commissions, payment for vacation, parental, family, medical or sick leave, payment required for the provisions of group health care benefits, including insurance premiums, retirement benefits, or payment of State or local tax assessed on the compensation of employees.
      • For sole proprietorships or independent contractors, such costs are not to exceed $100,000 in 1 year, as prorated for the Covered Period.
    • Limits on payroll costs covered.  The definition of payroll costs specifically excludes individual employee compensation in excess of $100,000 per year (as prorated), taxes imposed or withheld under chapters 21, 22 or 24 of the Internal Revenue Code, any compensation to an employee whose principal residence is outside of the U.S., qualified sick leave wages and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
    • Loan Deferral and Forgiveness. 
      • Six months to 1 year deferral.  Loans made during the Covered Period (February 15, 2020 to June 30, 2020) are eligible for repayment deferral for six months to one year.
    • The following loan amounts will be forgiven in the Covered Period:
      • Payroll costs conditioned on payroll continuity (not to include compensation in excess of $100,000 per year for any individual employee)
      • Rent
      • Utilities (‘covered utility payment’ means electricity, gas, water, transportation, telephone, or internet access
      • Interest on mortgages
      • Interest on any other debt incurred before Covered Period.
    • Reduction in Loan Forgiveness.
      • The goal of CARES ACT is to avoid layoffs so there is a penalty or reduction in the loan forgiveness if you reduce the number of full-time employees during the covered period.
      • The forgiveness calculation will compare the average total number of full-time employees during the Covered Period to either (the borrower has the option of choosing): (1) average number of full-time employees for the period February 15, 2019 to June 30, 2019; or (2) the average number of full-time employees beginning on January 1, 2020 and ending on February 29, 2020.
      • The forgiveness calculation will also be reduced by the amount of any reduction in total salary or wages of a full-time employee that exceeds 25% of their total salary during the most recent full quarter during which the employee was employed before the Covered Period.
    • Further, the CARES ACT indicates that a borrower receiving assistance under section 7(b)(2) of the SBA related to COVID-19 for purposes of paying payroll support shall not be eligible for a loan described under the CARES ACT Therefore, you need to be very careful and weigh all options before applying for any SBA loans.

    4.    Expanded Unemployment Benefits; Paid Leave.

    • Expands unemployment benefits to an increased maximum of $600 per week (over and above State allowances).
    • Provides workers who have been laid-off due to COVID-19 with full pay for four months (including self-employed workers).
    • Caps an employer’s paid leave obligation at $200 per day and $10,000
      in the aggregate per employee and provides similar limitations with
      respect to paid sick leave obligations.

    5.    Residential Mortgages and Foreclosure Actions.

    • Forbearance for Borrowers of Federally-Backed Mortgage Loans.
      Borrowers of federally-backed mortgage loans can request forbearance by
      submitting a request to the loan servicer and providing a certification
      addressing financial hardship due to COVID-19. Forbearance must be
      granted for up to 180 days (or up to 30 days for multifamily borrowers),
      subject to extension.
    • Foreclosure Suits Barred for 60-Day Minimum.  Loan servicers of federally-backed loans are barred from filing foreclosure proceedings for at least 60 days beginning on March 18, 2020.
    • Evictions for Government Subsidized Housing Barred for 120 Days.
      Landlords of government subsidized housing are prohibited from filing
      eviction against tenants due to nonpayment of rent for 120 days.

    6. Tax Provisions. The CARES ACT contains an abundance of tax related relief provisions and credits to employers in connection with payroll tax liability. Only a portion of the Bill’s tax relief provisions are recited in this blog post.

    • Extension of Filing Deadlines. The Act extends the federal income tax filing deadline for individual 2019 tax returns to July 15, 2020, as well as the due date for estimated payments for 2020 to October 15, 2020.
    • Refundable Payroll Tax Credit. The Act creates a refundable Social Security tax credit equal to 50% of qualified wages paid by an “eligible employer” from March 12, 2020 through December 31, 2020.  The maximum credit is $5,000 per employee (based on maximum qualified wages of $10,000 per employee).
    • Eligible employers must have either (i) had its operations fully or partially suspended due to orders from a governmental authority due to COVID-19, or (ii) experienced a decline in gross receipts in 2020 of at least 50% of the gross receipts from the same quarter in 2019. Eligibility ends in the 2020 calendar quarter in which its gross receipts are more than 80% of the gross receipts for the same 2019 calendar quarter.
    • For eligible employers with a 100 or less Full Time Employees (FTEs), all wages are includable up to the maximum. For employers having more than 100 FTEs, qualified wages are limited to wages paid to employees that not working either due to a COVID-19 related government order or due to a significant decline in business. Tax-exempt organizations are eligible for the credit as well.
    • Postponement of Payroll Tax Deposits. The Act postpones the due date for the payment of an employer’s share of payroll taxes (i.e. Social Security taxes) from wages due through December 31, 2020.  The due date is also postponed for self-employed individuals for up to 50% of self-employment taxes.  The deferred taxes shall be payable in two equal installments – the first half of which is due on December 31, 2021, and the second half of which is due on December 31, 2022.
    • Modifications for net operating losses. The Act relaxes the limitations on a company’s use of losses.
      • NOLs are currently subject to a taxable income limitation, and they cannot be carried back to reduce income in a prior tax year.
      • This provision provides that a loss from 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income.
      • These changes will allow companies to utilize losses and amend prior years’ returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.

    Admitted to NJ Bar in 1990, NY Bar in 1991. Former Judicial Law Clerk to Honorable Peter Ciolino, Assignment Judge, Superior Court of New Jersey, Bergen County. Member & Barrister: Daniel J. Moore Bankruptcy Inn of Court Member & Barrister: Morris Pashman Inn of Court Member: Bergen County Bar Association NJ Superlawyer - 2008, 2009, 2010, 2011, 2012, 2013 Nominated for inclusion in Best Lawyers of America Member: Litigation Counsel of America, Trial Lawyer Honorary Society
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