The CARES Act: Breaking Down the $2 Trillion Economic Stimulus Bill

Updated 4/16/2020 at 2:24pm ET

On March 27, Congress passed the $2 trillion stimulus bill – the Coronavirus Aid, Relief, and Economic Security (CARES) Act – which will provide significant tax and non-tax stimulus to individuals and businesses. Here’s a breakdown of what this bill will mean for businesses, individuals, and our national economy in the wake of the COVID-19 global pandemic.

SC&H’s Key Takeaways

  1. The key tenets of the Act are to provide liquidity to individuals and businesses and to provide a stimulus to the economy when people can get back to work, shopping, dining out, etc. Certainly, other goals will be to boost consumer and business confidence as best they can during these times.
  2. There will be $500 billion for loans and loan guarantees made available to businesses who are making difficult decisions right now – furlough people or keep them on the payroll, pay operating expenses now or request relief.
  3. There is $250 billion allocated to enhanced unemployment for workers displaced by COVID-19 and the related economic shutdown.
  4. There are a number of tax provisions in this legislation that are geared towards creating liquidity for individuals and businesses – in the form of rebate checks for individuals ($290 billion) and relaxed rules around the utilization of net operating losses, business interest deductions, investments in real estate improvements and payroll tax credits for employers who retain employees

Impact on Businesses

Employee Retention Credit

  • Employers who experience business disruptions as a result of COVID-19 related shut-downs are eligible for a refundable payroll tax credit of 50% of qualified wages paid (up to $10,000 per employee per quarter) during the period of March 12 through December 31, 2020. The employee retention credit is also available to businesses that experience a significant decline in gross receipts, defined as a 50% or greater decrease in gross receipts versus the same quarter in prior years.
  • For businesses with more than 100 employees, the credit applies only to employees who are retained but not working. For businesses with fewer than 100 employees, the credit applies to all employees.

Business Loan Programs

SBA 7(a) Loan Program Expansion

The loan programs below all fall under the Federal 7(a) loan program administered by the SBA.  The PPP, SBA Express, and EIDL Loans would give private banking institutions the ability to loan directly to businesses. This side-steps the current process to provide funding to businesses more quickly.

Delegated authority is the ability for lenders to make determinations on borrower eligibility and creditworthiness without going through all of SBA’s channel. The Act provides it to all current 7(a) lenders who make these loans to small businesses. It also gives that same authority to lenders who join the program and make these loans. For eligibility purposes, the Act requires lenders to determine whether a business was operational on February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor. Rather than determining repayment ability which is not possible during this crisis.

Paycheck Protection Program (PPP)

  • The bill includes $350 billion for the Paycheck Protection Program – this is designed to help small businesses (with fewer than 500 employees, generally), including sole proprietors and other self-employed individuals.
  • The maximum loan amount is $10 million, and allowable loan uses include payroll, insurance premiums, mortgage, rent and utility payments from February 15 to June 30.
  • Small businesses may take out loans up to $10 million (based on a formula associated to payroll costs) and applies to employees making up to $100,000/year.
  • Loans may be forgiven if a firm uses the loan for payroll costs, interest payments on mortgages, rent, and utilities; it would be reduced proportionally by any reduction in employees retained compared to the prior year and a 25 percent or greater reduction in employee compensation.
Affiliation Rules

The CARES Act made 501(c)(3) non-profit organizations, including faith-based organizations, eligible to get PPP Loans, but organizations looking to take advantage of this need to pay careful attention as there are complex affiliation rules, and interested businesses need to determine their headcount. Entities such as nonprofit organizations that are under common control, or venture capital/private equity backed businesses may need to aggregate headcount from other organizations under the affiliation rules.

While oftentimes ownership is a driver of the affiliation rules — management control and so-called “negative control” issues are as well. The U.S. Treasury Department said they are looking to loosen these rules, but so far only faith-based organizations (such as churches) have received a waiver from the rules.

Here are some helpful resources directly from the Treasury:

SBA Express Loan – Repayable Loan

The SBA Express Loan Program provides an accelerated turnaround time for SBA to review loans. These loans are a simple way to receive expedited, amortized government-guaranteed financing for small businesses. Entrepreneurs can be granted up to $350,000 of capital, in the form of either a term loan or line of credit. Once received, this capital may be used for various business purposes.

The Act increases the maximum loan for an SBA Express loan from $350,000 to $1 million through December 31, 2020.

The true value of an SBA Express loan lies not only in the remarkably fast turnaround time for an approval, but also in the willingness of lenders to advance funds. The interest rate is negotiated but cannot exceed the SBA maximum.

Emergency Economic Injury Disaster Loans (EIDL) – Repayable Loan

The Act expands eligibility for access to Economic Injury Disaster Loans (EIDL) to include Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees or any individual operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31, 2020). Private nonprofits are also eligible for both grants and EIDLs.

  • Waiver of Personal Guarantees & Other Eligibility Requirements
    • The Act requires that for any SBA EIDL loans made in response to COVID-19 before December 31, 2020, the SBA shall waive the following: any personal guarantee on advances and loans below $200,000; the requirement that an business must be operating for a 1-year period before the disaster; and the credit elsewhere requirement.
    • During the covered period, the Act allows SBA to approve and offer EIDL loans based solely on an applicant’s credit score or use an alternative appropriate alternative method for determining applicant’s ability to repay.
  • Emergency Grant Payment Distributions
    • Establishes an Emergency Grant to allow an eligible entity who has applied for an EIDL loan due to COVID-19 to request an advance on that loan, of not more than $10,000, which the SBA must distribute within three days.
    • Applicants shall not be required to repay advance payments, even if subsequently denied for an EIDL loan. In advance of disbursing the advance payment, the SBA must verify that the entity is an eligible applicant for an EIDL loan.
    • This approval shall take the form of a certification under penalty of perjury by the applicant that they are eligible. Advance payment may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.
    • Further, the Act requires that an advance payment be considered when determining loan forgiveness, if the applicant transfers into a loan made under SBA’s Paycheck Protection Program.

Payroll Tax Deferral

  • Employers can defer payment of the employer portion of social security for the remainder of 2020. Deferred amounts will need to be paid in two installments, with 50% due in 2021 and the remainder 50% due in 2022.

Net Operating Losses

  • Section 2303 of the CARES Act provides temporary modifications to net operating loss (NOL) limitations and rules relating to NOL carrybacks that were previously enacted under TCJA. Under the CARES Act, for tax years 2019 and 2020, businesses will be able to utilize NOLs generated in prior years to offset 100% of taxable income. For tax years 2021 and after, the previously enacted 80% taxable income limitation rules will be reinstated with additional provisions that exclude from taxable income deductions under sections 199A and 250.
  • Businesses who incur NOLs in tax years 2018, 2019, or 2020 will be able to carryback those losses to offset taxable income for a period of five years preceding the year in which the loss was generated. It is important to note that NOLs that are carried back to years in which the business was subject to the section 965 transition tax, the business will be treated as having made the election under section 965(n), which allows for the preservation of NOLs. Additionally, businesses can elect to exclude from the carryback period any years in which the section 965 transition tax applied.
  • For passthrough entities and sole proprietors, section 2304 of the CARES Act provides modifications to section 461 that allows excess business losses for tax years ending before 2021. The Act also makes a technical correction to section 461(l)(2) enacted under TCJA that allows these entities to carryforward losses to offset taxable income in future years.

AMT Credit Carryforwards

  • Section 2305 of the CARES Act allows businesses to claim a refund for the full amount of alternative minimum tax (AMT) credits available as reported on the business’ previously filed tax return. In order to claim this refund prior to filing a 2019 tax return, businesses will need to file Form 1139, Corporation Application for Tentative Refund, before December 31, 2020.

Business Interest Limitation

  • Section 163(j), enacted under the TCJA, is amended in section 2306 of the CARES Act to provide businesses with the ability to deduct more interest expense for tax years 2019 and 2020. For these years, the interest expense deduction will be based on 50% of the taxpayer’s adjusted taxable income (ATI). For tax years 2021 and after, the deduction will revert to the previous limitation of 30% of ATI.

Qualified Improvement Property

  • Section 2307 of the CARES Act provides a technical amendment to correct language enacted under the TCJA regarding qualified improvement property. Businesses are now able to fully write off the costs associated with making improvements to their facilities. Prior to this, these improvements were required to be depreciated over 39 years. This provision is retroactive to the enactment of the TCJA and businesses can file amended tax returns to claim refunds associated with this correction or perhaps file a Form 3115 and take the extra deduction in 2019 or 2020.

Excise Tax on Alcohol Used to Produce Hand Sanitizer

  • Businesses who use distilled spirits to produce hand sanitizer for distribution in response to the pandemic will be exempt from paying excise tax on those spirits under section 2308 of the CARES Act.

Impact on Individuals

Recovery Checks for Individuals

  • Single filers will receive rebates of up to $1,200 and joint filers will receive up to $2,400 (+ an additional $500 per child). These rebates are subject to phase-outs beginning at $75,000 / $150,000 adjusted gross income (AGI) for single filers / joint filers. The amount is completely phased-out at the following thresholds:
    • Single taxpayers with incomes exceeding $99,000
    • Head of household filers with one child at $146,500
    • Joint filers earning more than $198,000
  • The IRS will base these amounts on the taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return.

Retirement Plans

  • Individuals who make certain coronavirus-related withdrawals from qualified retirement plans up to $100,000 will have their 10% early withdrawal penalty waived.
  • Withdrawn amounts are taxable over three years, but taxpayers can recontribute those funds within the three-year period without affecting retirement account caps.
  • Which accounts are eligible? Individual retirement accounts (IRAs), 401Ks and other qualified trusts, certain deferred compensation plans, and qualified annuities.
  • The bill also waives required minimum distribution rules for certain retirement plans in calendar year 2020. This can be a substantial source of tax savings for those who do not need to live on their RMDs in 2020.


  • Unemployment insurance has been expanded to include an additional $600 per week, per recipient for up to four months. The Act extends benefits to self-employed workers, independent contractors, and those with limited work history. The federal government has asked states to remove any waiting period on receiving benefits. In doing so, the federal government will fully fund the first week’s payment. The federal government will also fund an additional 13 weeks (through December 31, 2020) of unemployment benefits after state benefits have ended.

Student Loans

  • Employees whose employers make student loan repayment contributions on their behalf are excluded from taxable income – employers may contribute up to $5,250 annually toward student loans, and the payments would be excluded from the employee’s income.
  • This applies only to contributions made prior to January 1, 2021.

Charitable Deductions

  • For taxpayers who take the standard deduction, the Act provides for a partial above-the-line deduction, not to exceed $300, for cash contributions made to a 501(c)(3) public charity. This does not apply to non-cash contributions and excludes cash contributions made to donor-advised funds.
  • For those that do itemize their deductions, the Act suspends the 60% AGI limitation on cash contributions for 2020. Again, this excludes cash contributions made to donor-advised funds.

Health Care / Health Provision

  • The Act includes provision that cover COVID-19 testing, addresses shortages of needed drugs and medical supplies, increases support for health care workers, and increases funding for telehealth services.
  • The Act increases funding for Medicare and Medicaid, expands Medicare and Medicaid coverage COVID-19 patients, and postpones scheduled Medicare/Medicaid cuts.

Economic Stabilization

  • The Act establishes the Economic Stabilization Fund to provide $500 billion in direct loans, loan guarantees, and other investments to eligible businesses. Of this amount, certain industries have been allocated specific amounts: Passenger Airlines $25 billion, Cargo Airlines $4 billion, and businesses crucial to national security $17 billion.
  • Businesses receiving funds are prohibited from buying back stock for the duration of the loan plus one year. They are prohibited from paying a dividend on common stock for the duration of the loan plus one year. Total compensation of highly paid workers is limited for the term of the loan plus one year. They must also retain at least 90% of their employment level as of March 24th.
  • An additional $150 billion has been earmarked for a Coronavirus Relief Fund for state and city governments to cover expenses related to the coronavirus public health emergency. The funds are to be allocated by population proportions. The minimum amount for each state is $1.25 billion.

This legislation is likely the beginning of the attempts of Congress to support the US economy during this crisis. We expect to hear from commercial banks in the coming days on how to navigate the various loan provisions of this legislation. At the same time, most states have enacted their own relief packages to combat the economic crisis on a local level. While the federal programs have larger dollars involved, they also have more businesses chasing those dollars. Our Coronavirus Resource Center contains data for state and local resources that we have located for the areas in which many of our clients are located and we will keep that center updated during this crisis.