The CARES Act, in Plain English

The Coronavirus Aid, Relief, and Economic Security Act is a $2 trillion economic stimulus package, passed by the US Congress on March 27, 2020 to provide liquidity for the American people and economy during the current pandemic.

Below, find summaries of key sections of the bill to learn more about what certain provisions mean for independent workers and small businesses.

This core section of the Act outlines how loans may be obtained under the SBA 7(a) program.

  • It establishes that the government will guarantee these loans and provides the authority for the Administrator of the U.S. Small Business Administration (SBA) to make loans under the Paycheck Protection Program.
  • Requires the Administrator to register each loan using the taxpayer TIN, as defined by the Internal Revenue Service, within 15 days.
  • Defines eligibility for loans as a small business, 501(c)(3) nonprofit, a 501(c)(19) veteran’s organization, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees, or the applicable size standard in number of employees for the industry as provided by SBA, if higher.
  • Includes sole-proprietors, independent contractors, and other self-employed individuals as eligible for loans.
  • Sets the maximum Paycheck Protection loan amount at $10 million, with each borrower’s loan size based on a formula regarding their payroll costs.
  • Defines the allowable uses of the loan proceeds to payroll support – such as employee salaries, paid sick and medical leave, and insurance premiums – as well as mortgage interest, rent, and utility payments.
  • For eligibility purposes, instead of requiring lenders to determine repayment ability, which is not possible during this crisis, lenders will only need to determine whether a business was operational on February 15, 2020, and if it had employees for whom it paid salaries and payroll taxes, or if the borrower is a paid independent contractor.
  • Allows a borrower who has an EIDL loan related to COVID-19 and made on or after January 31, 2020, to apply for a Paycheck Protection loan, with an option to refinance that loan into a PPP loan up until the end of the covered period for PPP loans (June 30, 2020). However, the emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program. Existing EIDL borrowers not related to COVID-19 are also eligible to apply for Paycheck Protection loans for payroll assistance, but they may not refinance into Paycheck Protection loans.
  • Requires eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; they will use the funds to retain workers and maintain payroll, lease, and utility payments; and that the borrower does has not have an application pending for another 7(a) loan for the same purpose and is duplicative of amounts applied for or received under a Paycheck Protection loan, and that between February 15, 2020, and December 31, 2020, the borrower is not receiving funding from another 7(a) loan for the same purpose.

Visit the Benefits Section to learn more about how to qualify for a loan or grant.

This section allows the SBA to make resources available to other Small Business Development Centers and Women’s Business Centers to provide training and education about how to use these loans and grants available.

Visit the Benefits Section to learn more about how to qualify for a loan or grant.

This section indicates that most loans will be forgiven if they are used for qualified purposes, with some exceptions, and prevents people from paying additional taxes on the loan amounts if the loan is canceled.

Visit the Benefits Section to learn more about how to qualify for a loan or grant.

This core section expands the types of businesses eligible for an Economic Injury Disaster (EIDL) Grant. During this COVID-19 pandemic, qualified contractors may obtain a $10,000 loan in just three days using only a credit score to qualify. These loans may be used to provide paid sick leave to employees, maintain payroll, meet increased costs to obtain materials, make rent or mortgage payments, and to repay obligations that cannot be met due to revenue losses Even if the loan is later denied, this $10,000 does not need to be repaid. These grants will not be combinable with the other Paycheck Protection loans in Section 1102.

  • 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 non-profits are also eligible for both grants and EIDLs.
  • Requires that for any SBA EIDL loans made in response to COVID-19 before December 31, 2020, the SBA shall waive any personal guarantee on advances and loans below $200,000, the requirement that an applicant needs to have been in business for the 1-year period before the disaster, and the credit elsewhere requirement.
  • During the covered period, 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.
  • 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 3 days.
  • Establishes that applicants shall not be required to repay advance payments, even if subsequently denied for an EIDL loan.
  • Outlines that the emergency grant 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.
  • 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 certification under penalty of perjury by the applicant that they are eligible.
  • Requires that the emergency grant be considered when determining loan forgiveness if the applicant refinances into a Paycheck Protection Program loan.
  • Terminates the authority to carry out Emergency EIDL Grants on December 30, 2020.

Visit the Benefits Section to learn more about how to qualify for a loan or grant.

This section requires the SBA to pay the principal, interest, and any associated fees on covered loans for a six-month period starting on the next payment date.

Visit the Benefits Section to learn more about how to qualify for a loan or grant.

This section amends the definition of Chapter 11 bankruptcy code to increase the eligibility threshold and excludes coronavirus-related payments from being treated as “income” for filing purposes. This section also explicitly permits individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

This core section creates a new type of unemployment assistance for Pandemics, including COVID-19 and is designed expressly to offer unemployment benefits to individuals who do not qualify for regular unemployment compensation and are unable to work because of the COVID-19 public health emergency.

Pandemic Unemployment Assistance will cover self-employed workers (including gig workers and independent contractors), part-time workers, and those with limited work histories. The changes made in sections 2104 and 2107 to increase the size of regular unemployment benefits and make them available for additional weeks will also apply to benefits received through the Pandemic Unemployment Assistance program. Pandemic Unemployment Assistance will be state-administered but fully federally funded. Except as otherwise provided in this section, federal regulations for Disaster Unemployment Assistance will apply to Pandemic Unemployment Assistance. The program is effective through December 31, 2020.

Information about unemployment qualifications is rapidly emerging. We will update this section as more information becomes available. 

Visit the Benefits Section to learn how to file for unemployment assistance.

This provision adds an additional $600 in Federal Pandemic Unemployment Compensation to every weekly unemployment benefit, effective until July 31, 2020. This $600 benefit will be taxable (like regular unemployment benefits), but it will be disregarded in determining Medicaid or CHIP eligibility.

Visit the Benefits Section to learn how to file for unemployment assistance.

This provision allows states to enter into an agreement with the federal government to receive full reimbursement for the total amount of unemployment compensation paid to individuals for their first week of unemployment, provided that the state does not have a waiting week between applying for and receiving benefits, effective until December 31, 2020.

Visit the Benefits Section to learn how to file for unemployment assistance.

This provision makes an additional 13 weeks of federally funded unemployment compensation for individuals who have exhausted their state unemployment benefits available immediately through December 31, 2020.

Visit the Benefits Section to learn how to file for unemployment assistance.

This provision is the primary section offering direct relief to American individuals, regardless of self-employment status.

It will provide $1,200 for singles and heads of households ($2,400 for married couples filing joints returns). The provision also provides $500 per qualifying child dependent under age 17 (using the rules under the Child Tax Credit). A family of four would receive $3,400.

Rebates phase out at a 5% rate above adjusted gross incomes of $75,000 (single)/ $122,500 (head of household)/ $150,000 (joint). There is no income floor or phase-in – all recipients will receive the same amounts, provided they are under the phaseout threshold.

Tax filers must provide Social Security Numbers (SSN) for each family member claiming a rebate (adoption taxpayer-identification numbers accepted for adopted children). An exception on SSN is made for spouses of active military members. The rebates are fully available to residents of U.S. Territories, including Puerto Rico.

The rebates will be paid out as advance refunds (in the form of checks or direct deposit) on the basis of taxpayers’ filed the tax year 2019 returns (or tax year 2018, if a 2019 return has not yet been filed). Nonfliers generally need to file a tax return in order to claim a rebate, although IRS may coordinate with other federal agencies in some instances to get checks out.

Visit the Benefits Section to learn if you will qualify for a relief check, and if so, how much you’ll receive.

This provision waives the additional 10 percent tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) in the case of coronavirus-related distributions.

A coronavirus-related distribution may be made between January 1 and December 31, 2020, by an individual who is (or whose family) is infected with the coronavirus or who is economically harmed by the coronavirus. Distributions are limited to $100,000 and may be re-contributed to the plan or IRA. Employers are permitted to amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted to allow plan loans up to $100,000 and repayment of existing plan loans is extended for employees who are affected by the coronavirus.

Visit the Benefits Section to learn how and when to take advantage of retirement distributions.  

This provision waives required minimum distributions that are required to be made in 2020 from defined-contribution plans (such as 401(k) plans) and IRAs. The waiver includes required minimum distributions that are due by April 1, 2020, because the account owner turned 70 1⁄2 in 2019.

Visit the Benefits Section to learn how and when to take advantage of retirement distributions.

This provision provides a $300 above-the-line deduction for cash contributions generally to public charities in 2020. It is available for individuals.

This provision increases the limitation on charitable deductions from 60% to 100% of modified income for cash contributions generally to public charities in 2020. It would also increase the limitation for food contributions by corporations from 15% to 25% of modified income.

This provision provides a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis.

Wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave (IRC sec. 45S).

The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided through December 31, 2020.

This provision allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Deferral is not provided to employers that avail themselves of SBA 7(a) loans designated for payroll.

Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.

This payroll tax deferral is equal to approximately 6.2 percent of wages on the first $137,700 earned and is applicable for corporations as well as Sole Proprietors. For Sole Proprietors, the deduction is 50 percent of self-employment taxes.

Visit the Benefits Section to learn if your small business structure can take advantage of these payroll tax benefits. You can also learn more about which independent business structure is right for you in this educational article.

The 2017 Tax Law limited net operating losses (NOLs) arising after 2017 to 80 percent of taxable income and eliminated the ability to carry NOLs back to prior taxable years.

First, this provision modifies the treatment of NOL carrybacks. In the case of taxable years beginning before 2021, taxpayers will be eligible to carry back NOLs to the prior five taxable years. Effectively, this delays the 80 percent taxable income limitation until 2021 and temporarily extends the carryback period from zero to five years. The provision also temporarily disregards NOL carrybacks for the section 965 transition tax. C corporations may elect to file for an accelerated refund to claim the carryback benefit.

Second, this provision would modify the treatment of NOL carryforwards. In the case of taxable years beginning before 2021, taxpayers will be entitled to an NOL deduction equal to 100% of taxable income (rather than the 80 percent limitation in present law). In the case of taxable years beginning after 2021, taxpayers will be eligible for. (1) a 100 percent deduction of NOLs arising in tax years prior to 2018, and (2) a deduction limited to 80 percent of modified taxable income for NOLs arising in tax years after 2017.

The provision would also include a technical correction to the 2017 Tax Law, relating to the effective date of the NOL carryback repeal.

Visit the Benefits Section to learn if your small business structure as a C- or S- Corporation can take advantage of this loss provision. You can also learn more about which independent business structure is right for you in this educational article.

This provision retroactively turns off the excess active business loss limitation rule implemented with 2017 Tax Law by amending the provision to apply to tax years beginning after December 31, 2020 (rather than December 31, 2017). This section of the Act is directly related to the above section and can apply to independent contractors.

An active business loss is defined as deductions in excess of income and gain attributable to a trade or business in which the taxpayer actively participates plus $250,000 ($500,000 for joint filers) (i.e. active business losses in excess of $250,000 ($500,000 for joint filers) were disallowed by the 2017 Tax Law and treated as NOL carryforwards in the following tax year).

 The provision includes technical corrections to 2017 Tax Law. The provision clarifies that excess business losses do not include any deduction under 172 or 199A or any deductions related to performing services as an employee. The provision also clarifies that, because capital losses cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the section 461(l) limitation, and that the amount of capital gain taken into account in calculating the section 461(l) limitation cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Visit the Benefits Section to learn if your small business can take advantage of this provision. You can also learn more about which independent business structure is right for you in this educational article.

Stay Informed!

Programs and benefits are evolving rapidly. States’ responses continue to unfold, in parallel with the Federal response. Sign up for MBO’s Newsletter, and we’ll send you updates when new benefits emerge for independents.

The information provided here does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs.  Before acting on any information, you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing. This is a rapidly changing area of the law and will be subject to change and interpretation.