Federal Legislation and Administrative Actions as of April 2, 2020

This special report is to provide basic information on federal legislation and administrative actions in place to help individuals and businesses deal with the coronavirus (COVID-19 virus) epidemic. Congress passed and the President signed a $2 trillion recovery bill (the CARES Act) on March 27, and specifics on that legislation can be found after the following information on two previous coronavirus bills and administrative actions now in effect:

Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, H.R. 6074:

H.R. 6074 is an $8.3 billion supplemental appropriations bill that was signed into law by the President on March 6.  Most of the funding goes to help federal agency capabilities in dealing with the coronavirus spread, including supplemental appropriations to the Small Business Administration to aid in carrying out the Disaster Loans Program which will experience significant demand. 

In addition, the President’s declaration of a national emergency on March 13 allows the SBA to offer Economic Injury Disaster Loans of up to $2 million for a small business.  For more on SBA loans and other assistance please see CARES Act SBA Loan Provisions on page 6.   

Families First Coronavirus Response Act (FFCRA), H.R. 6201:

On March 19, the President signed into law H.R. 6201 with an effective date of April 1, 2020.  In summary, this legislation responds to the coronavirus spread with several provisions relating to employer-mandated sick leave, as well as an expansion of the federal Family and Medical Leave Act (FMLA).  Because the leave mandates require businesses with 500 and fewer employees to provide additional weeks of paid leave, the bill includes refundable tax credits for employers that are required to offer emergency FMLA or paid sick leave.  However, out of concern that these mandates could accelerate small and medium business closures, the Dept. of Treasury has used the means within its administrative powers to allow small businesses the liquidity and cash flow they need to maintain operations.  In addition, the Sec. of Labor is authorized to exempt small businesses with fewer than 50 employees if leave mandates threaten to end the business.

Following is a detailed summary of H.R. 6201 (referred to as “Phase II” because it follows the $8.3 billion supplemental bill) courtesy of the U.S. Chamber of Commerce:

Unemployment Compensation:

The bill gives state governments flexibility with respect to waiting periods and in interpreting the “able, available and actively looking” test for Unemployment Compensation (UC) eligibility.  That said, it is important to emphasize that UC is not sick leave.

Provides an additional $1 billion for state unemployment programs.  Authorizes extended unemployment benefits (beyond the usual 26 weeks), fully funded by the federal government, for states that experience a spike in unemployment.

Paid Sick Leave:

Requires private sector employers with fewer than 500 employees and government employers to provide employees with two-weeks of paid sick leave (80 hours for full-time employees and typical number of hours over two-weeks for part-time employees).

Eligibility: The paid sick leave is available to any employee without regard to duration of employment if they are unable to work or telework because they are:

• Subject to a government quarantine or isolation order related to COVID-19,
• Have been advised by health provider to self-quarantine due to COVID-19,
• Experiencing symptoms of COVID-19 and seeking medical diagnosis,
• Caring for an individual subject to quarantine order or self-quarantine,
• Caring for children if schools are closed or their caregiver is unavailable because of a public health emergency, or
• Experiencing substantially similar conditions as specified by the Secretary of Health and Human Services

Employers of employees who are healthcare providers or emergency responders may elect to exclude such employees from the paid sick leave.

Rate of Pay:  Employees are compensated at the higher of their regular rate, the federal minimum wage, or the local minimum wage, but not to exceed $511 per day and $5,110 in the aggregate. However, if the employee is absent to care for a sick family member, a child unable to attend school, or because they meet the criteria for similar conditions they are compensated at 2/3 of the rate they would otherwise receive, but not to exceed $200 per day and $2,000 in the aggregate. (This conforms the pay to the amount of the available tax credit.)

Small Business and Other Exemptions:  The Secretary of Labor is authorized to issue regulations to exempt health care providers and emergency responders from the definition of employer. In addition, the Secretary may exempt small businesses with fewer than 50 employees from the requirement to offer leave to care for a child when a school is closed when the imposition of paid sick leave would jeopardize the viability of the business as an ongoing concern.

Relationship to Existing Programs:  This paid sick leave is in addition to whatever sick leave is already offered by the employer (including subject to state or local requirements).

Effective Dates:  The provision takes effect not later than 15 days after enactment of the bill [April 1, 2020] and sunsets on December 31, 2020.

Funding:  Each quarter, private sector employers subject to the requirement are entitled to a fully refundable tax credit equal to 100% of the qualified sick leave wages paid by the employer. Qualified sick leave wages are capped at $511 per day ($200 per day if the leave is for caring for a family member) and 10 days. The tax credit is applied against employer Social Security taxes, but employers are reimbursed if their costs for qualified sick leave exceed the taxes they would owe. The Treasury Secretary is provided with regulatory authority intended to help with cash flow issues, for example by waiving penalties on failing to deposit payroll taxes in anticipation of the credit.

Additional Credit for Health Plan Expenses:  The amount of the tax credit is further increased by the amount of the expenses of the employer’s health care plan allocable to the qualified sick leave. This allows the employer to seek reimbursement for the cost of continuing to provide health insurance while the employee is on sick leave.

Tax on Employers:  Paid sick leave is not considered wages for Social Security tax purposes and for half of the Hospital Insurance Tax, for the other half of the Hospital Insurance Tax, the applicable tax credit is increased to cover the cost of the payroll tax.

Self-Employed:  There is a similar tax credit against self-employment taxes for individuals who are self-employed but would otherwise qualify for paid sick leave if they were an employee of an employer.

Paid Family and Medical Leave (FMLA):

With certain possible exceptions (see below), requires private sector employers with fewer than 500 employees and government employers to provide employees with up to 12 weeks of paid family and medical leave (FMLA).

Eligibility: The paid family and medical leave is available to any employee who has been employed for at least 30 days if they are out in order to:

• Care for children if schools are closed or their daycare is unavailable because of a public health emergency and they are unable to work or telework.

Rate of Pay:  After 10 days, during which time the employee can take unpaid or paid leave (if available), employees are compensated at 2/3 of their regular rate. Paid leave under this requirement shall not exceed $200 per day and $10,000 in the aggregate. (This conforms to the amount of the tax credit.)

Small Business and Other Exemptions: The Secretary of Labor is authorized to exempt health care providers and emergency responders and small businesses with fewer than 50 employees if the requirement would jeopardize the business as an ongoing concern. The requirements to restore the employee to their position after the paid leave is taken do not apply to businesses with fewer than 25 employees if the position no longer exists because of the public health emergency (provided the employer takes certain actions to try and assist the employee).  Employers with less than 50 employees are exempt from civil actions brought by employees for violations of this section. Employers of employees who are healthcare providers or emergency responders may elect to exclude such employees from the paid FMLA.

Effective Dates:  The provision takes effect not later than 15 days after enactment of the bill [April 1, 2020] and sunsets on December 31, 2020.

Funding: Each quarter, private sector employers subject to the requirement are entitled to a fully refundable tax credit equal to 100% of the qualified paid FMLA wages paid by the employer. Qualified paid FMLA wages are capped at $200 per day and $10,000 overall. The tax credit is applied against employer Social Security taxes, but employers are reimbursed if their costs for qualified paid FMLA exceed the taxes they would owe. The Treasury Secretary is provided with regulatory authority intended to help with cash flow issues, for example by waiving penalties on failing to deposit payroll taxes in anticipation of the credit.

Additional Credit for Health Plan Expenses: The amount of the tax credit is further increased by the amount of the expenses of the employer’s health care plan allocable to the qualified sick leave. This allows the employer to seek reimbursement for the cost of continuing to provide health insurance while the employee is on sick leave.

Tax on Employers:  Paid FMLA is not considered wages for Social Security tax purposes and for half of the Hospital Insurance Tax, for the other half of the Hospital Insurance Tax, the applicable tax credit is increased to cover the cost of the payroll tax.

Self-Employed:  There is a similar tax credit against self-employment taxes for individuals who are self-employed but would otherwise qualify for paid FMLA if they were an employee of an employer, but leave would be capped at 50 days.

Provisions for Diagnostic Testing:

• Requires private health plans to provide coverage for diagnostic testing at no cost to the consumer
• Waives beneficiary cost sharing under Medicare Part B when provider visit includes diagnostic test
• Requires Medicare Advantage to provide diagnostic test and associated provider visit at no cost to the beneficiary
• Requires Medicaid to provide diagnostic test and associated provider visit at no cost to the beneficiary
• Requires that those under TRICARE, Veterans programs, Indian Health Services, and federal civilian workers have coverage for diagnostic testing without cost sharing
• $1 billion to reimburse cost of testing for individuals without health insurance
• $82 million for Defense Department Health program
• $64 million for Indian Health Service
• $60 million for Veterans Medical Services

Discussion of Liquidity Impact for Small Businesses:

Concerns have been expressed about the liquidity problems the paid sick leave and paid FMLA could create for some small businesses as they pay employees but wait for reimbursement from the federal government. We expect the technical corrections announced by Secretary Mnuchin will add to the provisions included right before the bill passed the House to help mitigate any problems. The provisions in the House passed bill include regulatory flexibility to waive penalties for businesses not submitting their payroll taxes if they do so in anticipation of a refund under this bill. And with respect to paid FMLA, exempting businesses with fewer than 50 employees if it would jeopardize the business. Moreover, leave under the bill is not available if an employee can perform their job remotely, and the qualifying conditions for providing paid family leave have been scaled back to taking care of children when school is closed or their ordinary care giver is not available.

It is expected that some businesses who face a severe revenue disruption and are unable to pay their employees whether at work or not may elect to furlough employees which would allow them to access unemployment compensation.  Some businesses who absent this legislation would elect to pay employees for sick leave or paid FMLA will likely be marginally better off as they are reimbursed by the federal government.

Additional Administrative Action and “Phase III” Legislation (CARES Act)

On March 18, the IRS extended the deadline for filing tax returns and tax payments for 2019 to July 15, 2020, giving taxpayers and businesses more time to file returns and make tax payments without interest or penalties.  The deferment of taxes was capped at $1 million for individuals, married couples and small business owners while corporations had a $10 million limit, but on March 23 the IRS issued Notice 2020-18 repealing those caps and individuals and businesses can defer any amount of owed taxes until July 15.  The payment deadline for 2020 first-quarter estimated federal income taxes has also been deferred until July 15, 2020.

On March 23, SBA Administrator Jovita Carranza announced changes to help borrowers still paying back SBA loans from previous disasters.  By doing so, deferments through Dec. 31, 2020, will be automatic.

On March 20, the Treasury Dept., IRS and Dept. of Labor (DOL) announced a plan to implement coronavirus-related paid leave for workers and tax credits for small and mid-size businesses to recover the cost of such leave.  For more information see the Coronavirus Tax Relief link on the IRS website at IRS Coronavirus Updates for IR-2020-57 under News Releases.  Updates and other important information can be found on this page, too.       

On March 24, the Dept. of Labor (DOL) issued guidance for workers and employees on the leave provisions of the Families First Coronavirus Response Act (FFCRA), H.R. 6201.  This was the first round of information and compliance assistance to come from DOL’s Wage and Hour Division, followed by updates on March 26, March 27 and March 28. 

Guidance from DOL’s Wage and Hour Division provides information to workers and employers about protections and relief in the FFCRA starting April 1, 2020.  It includes two posters (one for federal workers and one for all other employees) that fulfills employer notice requirements to employees about rights under the law; questions and answers on posting requirements and a Field Assistance Bulletin on the Wage and Hour Division’s 30-day non-enforcement policy, as well as addressing whether employers may post required notice electronically, if employers must provide notice of this law to recently laid-off individuals, and when enforcement of the new rules will begin.

Guidance also includes how an employer must count the number of employees to determine coverage; how small businesses can obtain an exemption; how to count hours for part-time employees; and how to calculate the wages employees are entitled to under this law.  Other questions and answers address issues such as what documents employees can be required to submit to their employers to use paid sick leave or expanded family and medical leave; whether workers can take paid sick leave intermittently while teleworking and whether workers whose employers closed before the effective date of the FFCRA can still get paid sick leave. 

On April 1, DOL’s Wage and Hour Division (WHD) posted a temporary rule issuing regulations for  the new law, including an exemption protocol for small businesses with less than 50 employees in Sec. 826.40(b)(1).  In addition, WHD offers a number of compliance assistance materials to explain FFCRA’s benefits and requirements. Tools include a Fact Sheet for Employees and a Fact Sheet for Employers, available in both English and Spanish, and a list of Questions and Answers addressing the questions WHD has most frequently received from stakeholders.  Guidance also includes two new posters, one for federal workers and one for all other employees, available in both English and Spanish, that fulfills notice requirements for employers to inform employees about their rights under this new law, Questions and Answers about posting requirements, and a Field Assistance Bulletin describing WHD’s 30-day non-enforcement policy.

WHD provides additional information on common issues employers and employees face when responding to COVID-19 and its effects on wages and hours worked under the Fair Labor Standards Act and job-protected leave under the Family and Medical Leave Act at DOL Pandemic Guidance.

CARES Act

On March 27, Congress approved a third bill (Phase III) to help the economy recover.  Senate Majority Leader McConnell introduced the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 19 and it passed the Senate on March 25 and the House on March 27.  Despite its size (883 pages) and many sections, the bill’s main goal is to pump over $2 trillion into the economy by getting money to businesses and individuals.  This includes $349 billion for loans to small businesses via a new SBA “Paycheck Protection Program” for Payroll Protection Loans, with specified amounts spent on payroll, rent or utilities converting to grants that don’t have to be repaid if qualifications are met.  Additionally, the SBA’s Economic Injury Disaster Loans will allow borrowers to receive $10,000 cash advances that are forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain interruption, mortgage/lease payments, or repaying obligations that cannot be met due to revenue losses.  The amount of SBA Express Loans has also been increased and these loan programs are expected to go into effect quickly after the bill’s March 27 passage.  

Please also note the CARES Act makes technical corrections to the leave mandates in the Families First Coronavirus Response Act (H.R. 6201) mostly for employers with fewer than 500 hundred employees.  It strengthens limitations on the benefit caps for the paid leave mandates, clarifies that workers who are rehired are eligible for paid FMLA leave, and provides DOL with investigative authority.

CARES Act SBA Loan Provisions

Paycheck Protection Program (PPP) or Payroll Protection Loans (PPL):  Provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency.  If employers maintain their payroll, a portion or all of the loans can be forgiven.  PPP provides forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year.  Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between Feb. 15, 2020 and June 30, 2020.  This program is retroactive to Feb. 15, 2020, to help bring workers who may have been laid off back to payrolls.  Loans are available through June 30, 2020 to the following:

• Businesses and entities must have been in operation on February 15, 2020.
• Small business concerns, as well as any business concern that has fewer than 500 employees, or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry per the SBA, if higher.
• Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.

Depending on your business’s situation, the loan size will be calculated in different ways and the maximum loan size is always $10 million:  

• If you were in business Feb. 15, 2019 – June 30, 2019:  Your max loan is equal to 250% of your average monthly payroll costs during that period.  If your business employs seasonal workers, you can opt to choose March 1, 2019 as the start date.
• If you were not in business between Feb. 15, 2019 – June 30, 2019:  Your max loan is equal to 250% of your average monthly payroll costs between Jan. 1 – Feb. 29, 2020.
• If you took out an Economic Injury Disaster Loan (EIDL) between Feb. 15 – June 30, 2020 and you want to refinance that loan into a PPP loan, you’d add the outstanding loan amount to the payroll sum.

Costs that are eligible for payroll are:

• Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
• Payment for vacation, parental, family, medical, or sick leave
• Allowance for dismissal or separation
• Payment required for the provisions of group health care benefits, including insurance premiums
• Payment of any retirement benefit
• Payment of State or local tax assessed on the compensation of employees

Costs that are not eligible for payroll are:

• Employee/owner compensation over $100,000
• Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
• Compensation of employees whose principal place of residence is outside of U.S.
• Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
• Independent contractors since they may obtain their own PPP loan.   

Allowable uses of PPP loan proceeds are:

• Payroll costs (as noted above)
• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Employee salaries, commissions, or similar compensations (see exclusions above)
• Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
• Rent (including rent under a lease agreement)
• Utilities
• Interest on any other debt obligations that were incurred before the covered period

All loans under this program will have the following identical features:  An interest rate of 1%; Maturity of 2 years; First payment deferred six months; 100% guarantee by SBA; No collateral; No personal guarantees; No borrower or lender fees payable to the SBA.

Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000):

• Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment/payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation and any covered utility payment.

To get forgiveness on a PPL, the borrower must apply through the lender for forgiveness on the loan.  In this application, the borrower must include:

• Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
• Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
• Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.

After the forgiveness period, any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years (now 2 years), at a maximum interest rate of 4% (now 1%).  Principal and interest will continue to be deferred for a total of 6 months to a year after disbursement of the loan.  The clock does not start again.

All current SBA 7(a) lenders are eligible lenders for a PPL.  The Dept. of Treasury will also be in charge of authorizing new lenders, including nonbank lenders, to help meet the needs of small business owners.  An entity is limited to one PPL and each loan is registered under a Taxpayer Identification Number at SBA to prevent multiple loans to the same entity.

Application Dates for Paycheck Protection Loans:  Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive PPP loans; starting April 10, 2020, independent contractors and self-employed.  Applications can be made through any existing SBA lender or through any federally insured depository institution or federally insured credit union, and the application form can be found at this link Paycheck Protection Program Application.  On April 2, the SBA issued a rule to implement the PPP under the CARES Act which can accessed here.

Economic Injury Disaster Loans:  Emergency loans of up to $2 million under the SBA’s Economic Injury Disaster Loan (EIDL) Program are available with new terms because of COVID-19.  Eligible entities may apply for both a PPL and EIDL, but loan proceeds may not be used for duplicative purposes.  If a borrower receives a $10,000 EIDL advance as well as a PPL, the advance reduces the amount of the PPL that is ultimately forgiven.  In addition to traditionally defined small businesses, EIDLs are now available to business concerns with 500 or fewer employees, and   individuals who operate a sole proprietorship, are independent contractors or self-employed. 

Applicants must submit an application from Jan. 31 to Dec. 31, 2020 and be in business as of January 31, 2020.  Small business owners in all U.S. states and territories are currently eligible to apply for an EIDL due to COVID-19 and are not required to show they are unable to obtain credit elsewhere.   For loans of up to $200,000, applicants will not be required to provide a personal guarantee.  The current maximum loan amount for EIDLs is $2,000,000, and the interest rate cannot exceed 4%.  EIDLs over $25,000 generally are expected to be secured by personal or business assets but cannot be denied solely on the failure to provide collateral.  An applicant’s creditworthiness will be determined based solely on one’s credit score without reviewing prior tax returns.  Applicants may request and receive an advance of up to $10,000 prior to the determination of whether the applicant is eligible for the full EIDL, which may be used to provide paid sick leave to employees who are unable to work due to COVID19, to maintain payroll to retain employees during business disruptions or substantial slowdowns, or certain other purposes.  The advance does not need to be repaid even if the EIDL application is subsequently denied.  The request for an advance is expected to be processed within three days.  Any amount that is obtained through an advance will reduce the amount that could otherwise be forgiven under a PPL.  Importantly, though it appears payments on a Coronavirus EIDL can be deferred for up to one year, please note that other than the lack of a requirement to repay the advance, there is no forgiveness associated with EIDLs. 

Applicants may use EIDLs for ordinary and necessary operating expenses based on their actual economic injury and financial needs, however, EIDLs can’t be used to:  refinance indebtedness incurred prior to the disaster event;  make payments on loans owned by a federal agency or a Small Business Investment Company;  pay any civil or criminal fine or penalty;  repair physical damage; pay dividends or other disbursements to owners, partners, officers or stockholders, except for reasonable amounts directly related to their performance of services for the business; or, expand facilities or acquire fixed assets.

SBA Express Loans:  The CARES Act increases the maximum amount for SBA Express Loans from $350,000 to $1 million through Dec. 31, 2020.  Also, an SBA Express Disaster Bridge Loan allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide support to small businesses to help with the temporary loss of revenue they’re experiencing and can be a term loan or used to bridge the gap while applying for an SBA Economic Injury Disaster Loan.  If a small business has an urgent need for cash while waiting for a decision and disbursement on an EIDL, they may qualify for an SBA Express Disaster Bridge Loan for up to $25,000 and will be repaid in full or in part by proceeds from the EIDL.

Business Tax Relief Provisions in the CARES Act

• Delay of payment of employer-side payroll taxes (tax payments may be delayed until January 1, 2021, with 50% owed on Dec. 31, 2021 and the other half on Dec. 31, 2022.)  Specifically, qualifying companies can delay their share of Social Security payroll taxes, but the Medicare payroll tax would still be due as usual.  However, employers that receive loan forgiveness under the Paycheck Protection Program are not eligible to defer the applicable taxes.          

• Five-year carry back and expansion of NOLs. Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years.  Applicable to net operating losses of a C corporation.

• Employee Retention Credit: A refundable payroll tax credit equal to 50 percent of up to $10,000 in wages per employee, including health benefits, paid by certain employers (primarily those with 100 or fewer full-time employees) during the coronavirus crisis. Employers are not eligible for this credit if the employer receives any small business Paycheck Protection Loan.   
  
  
• Technical correction to Qualified Improvement Property (QIP) depreciation treatment for retail establishments and restaurants – 100% bonus depreciation write-off per IRS Sec. 168(k).