CARES Act – Business Loan Programs and other Points

On March 27th, 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.

While we have tried to hit most of the areas that this Bill will impact, our priority is to summarize the new SBA loans described below.  Please understand that individual practice situations may be different and your strategy regarding these loans should be based on your individual situation and the decisions you’ve made with your employees.  Given the fact that these programs have overall Federal funding limits, it makes sense to apply early, however, the timing for applying and receiving this loan may affect the optimal loan forgiveness amounts of the PPP loan as that has an 8-week clock which begins once the loan originates.



SBA 7(a) Loan Program Expansion

The loan program expansion provided by the CARES Act falls under the Federal 7(a) loan programs which are already administered by the SBA.  The parties who make these loans are private banking institutions federally insured under FDIC, these are most of your typical banks with whom you already conduct business.  The Act provides two available loan options which are the SBA PPP loan & the SBA Express loan.

Paycheck Protection Program (PPP) Loan


  • This loan is designed to help small businesses (with fewer than 500 employees, generally), including sole proprietors and other self-employed individuals.



  • The maximum loan amount for non-seasonal employers (capped at $10 million) is 2.5 times the average total monthly payroll costs during the one-year period before the loan is made, PLUS the outstanding amount of an SBA Disaster Loan (an EIDL loan) taken out between January 31, 2020, and the date in which such loan may be refinanced as part of this new loan.
  • For practices that were not in existence during the period from February 15, 2019, to June 30, 2019, who request a loan, the maximum loan amount is 2.5 times the average total monthly payroll payments from January 1, 2020, to February 29, 2020, PLUS the outstanding amount of an SBA Disaster Loan (an EIDL loan) taken out between January 31, 2020, and the date on which such loan may be refinanced as part of this new loan.



  • Payroll costs used to determine the maximum borrowing amount include employee gross wages with a cap of $100k annually for those employees earning more than $100K, health insurance premium payments, retirement plan contributions paid, and state payroll taxes paid on those gross wages. Any sick leave or family leave wages paid under the recent Families First Act is excluded.
  • Payroll costs also include payments to independent contractors (subject to the $100K per individual cap) who work for or with the borrower.
  • The loan proceeds can be used to pay any business expenses. Only the expenses outlined below as Loan Forgiveness Expenses are eligible for loan forgiveness.



  • The portion of the loan used to pay employee wages, health insurance premiums, mortgage interest, business loan interest, rent, and utilities during the 8-week period beginning on the loan origination date may be forgiven.
  • The loan forgiveness expense period ends on June 30, 2020.
  • Eligible mortgage interest, rent, and utilities are those where the obligation was in place prior to February 15, 2020.



  • Employers who have a reduction in workforce during the 8-week covered period may be subject to a reduction in the allowable loan forgiveness amount.
  • If there’s a reduction in the number of employees from historical levels, the amount of loan forgiveness may be reduced by the proportional change in FTE’s during the 8-week covered period compared to either:
    • the average number of FTEs per month for the period of February 15, 2019, through June 30, 2019, or
    • the average number of FTEs per month for the period of January 2, 2020, through February 28, 2020 (seasonal employees have another option)
  • The amount forgiven may also be reduced by the decrease in an employee’s wages that is in excess of 25% of that employee’s wages for the full calendar quarter prior to the 8-week covered period.
  • Any reduction in the number of employees or a reduction in an employee’s wages paid between February 15, 2020, and April 27, 2020, will not be factored in when determining the loan forgiveness amount, however, the Act encourages employers to re-hire any employees that were laid off by June 30, 2020, to maximize the amount of loan to be forgiven.



  • Borrowers will have to provide documentation to the lender to prove the loan proceeds were used to pay the qualified expenses during the 8-week covered period to have a portion of the loan forgiven. There will be a forgiveness application to be filed sometime after June 30, 2020 to document and apply for the forgiveness amount.
  • While forgiveness of debt is generally taxable, in this case, the amount forgiven may be excluded from income and will not be taxable to the borrower.
  • Our discussions with lenders and the timetable set by the SBA indicate that most lenders will not be ready to accept applications and process loan requests until April 6, 2020, or thereabout.



  • Payments of principal and interest on the portion of the loan that is NOT forgiven may be deferred until 6 months after the loan origination date. The interest rate will not exceed 4% and the term can be for up to 10 years.
  • No collateral required
  • No prepayment penalties



  • Good faith certifications are required that:
    • The loan is needed to continue operations during the COVID-19 emergency.
    • The loan proceeds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments.
    • The applicant does not have any other application pending under this program for the same purpose; and
    • From February 15, 2020, until December 31, 2020, the applicant has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.


  • Some of the documents a borrower will need when applying for this loan:
    • For the last twelve full calendar months plus the last payroll date:
      • Payroll reports with individual employee gross earnings amounts and types of pay for each payroll period (regular pay, vacation, family medical leave, etc.).
      • Ledger and documentation for health insurance premiums paid by practice for all employees and owner(s).
      • Ledger and documentation for payments to independent contractors who performed services for your practice similar to that of an employee.
      • Ledger and documentation for payments made by practice for retirement plan contributions (all employees and owner(s))
  • Quarterly payroll tax returns including state unemployment tax returns for the year 2019 and Q1 2020 if available.
  • 2019 Form 1099’s for independent contractors who performed services for your practice similar to that of an employee.
  • Payroll reports would be available from the payroll processing service provider used by the employer.


SBA Express Loan

  • This is an enhancement on the current Economic Injury Disaster Loan (EIDL) in the form of a $10,000 grant that does NOT have to be repaid.
  • Designed for immediate relief for those applicants waiting on their EIDL loans to cover specified expenses like payroll, rent, and mortgage payments.
  • As mentioned above, the EIDL loan if received can be refinanced into the PPP loan .



  • These credits are NOT available if the employer receives a PPP loan.
  • A refundable payroll tax credit of 50% of qualified wages and health insurance paid (up to $10,000 per employee per quarter) by a qualified employer during the period of March 13, 2020, through December 31, 2020.
  • Qualified wages are wages paid to employees who are not working due to the businesses closure.
  • A qualified employer is one that closed or reduced their business in any quarter under orders from a government authority due to Covid19 AND whose gross receipts in that calendar quarter are less than 50% of the same calendar quarter of the previous year AND continue until a subsequent calendar quarters gross receipts are greater than 80% of the gross receipts for the same calendar quarter for the prior year.
  • The credit can be claimed on a quarterly basis and is limited to the employer’s social security payroll tax and reduced by any credits taken under the Families First Act.
  • Any excess credit available can be refunded.



  • Employers may delay the payment of their social security taxes during the deferral period.
  • Self-Employed individuals may defer 50% of their SE tax during the deferral period.
  • The deferral period is from the date in which the CARES act was enacted through December 31, 2020.
  • The first payment of half of the deferred taxes are due on December 31, 2021, and the balance is due December 31, 2022.
  • Businesses that had loan forgiveness under this Bill are NOT eligible for this deferral.



  • In tax years beginning after December 31, 2019, taxpayers may deduct up to $300 of charitable contributions “above the line”.
  • An employer can pay up to $5,250 of an employee’s student loan that was incurred for the education of the employee that is deductible by the employer and tax-free to the employee under code section 127. This only applies to payments made from the date this Bill was enacted through December 31, 2020. This is only available to employers who have a written tuition benefit plan in place under IRC code section 127.



  • 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-out 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



  • Qualified Improvement Property is now depreciable over 15 years instead of 39 years effective for purchases after September 2017.
  • Eligible taxpayers may be able to file amended income tax returns for 2017 & 2018 to take additional deductions due to this change and receive refunds.



  • 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 ratably beginning with the 2020 tax year UNLESS the taxpayer recontributes those funds within the three-year period from the date of the first distribution 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.
  • Qualified Plan loan amounts have been increased from $50,000 to $100,000 and the 5-year payback period can be delayed one year from the date the loan was incurred in 2020.
  • The bill also waives required minimum distribution rules for certain retirement plans in the 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.
  • Relief for funding requirements for 2020 for employers with defined benefit plans.