Clearing Up Confusion over CARES

Posted by Christy Putnam on April 14, 2020 at 9:09 AM

Congress COVID-19 CARES Act PayrollMore help brings more questions and new confusion. On March 27, 2020, Congress passed a second round of economic stimulus in response to the COVID-19 pandemic: the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Some of the relief elements contained within this latest act include:

  • Paycheck Protection Program Loans
  • Additional Unemployment Benefits
  • Student Loan Payments Suspension
  • Funding for Hospitals, Airlines/Airports, and Food Assistance Programs
  • Government Checks to Individuals
  • Small Business Debt Relief
  • Economic Injury Disaster Loans & Emergency Economic Injury Grants

Here is a closer look at some key aspects.

Employee Retention Credit

A critical element added that may assist many companies that have been able to keep employees on the payroll is the Employee Retention Credit.

Eligible businesses that can take advantage of this relief are those that either:

  • Fully or partially suspended operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  • Experienced a significant decline in gross receipts during the calendar quarter.

Businesses that qualify can take a tax credit equal to 50% of the employee’s qualified wages up to $10,000 (i.e. $5,000 tax credit) per worker. Wages are required to be paid between March 12, 2020 and January 1, 2021. Tax credits are taken against the employer portion of social security taxes. The employer may receive a refund if the credit is more than the federal employment taxes they owe.

It is important to note that businesses which receive a loan through the Paycheck Protection Program are not eligible for this tax credit.

Small Business Tax Deferral

Small businesses that owe payroll tax payments in 2020 can take advantage of some additional immediate relief offered through the CARES Act with deferred payments. Social Security taxes that are owed for 2020 can be deferred, with 50% being paid on December 31, 2021 and the other 50% on December 31, 2022. Employers and workers each pay 6.2% for Social Security and 1.45% toward Medicare (2020 rates). Businesses will need to decide if this is an advantage to them or if the deferral could hurt their business more in the long run.

Retirement Account Benefits

Benefits an employee can take advantage of that may help get them through the tough time include loosening the rules around retirement hardship distributions. The new law allows people to access up to $100,000 (or 100% or their vested balance) of their retirement savings without the usual 10% penalty. This is for people who have lost a job because of COVID-19, who are suffering from the virus, and/or who have a spouse who has contracted the virus. Income tax will still need to be paid on the retirement distribution. However, payments can be spread across a three-year period.

Please join us for a free webinar that will address
in greater detail what employers should know about the
CARES Act and other relief packages

COVID-19 Regulatory Updates and FAQ

Thursday, April 16th at 10:00am PDT

Register Now!

When registering for this webinar, please ensure that you put
Bennett/Porter & Associates in the referred by registration field.

Congress continues to discuss ways to help American families, healthcare workers, and small businesses. They are currently discussing a CARES 2 Act. On April 4, 2020, House Speaker Nancy Pelosi issued a letter to members of the House stating they must “go further” in providing assistance by hopefully having additional legislation to the Floor later this month. We will continue to keep you posted on areas that could affect your payrolls and/or employee benefits.

Topics: News Alert, Human Resources, Payroll, Taxes, COVID-19

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