The CARES Act, signed into law by the President on Friday, March 27, 2020, provides for a variety of relief mechanisms and changes in existing law designed to respond to the COVID-19 pandemic. Among other things, the CARES Act provides access to forgivable loans for payment of employee compensation during the crisis, employment tax credits for shut-down businesses, residential mortgage forbearance for federally-backed mortgages (which will be of significant interest to any middle-class homeowner), and a prohibition on evictions from properties with federally-backed mortgages. In short, there is something for everybody in this bill, and you will not want to miss this important update. We have summarized key provisions below.
The “Keeping Workers Paid and Employed Act”
Designed both to prevent workers from losing jobs and to prevent small businesses from failing due to the economic hardships resulting from the Coronavirus pandemic, Congress has passed the Keeping American Workers Paid and Employed Act, included in the CARES Act as Division A. In a nutshell, this part of the CARES Act provides small businesses with access to loans which are forgivable to the extent they are used to maintain payroll and related business costs during the COVID-19 crisis.
Division A, Title I, provides for rapid cash assistance, in the form of federally guaranteed loans, to “small employers” (those with fewer than 500 employees) who maintain their payroll during the emergency phase of the pandemic. The loans are designed to be immediately accessible and match the employer’s average monthly “payroll costs” which includes employee compensation, as well tips, vacation, sick, parental, sick medical and/or family leave, medical insurance premiums, retirement benefits and certain local and state taxes.
Loans under the Act are capped at $10,000,000.00 each. If portions of the loaned amounts are used to maintain employee payroll, as well as other necessary business costs during this covered period, those portions of the loans will be forgiven in their entirety.
In order to assist employers in adding employees back on payroll that were already laid off, the Act retroactively covers the period from February 15, 2020 through June 30, 2020. The loans, as well as the Act’s forgiveness provisions, also apply to employers who pay additional wages to employees who are normally paid tips during this period.
Tax Credit for Wages Paid
The CARES Act allows employers who have been required to shut down due to government orders – even if those orders only prevent group gatherings and do not specifically close a certain industry, or who have lost a significant amount of earnings compared to the same quarter last year – to claim up to 50% of their total paid wages after March 12, 2020 as a credit against their employment taxes, up to $10,000 per employee (this includes the cost of health insurance the company provides). This is a credit against the employment tax deposits, meaning employers get to keep the money in their pockets.
However, employers who choose to take advantage of the small business loans available under Division A, Title I under this bill are not eligible – the employer must choose one program or the other. Additionally, while business with more than 100 employees may only take the credit for wages paid to employees who are not working due to shutdowns or loss of business, businesses with fewer than 100 employees can take a full credit on all wages paid to workers during the shut-down or lost business period.
Updates to Paid Sick Leave
Congress clarified that the IRS is allowed to make advance payments to employers for the amounts of sick leave and paid FMLA leave that the employer is required to make under the new paid sick leave laws. That means that employers will not have to wait to get funds to pay employees who need to take sick leave. Penalties on failing to deposit income tax withholding pursuant to this section are also waived.
The Act directs the federal government to make substantial monies available to states to increase the benefits available under the state unemployment insurance programs. Some of the changes lengthen the amount of time any one person can claim unemployment insurance (up to 39 weeks total now), and provide flexibility as to the reasons that a person can claim unemployment. Under certain circumstances, a person may be exempted from the requirement to go out and look for a job if they have been impacted by COVID-19.
Residential Mortgage Relief
Title IV, Sections 4022, 4023 and 4024 of the CARES Act address residential mortgage loan forbearance, and prohibit evictions in certain defined circumstances. If the home you own or property you rent is backed by a federal mortgage, you may be entitled to relief from making mortgage payments under the CARES Act. If you are experiencing hardship due to the Coronavirus, Section 4022 of the CARES Act entitles you to request forbearance of your mortgage loan for 180 days, with the option of extending that period an additional 180 days.
To obtain the mortgage forbearance, you need only submit a request to the servicer of your federally-backed loan, and affirm that you are experiencing a financial hardship. No other documents should be required. Under the terms of the CARES Act, your requested forbearance “shall be granted” by the servicer upon request. During the forbearance period, your mortgage lender cannot charge you any fees, penalties or additional interest on your mortgage loan.
Mortgage loans subject to forbearance under the CARES Act include any mortgage that made, insured, guaranteed, supplemented or assisted in any way bay any officer or agency of the federal government, including, but not limited to:
- Mortgages owned by Freddie Mac (FHLMC)
- Mortgages owned by Fannie Mae (FNMA)
- VA Mortgage Loans
- USDA Loans
- FHA Mortgages
- Reverse Mortgages insured under the NHA
Owners of multifamily buildings may also be eligible for forbearance of their federally backed loans. However, these borrowers must document their financial hardship, and the forbearance period is shortened to a maximum of 90 days. While in forbearance, multifamily owners may not evict or initiate the eviction of tenants for nonpayment of rent, and may not charge any fees or penalties for late payment of rent.
Eviction Moratorium for dwellings backed by federal mortgage loan
Whether or not a landlord has requested and obtained forbearance under the CARES Act, the Act establishes a moratorium on evictions for tenants in dwellings backed by federal mortgage loan. For 120 day following the enactment of the CARES Act, landlords may not file any eviction actions for nonpayment of rent or other charges. Additionally, the landlord may not charge any fees or penalties related to nonpayment of rent during that time.