CARES Act Relief - COVID-19 Alert

March 31, 2020


On March 27, 2020, President Donald Trump signed the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) into law. The law includes significant aid for small businesses and individuals affected by the novel coronavirus and the surrounding economic consequences. In addition to the highly-touted individual stimulus checks, the Act provides for government-backed guaranteed payroll protection loans to small businesses (less than 500 employees) that retain, or rehire previously laid-off, workers. To the extent the borrower-employer uses the loan to make payroll, rent payments, mortgage payments, or utility payments, the loan will be forgiven up to the principal amount of the loan. Separate from the paycheck protection loans, the Act may allow a 50% refundable employment tax credit on wages paid up to $10,000 per employee, and for the deferral of employer-side payroll taxes until December 31, 2021, and December 31, 2022.


The paycheck protection loans provide employers significant bridge funding during the pendency of the Coronavirus crisis. Eligibility for the loans is broad, underwriting terms are narrow, and the loan terms are borrower-friendly, including partial or complete forgiveness.

Eligible borrowers are businesses with less than 500 employees, or businesses with greater than 500 employees that are in the restaurant, hotel, or hospitality industry with less than 500 employees per place of business. The loans will be administered under the Small Business Act (“SBA”), with traditional lending institutions providing the government-guaranteed loans. The Act directs that lenders can only inquire whether the employer: 1) was in operation on February 15, 2020, and 2) had employees on the payroll on February 15, 2020.

The maximum loan amount is the lesser of 250% of average monthly payroll (excluding employees’ salaries exceeding $100,000 based on 2019 annualized salary), or $10 million. Monthly payroll is calculated as the average monthly payroll for the prior year, or if a seasonal employer, then from February 15, 2019 or March 1, 2019 through June 30, 2019. Loan interest cannot exceed 4% per annum. Lenders must defer required repayment of principal or interest for at least six months, but not more than a year.

The loans may be forgiven. Per its moniker, the program is intended to fund payroll to assist employers in retaining their employees through the crisis. Upon a borrower’s showing that the loan was used to pay for the following items within an 8-week period beginning as of the date of loan funding, that portion of the loan principal will be forgiven:

Payroll costs,
Mortgage interest,
Rent obligations, and
Utility payments

Forgiveness will be available but limited for employers who reduce employees or reduce compensation. Reduction will be based on average number of employees for the 8-week period immediately following loan funding.

  • The borrower may choose the calculation period for determining reduction in employment numbers.
  • The borrower may choose either the average number of employees from February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020.
  • The employer may remedy layoffs occurring between February 15, 2020 and 30 days after enactment of the CARES Act (April 26, 2020), by rehiring employees by June 30, 2020.
  • Unlike typical loan forgiveness, amounts forgiven under the CARES Act will not be deemed income to the borrower.
  • Loans made under the CARES Act cannot require collateral or personal guarantees.

Employer-borrowers should obtain an application directing from their lending institution. Anecdotally, as of the first day of the program, lenders are currently awaiting additional guidance from the federal government.


Apart from the payroll protection loans, the CARES Act provides a 50% payroll tax credit for some employers impacted by the coronavirus pandemic. To be eligible, the employer must show that it was affected by the pandemic due to a governmental order subjecting the business to involuntary suspension of operations, or firms showing a decrease in gross revenue of 50% or more for the same period, year-over-year. The payroll tax credit is equal to 50% for wages paid up to $10,000 per employee. For businesses of more than 100 employees, the credit is provided to employers who retain employees who do not work due to the crisis. The credit applies to all employee wages for businesses with 100 or fewer employees. Importantly, the payroll tax credit is not available to employers who utilize a paycheck protection loan.

In addition to the tax credit, the Act also defers estimated income tax payments for corporations and employer-side social security payments. Estimated tax payments are deferred until October 15, 2020. Employer-side social security payments are deferred, with 50% owed on December 31, 2021, and the final 50% owed on December 31, 2022. A significant caveat, however, is that if the employer had indebtedness forgiven under the paycheck protection program, then the employer is not eligible for the deferral. Note that the exclusion of availability of the payroll tax credit simply requires that the employer borrow under the paycheck protection program, while the prohibition on deferral requires debt forgiveness under the program.

A subtlety regarding the payroll tax credit under the CARES Act in comparison to previous congressional relief under the Families First Coronavirus Response Act (“FFCRA”) is that tax credits provided under the FFCRA relate solely to qualifying paid sick leave and maintenance of health insurance coverage during the relevant employee’s paid leave. The CARES Act expressly carves out credits already provided under the FFCRA, reducing the credit available under CARES.

We will continue to provide the most current information available and remain available to answer your questions on these and other matters. For further information, please contact:

Donna Hartl (312) 696-2035,
Barry Siegal (312) 696-1699,
Nancy Franks-Straus (312) 696-1368,
Jonathan Morton (312) 696-1018, or
Katherine Oswald (312) 696-1019