Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. There are provisions in this 335-page bill that affect just about all Americans, both individuals, and businesses. There has been much information and speculation as to what is in the bill and this article will attempt to shed some light on the more important items that affect small businesses. 

The CARES Act is an example of the difference between a new law and what really happens.

The CARES Act and Your Small Business

When Congress passes a law (both the House of Representatives and the Senate must approve it) and it is signed by the President it is just the beginning of how it really gets implemented. 

For example, in the case of tax laws, the Internal Revenue Service (IRS) reads and interprets the law and issues regulations as to how it is to be implemented along with corresponding tax forms. Laws that affect other branches of the government are handled in the same way by the appropriate government agency. This does not happen overnight. 

There is often a significant time lag between the plans and promises announced and the actual results being implemented. The regulations will often be very different from the promises. In this case, implementation is probably being delayed even more so by the social distancing and closing of non-essential services recommendations. 

At the date of this article, the IRS is not answering the phone because there appears to be no staff available to do so.

Small Business Provisions

There are several programs relevant to small businesses included in the law:

    • Paycheck Protection Program (PPP) Loans
    • Small Business Debt Relief
    • Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants
    • Small Business Tax Provisions
    • Other provisions

Paycheck Protection Program (PPP) Loans

This seems to be the most talked-about program in the law. Again, provisions and implementation may be two different things. The law specifically states that the business must have been harmed by the COVID-19 virus between February 15, 2020, and June 30, 2020.

The program provides:

  • 100% federally guaranteed loans to employers to provide cash flow to retain employees
  • If the loan is used to retain employees, it will be forgiven up to an amount equaling 8 weeks of payroll
  • No Small Business Administration (SBA) or prepayment fees
  • Loans can generally be used to cover
    • Payroll
    • Group health care benefits
    • Mortgage interest and interest on non-mortgage debt
    • Rent
    • Utilities
    • Payment of retirement benefits for employees
    • Payment for vacation and various types of paid leave
    • Payroll taxes
  • Loans up to $10 million with up to a 10-year term at 4% interest
  • Repayment can be deferred for 6 months

The loan application is surprisingly easy and is done through your bank. However, there appears to have been some differences in which banks are participating or are prepared to participate or the requirements they are using to get the loan.

As with all loans, especially those where the government is involved, there are some restrictions involved. You should check with your bank or business/financial advisor for more information.[et_bloom_inline optin_id=”optin_2″]

Small Business Debt Relief Program

The SBA will cover all non-disaster SBA loan payments (principal, interest, and fees) for six months. This does not include PPP loans referred to above or any other disaster-related loans.

Economic Injury Disaster Loans and Emergency Economic Injury Grants

The Economic Injury Disaster Loan is an SBA loan that has been set up specifically for the COVID-19 disaster and includes a provision for an eligible business to get a grant of up to $10,000. A recent notice from the SBA indicates that the amount of the advance will be $1,000 per employee as of January 31, 2020. 

The grant appears to be part of the process but separate from the loan. The advance does not have to be paid back under any circumstance, but it will probably be considered taxable income if not paid back.

An eligible small business is a sole proprietor, independent contractor or employee-owned business with less than 500 employees. Non-profit entities will also be eligible.

The first step is to apply for the disaster loan through This application is also relatively easy. There is a box along with the application that can be checked that will let you to request the grant. This advance is supposed to be disbursed within three days of making the application. This has not happened. 

At the time of writing this article, it has been at least two weeks since the program started and there is no evidence that any grants have been made – again, the difference between what the law says and its implementation.

The loans can be up to $2 million at low-interest rates. 

Remember; this is a loan application. You are not accepting a loan; you are applying for a loan. The SBA will contact you to provide them with any information required to process the loan and you will be free not take it if the terms are not to your satisfaction. If the loan is accepted, the amount of the loan proceeds will be net of the advance received.

You can apply for both the EIDL and the PPP, but they cannot be for the same purpose such as both being used to cover payroll in the same month. They could be used for payroll in different months, however. If you get both, the grant referred to above would be subtracted from the amount forgiven in the PPP program.

Small Business Tax Provisions

The CARES Act has two provisions that may affect a business’ tax liabilities.

The first is the “Employee Retention Credit for Employers Subject to Closure or Experiencing Economic Hardship” which provides a refundable payroll tax credit for 50% of wages paid to certain employees during the crisis. The business must have its operations fully or partially suspended due to a government-ordered shutdown or experienced a greater than 50% reduction in quarterly receipts. 

Since this is a credit against payroll taxes (Form 941) the business must have employees. It is important to note that it is not available if the business receives assistance through the PPP mentioned above.

The second is a “Delay of Payment of Employer Payroll Taxes”. This means that the employer share of payroll taxes reported on Form 941 during 2020 can be put off equally until the end of 2021 and 2022. This does not include the employee share of payroll taxes withheld by the employer. This program is also not available if the business receives assistance through the PPP.

Left unclear is how these payroll tax-related matters will be dealt with on the Quarterly Form 941. Please check with your accounting or payroll professional for more guidance.

View all the important IRS Forms.

Other Provisions

The PPP and the EIDL are the focus of the business portion of the CARES Act. The Act also makes provision for additional funds for existing government small business counseling and training programs and for provisions relating to the relief and protection of government contractors

When to Act on CARES ACT

The CARES Act was written and passed by Congress in a relatively quick manner. As noted above, there are many items that need to be thought through and implemented and this will take time, especially given the tremendous numbers of businesses attempting to access these programs and the lack of government staff available to do so. 

Please contact your accounting, legal and payroll professionals to stay informed of new developments.