COVID-19, The Cares Act and Your Business

COVID-19, The CARES Act, and Your Business

First of all, please know that everyone at Brewprint Advisors and Raymond James hopes that you and your family are healthy and safe. This is a trying time for many. We will try to do our part to help you through it.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law. This bill provides relief for eligible small business via a loan guarantee program, the postponement of some tax payments, and possibly some tax credits. It also provides relief for Qualified Retirement Plan participants and companies that sponsor those plans.

Small Business Loans

Applications for small business loans begin processing Friday, April 3. Some banks are saying that you shouldn’t wait to start the applications process. Get in line as soon as possible.

In addition to small businesses, non-profit organizations categorized as 501(c)(3)s, veterans organizations, or tribal businesses may be able to obtain loans.

You may obtain loans from your local SBA Lender. To do this, you will need to do a few things:

  1. Certify that the loan is necessary to support the ongoing operation of your business.
  2. Acknowledge that the money will be used to retain employees, maintain payroll or make mortgage, lease, and/or utility payments.
  3. Certify that this isn’t a duplicate loan.
  4. Submit documentation to establish eligibility.

These loans are designed for business with less than 500 employees but there are some exceptions. If a business applies, they may not also receive an emergency disaster loan or EIDL. (more details on this farther down).

Loan Amounts

The amount of the loan will be the lesser of the following options:

  • the average total monthly payments for payroll costs incurred during the one-year period before the date on which the loan is made, multiplied by 2.5.
  • $10 million.

What constitutes payroll costs?

The payroll costs taken into consideration are:

  • Wages, salaries, & commissions
  • Paid vacation, parental, family, medical or sick leave
  • Severance pay
  • Cost of group healthcare benefits, including premiums
  • Payments for retirement benefits (we are still looking for more clarification on what this includes)
  • Payments for state or local taxes on employees’ compensation

If an employee makes more the $100k annually, the loan can only cover wages up to $100k. Payroll costs do not include sick leave if the sick leave is eligible for a tax credit under the Families First Coronavirus Response Act.

Loan Forgiveness

A portion of the loan may be forgiven if used to cover the following costs incurred between February 15, 2020 and June 30, 2020:

  • Payroll Costs
  • Payment of interest on a covered mortgage loan obligation. (Doesn’t include the payment of principal on a mortgage)
  • Payment of any rent obligation

The amount of loan that may be forgiven will be reduced by losing employees or a reduction in wages. Amounts forgiven are not subject to taxation as cancelation of indebtedness income.

Economic Injury Disaster Loan (EIDL), Grants

Like the small business loans, these are also for businesses with 500 employees or less.

If an EIDL loan is made before December 31, 2020, personal guarantees on advances and loans below $200k will not be required.

To take out an EIDL loan, the company needs to have been in business for one year

The requirement that the applicant will not be able to obtain credit elsewhere is waived.

EIDL loans are to be used for the following purposes:

  • Sick leave
  • Maintaining payroll
  • Increased cost to obtain materials
  • Making rent or mortgage payments

Emergency grants are offered for not more than $10,000 as an advance on the loan.

Payroll Tax Credit

If your business fully or partially shuts down due to orders from a government authority or experiences a 50% reduction in its revenue, it may receive an advance-refundable credit on payroll taxes up to 50% of the first $10,000 paid to employees between March 13, 2020, and December 31, 2020.

If you take out a loan or grant as described above, you cannot receive this payroll tax credit.

Qualified Plan Participant Relief


An individual may be able to take up to $100,000 from their 401(k), IRA, or other qualified plan for a “Coronavirus-related distribution” and not be subject to the 10% penalty tax. The individual would still have to pay regular income tax but that may be paid over a 3 year period.

Here are some of the reasons that qualify as a “Coronavirus-related distribution”:

  • Diagnoses with COVID-19
  • Spouse diagnosed with COVID-19
  • Quarantined due to COVID-19
  • Furloughed by employer due to the virus
  • Laid off because of the pandemic
  • Reduced hours do to COVID-19
  • Unable to work because you need to care for your child. For example-your child is no longer able to go to school so you need to stay home to care for them and are unable to work from home.
  • Business closes

Participants will have the opportunity to pay back the distribution over a period of three years to help them get back in position to have funds available for retirement in the future. 

Loans –

If an individual would rather take a loan out of the 401(k), and their plan offers loans, there is an expansion of loan access and repayment flexibility.

Individuals can now take out a loan for the lesser of $100,000 or 100% of their vested account balance. If they have an existing loan on their 401(k) they may be able delay their payments for a year.

The plan sponsor (employer) may need to make an amendment to the plan for these options to be made available.

Required Minimum Distributions (RMDs) –

There is a waiver of 2020 RMDs. This will apply to deferred compensation plans, 403(a)&(b) plans, 457(b) plans, and Individual Retirement Accounts. It will not apply to defined benefit plans. This could help retired individuals a lot as their RMD would have been based on the ending value of their accounts in 2019.

Education Assistance/Student Loan Repayments –

An employer can make payments, up to $5,250, to an employee’s student loan lender or pay for tuitions, fees, books, etc., and the employee will not have to include it in their taxable income for 2020. This only applies for payments made after the March 27, 2020.

Health Savings Accounts (HSA) –

All telehealth and other remote care services can be covered pre-deductible without violating federal rules for high deductible health plans paired with an HAS. (Only for plan years that begin on or before 12/31/2021).

Now allows for “menstrual care products” to be reimbursed from an HSA. The new rules apply to expenses incurred after 12/31/2019.

Individuals may now make contributions to their HAS for 2019 any time up to July 15, 2020.

Plan Sponsor Relief

For defined benefit and money purchase pension plans there is a delay in contribution deadlines. Any contribution due in 2020 has a delayed due date of January 1, 2021. However, there will be interest due on delayed contributions that would need to be calculated.

Plan sponsors have an extended plan amendment deadline for adopting participant relief into their plan. 

The due date is now July 15, 2020 to make deductible retirement contributions for 2019 if the employer’s tax return due date is April 15, 2020

Department of Labor has been given expanded authority to postpone certain deadlines under ERISA.

This is not everything in the CARES Act and we know this is a lot of information, but we wanted to get it out to you as soon as possible. Every business is different and has different needs. Please reach out to us if you want to go over your situation and discuss what your options might be. We don’t make loans or provide tax advice. We offer this information as part of our consulting services.

Again, we wish you all the best and know that we can get through these trying times, if we all work together.

Any opinions are those of Michael Faircloth and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Informational sources include “Retirement Plan Provisions of CARES Act” and “The CARES Act: Relief for Small Businesses”, information provided by the National Association of Plan Advisors, and the “Coronavirus Aid, Relief, and Economic Security Act”.

Links are being provided for information purposes only. Raymond James is not affiliated with any of the listed web sites.