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CARES Act: A Summary Of Provisions Affecting Struggling Businesses

By EmergeLaw, PLC

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act became law. It is historic in size, a 2+ trillion dollar relief package, and passed “to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” The following is a summary of provisions that may affect struggling businesses in the areas of (1) relief for small and mid-size businesses, (2) provisions relating to loans, workouts, and Chapter 11 reorganizations, and (3) tax implications.

Mortgage Forbearance

Holders of federally backed mortgages can request forbearance if they have been affected by COVID-19. If approved by the bank, the borrower won’t have to pay the mortgage for 180 days. The bank can’t impose any penalties or other fees. This can be extended another 180 days. Banks must halt foreclosure proceedings until May 18, 2020. Contact your mortgage holder to request forbearance.

Business Payroll Tax

All businesses, regardless of size, are eligible for a 50% refundable payroll tax credit. The credit is applied toward the first $10,000 of an employee’s wages. The business must demonstrate a 50% reduction in receipts compared to the same quarter in 2019. Employers’ portion of the Social Security payroll tax can be delayed until Jan. 1, 2021.

Payroll Protection Program

The SBA will administer loans up to $10 million to small businesses with fewer than 500 employees. The loan amount is determined based on payroll costs, and covers employees making up to $100,000 a year. The loan covers payroll and other expenses between Feb. 15 and June 30, 2020. Loans may be forgiven if used for payroll, mortgage interest payments, rent, and utilities.

Money is also provided ($17 billion) to cover six months of payments for small businesses already using SBA loans.

MidSize Business Loans

Any United States business or nonprofit with between 500 and 10,000 employees can apply for a loan in a program run by the Treasury Department. Businesses or nonprofits must retain 90% of their workforce. Payments and interest are waived for the first six months.

Bankruptcy Specific Provisions

(1) The Small Business Relief Act (click here for EmergeLaw, PLC’s summary of key provisions of the SBRA) is expanded to raise the debt limitation of secured and unsecured debt from $2.7 million to $7.5 million. The raised limit is scheduled to sunset in one year back to the prior lower amount. This could really be important for businesses struggling due to the COVID pandemic.

(2) Not Income for Means Test: CARES Act excludes payments related to coronavirus relief from being treated as “income” in the means test calculation that determines a debtor’s eligibility to file a Chapter 7 bankruptcy case.

(3) Not Considered Disposable Income: CARES ACT payments will not, for purposes of confirming a Chapter 13 bankruptcy plan, be considered “disposable income. ”

Tax-Related Provisions

(1) Employer Tax Credit Availability. A tax credit against employment taxes is available for certain businesses. An employer is eligible for this credit if the operation of the trade or business is fully or partially suspended during the relevant time frames for each type of business. The credit is effective for wages paid after March 12, 2020 and before January 1, 2021. The credit is not available if the employer borrows under the Payroll Protection Loan Program and may be reduced by the Families First Coronavirus Relief Act dealing with sick leave and family leave credits.

(2) Delay of Payment of Employer Payroll Taxes. Employers are responsible for paying a 6.2% Social Security tax on employee wages. Employers will be allowed to defer paying their share of this Social Security tax. Half of this deferred amount would be due on December 31, 2021 and the other half by December 31, 2022. This might mean a substantial cash savings to businesses struggling with cash-flow issues.

(3) Other Tax Provisions. There are other provisions dealing with loosening of Net Operating Losses standards and business expense allowances offsetting income (30% to 50%).


The CARES Act is a dramatic piece of legislation aimed at stemming the unprecedented economic downturn associated with the coronavirus pandemic. Only time will tell if it is a sufficient remedy.


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