Assistance to State, Local and Tribal Governments
The CARES Act establishes a $150 billion “Coronavirus Relief Fund” for state, local and tribal governments to use to cover any costs related to COVID-19 that had not been previously budgeted for and were incurred between March 1 and December 30, 2020. The bill sets aside $3 billion for Washington, D.C. and U.S. territories like Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands and American Samoa as well as $8 billion for tribal governments.
The remaining $139 billion will be shared among the 50 states proportionally by population with each State receiving at least $1.25 billion. If a local government applies for and is certified by the Treasury to receive a payment from the fund, it must be made directly to the local government and that amount will be subtracted from the allocation of the state that the local government is in.
The fund prioritizes speed and requires that payments must be made to governments within 30 days of enactment. However, it also establishes an inspector general to monitor the disbursement and use of relief funds and gives the inspector general the authority to recoup any misused funds.
In addition to this special fund, the CARES Act awards more than $270 billion to state, local and tribal governments across many existing programs, including:
- $1.5 billion to support economic development grants for states and communities suffering economic injury as a result of the coronavirus.
- $850 million in Department of Justice Byrne JAG grants to state, local and tribal officers in responding to coronavirus.
- $400 million in election security grants to states.
- $345 million for states and local governments to respond to worker layoffs as a result of the coronavirus.
- $1.5 billion for state local governments for public health preparedness and response.
- $3.5 billion for Child Care and Development Block Grants to states to prevent child care centers from closing.
- $25 billion for transit providers, including state and local governments, for operating and capital expenses that will be distributed using existing Federal Transit Administration formulas.
Advancing the Paid Sick and Family Leave Tax Credit for Employers
The Families First Coronavirus Response Act, referred to as Phase 2, includes important paid sick and family leave protections in response to the COVID-19 pandemic. The law requires employers with less than 500 employees to provide 80 hours of paid sick leave to full-time employees to cover time that an employee is away from work due to the coronavirus such as if the employee must go into self-isolation, take care of someone else with the virus or care for their own child due to a school closure or lack of childcare. The Act also requires employers with less than 500 employees to provide ten weeks of paid family leave to cover employees who are not working because the employee is caring for their child because the school is closed or the child care provider is unavailable due to a public health emergency. The emergency family leave mandate only requires employers provide two-thirds an employee’s pay while the emergency sick leave mandates full wage replacement with a daily and aggregated cap. The law also provides companies with a refundable tax credit to cover the cost of the new mandated leave.
The CARES Act expands upon these requirements. The bill:
- Allows Small Business Administration (SBA) 7(a) loans to be used to cover paid family and sick leave mandated under the Families First Coronavirus Response Act.
- Allows advance payments under the SBA Emergency Economic Injury Disaster Loans grants to be used to, among other purposes, “provide paid sick leave to employees who are unable to work due to the direct effect of COVID-19.”
- Gives an employee that was recently rehired access to paid family leave if the employee (1) was laid off after March 1, 2020, (2) worked for the employer for at least 30 of the last 60 calendar days, and (3) was rehired by the employer.
- Allows employers to receive the tax credits established by the Families First Coronavirus Response Act in advance of providing the mandated leave rather than waiting to be reimbursed.
- Allows the federal government to reimburse federal contractors for the cost of paid sick leave given to employees who are unable to work due to the closure of a federally-owned or leased site and when telework is not an option. The amount of the reimbursement will not be duplicative of any tax credits the contractor uses to cover the cost of the leave.
Expanded Unemployment Insurance Benefits
The Act provides for federal unemployment assistance to individuals directly and indirectly affected by COVID-19, including individuals who are not typically eligible for unemployment assistance such as independent contractors, self-employed and those with limited work histories. Individuals who are able to telework with pay and who are receiving paid sick leave or other paid benefits are not eligible for assistance under the Act.
Coverage is extended to individuals who (i) have been diagnosed with COVID-19 or experiencing symptoms and seeking a diagnosis; (ii) have a family member with COVID-19; and who, as a result of COVID-19, (iii) have a child who is unable to attend school; (iv) are unable to reach work because of a quarantine imposed; (v) are unable to attend work because they have been advised by a health care worker to self-quarantine; (vi) were scheduled to begin work but no longer have a job or are unable to reach work; (vii) have become the head of household or breadwinner; (viii) are forced to quit their job; and (iv) have their place of employment closed.
Assistance is available to covered individuals for weeks of full unemployment, partial unemployment or inability to work from January 27, 2020 to December 30, 2020, for up to 39 weeks. The Act provides for weekly benefits of $600 (fully funded by the federal government), in addition to the weekly benefit amount authorized under state law, and incentivizes states to waive the week-long waiting period for the initial receipt of benefits. The Act also provides for up to 13 weeks of emergency unemployment benefits for eligible individuals who have exhausted the 39 weeks of benefits and remain unemployed.
Short-Time Compensation Programs
The Act provides funding to states with existing “short-time compensation” programs and financial incentives to states to create such programs. Short-time compensation programs are those where employers reduce employee hours rather than conducting layoffs. Eligible employees subject to short-time compensation programs receive a pro-rated unemployment benefit. Individuals employed on a seasonal, temporary or intermittent basis are not eligible for benefits under short-time compensation programs. Employers are obligated to pay to their state one half of the amount of short-time compensation benefits paid under such plans. This amount will not impact the employer’s contribution rate.
Employer Payments of Student Loans
The CARES Act permits employers to provide a student loan repayment benefit to employees on a tax-free basis, up to $5,250. This amount would be excluded from the employee’s income and can also include payments under employers’ existing tuition assistance programs. The tax-free cap applies to any payments made by an employer for these purposes before January 1, 2021.
Employee Retention Credit for Employers Subject to Closure Because of COVID-19
The Act provides eligible employers with a payroll tax credit in an amount equal to 50 percent of the qualified wages paid to each employee for each calendar quarter. The amount of qualified wages considered is capped at $10,000 per employee, inclusive of payments for certain health benefits. The credit amount is capped at the amount of employment taxes on the wages paid to the employees, less certain other credits. Subject to specific exceptions, eligible employers are those that were operating in year 2020 and (i) whose operations were suspended or partially suspended because of COVID-19 or (ii) have seen a significant decline in gross receipts. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
This provision is not limited to employers of a certain size, but the type of wages eligible for consideration in the credit varies based on employer size. Specifically, for employers with more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
Limits on Employee Compensation
Employers who are recipients of direct lending under the Act are prohibited from increasing the compensation and offering certain severance benefits to highly compensated employees. Specifically, these employers cannot increase the compensation of any officer or employee whose total compensation in calendar 2019 exceeded $425,000 or pay any severance of other benefits to these employees or officers upon termination that exceed twice the maximum total 2019 compensation paid to the employee or officer. In addition, employees who earned more than $3 million in calendar year 2019 cannot receive more than $3 million plus 50% of the amount their 2019 compensation exceeded $3 million. Total compensation is defined to mean salary, bonuses, awards of stock and “other financial benefits.”
These restrictions are in place until up to one year after the loan is repaid.