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Coronavirus Aid, Relief, And Economic Security Act: Key Elements

March 27, 2020

The much anticipated and discussed Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), has been passed by both houses of the United States Congress and was signed into law by President Trump on Friday, March 27, 2020. The CARES Act provides an economic stimulus package for businesses and individuals in response to the economic hardships and distress resulting from the novel coronavirus (Covid-19) pandemic.

The CARES Act itself is more than 800 pages long, so our Covid-19 Response Team at McGrath North has prepared this overview of certain of the most prominent provisions to help distill the key takeaways as you plan for and navigate through these unprecedented times.

For additional information, you can visit our Covid-19 Resource Center here (a compilation of updates and alerts that we have provided relating to Covid-19 along with links to useful National, Federal and State Resources).  We are here to help, and you can reach out at any time to a member of our Covid-19 Response Team or any of your trusted contacts at McGrath North.


The new law includes significant expansion of unemployment benefits.

The amount of assistance that an individual will receive depends on their state. Generally, unemployment benefits pay around 40-45% of an individual’s income. The expansion will provide an extra $600 per week to help fill the gap.

Program Expansion. The program also creates the Pandemic Unemployment Assistance program to include self-employed individuals, part-time employees, freelancers, gig workers, and independent contractors. Benefit amounts will be calculated based on previous income and will include the $600/week provided by the federal government.

Covered Individuals. The law covers individuals who cannot work because: they have been diagnosed with Covid-19 and cannot work; they need to care for a family member who has been diagnosed with Covid-19; they need to care for a family member whose school, day care or care facility has been shut down because of Covid-19; they are in a self-quarantine, health provider-ordered quarantine or cannot get to work because of a quarantine; they were about to start a new job and cannot because of Covid-19; or they had to quit because of the above situations. It will also cover employees whose employer shut down because of Covid-19.

The law is not intended to cover individuals who quit because they fear that continuing to work puts them at risk of contracting Covid-19.

Benefit Duration. The law also expands the duration of benefits. Most states provide 26 weeks of benefits. This bill will provide an additional 13 weeks, a sum of 39 weeks in most states. Benefits cannot exceed 39 weeks. Finally, the extra $600/week provided by the federal government will last up to 4 months.

The coverage would be available to individuals who were eligible for unemployment benefits on January 27, 2020, through December 31, 2020.



Encouraging Telehealth. In a follow-up to Internal Revenue Service Notice 2020-15, which allowed employers to waive costs-sharing requirements for COVID-19 testing and treatment without violating the minimum deductible requirements for a High Deductible Health Plan, the CARES Act takes this safe harbor further by allowing employers to waive costs associated with telehealth and other remote care services without violating the high deductible health plan rules. Additionally, the new CARES Act promises $200 million to the Federal Communications Commission to support the development of telecommunications services and devices to enable telehealth services for health care providers. This new guidance falls in line with the government’s heightened efforts to encourage all individuals to receive care via telehealth, including the Office of Civil Rights’ recent guidance which allows health-care providers to communicate with patients via non-HIPAA compliant video sources without being subject to penalty, including Apple FaceTime, Skype, Zoom, WebEx, Google Hangouts, and other similar audio and video systems.

Expansion of Coverage for COVID-19 Testing. Although prior legislation already requires health plans to cover costs of FDA-approved COVID-19 testing and related costs, the CARES Act extends this requirement to include coverage beyond FDA-approved tests. The CARES Act requires coverage of the following COVID-19 tests, without cost sharing: tests provided by labs on an emergency basis, state-developed tests, and any other tests determined appropriate by the Department of Health and Human Services.

COVID-19 Testing Costs and Reimbursement. The CARES Act also lays out reimbursement guidelines for COVID-19 testing. Under the CARES Act, private health plans must reimburse a health care provider for COVID-19 testing based on the in-network rates for testing (or the negotiated rate between the provider and the plan). For out-of-network providers (in other words, where there is no negotiated rate), providers must list their “cash price” for testing on a public website, and the plan will reimburse the provider based on the listed cash price of the testing. If providers fail to make the cash price publicly available, they could be penalized up to $300 per day.

Anticipating Coverage for Vaccines. In order to be ready for the development and implementation of a COVID-19 vaccine and other preventive services associated with COVID-19, Congress included a provision in the CARES Act that preemptively requires rapid coverage of “qualifying coronavirus preventative services.” Group health plans and health insurance issuers are required to cover items, services, and immunizations intended to prevent or mitigate COVID-19 within fifteen business days after the date the immunizations or services are recommended by the United States Preventive Services Task Force or the Centers for Disease Control and Prevention.

HSA and FSA Reimbursement of Over-the-Counter Medicine. Contrary to prior restrictions on reimbursement of over-the-counter medicine from health savings accounts and health care flexible spending accounts, the CARES Act permits reimbursement of certain over-the-counter medications without a prescription. Individuals in need of over-the-counter products and medications during quarantine or social distancing may reimburse those expenses with health savings account and health care flexible spending account dollars.


Penalty-Free Early Withdrawals from Retirement Plans. In order to ease financial burdens associated with COVID-19, the CARES Act waives the traditional 10% penalty on early withdrawals in an amount up to $100,000 from qualified retirement plans. Additionally, tax payments owed on the early withdrawal may be paid over three years, and the amount distributed may be repaid to the plan within three years without being subject to applicable contribution limits. In order to qualify for an early distribution penalty waiver (or “coronavirus-related distributions”), the individual must: test positive for COVID-19, have a spouse or dependent that tested positive for COVID-19, or experience financial hardship as a result of quarantine, furlough, termination of employment, business closure, reduced working hours, or lack of child care.

Increasing Retirement Plan Loans. Another retirement plan-related relief effort embedded in the CARES Act relates to plan loans. The new law raises the limit on loans from qualified employer plans from $50,000 to $100,000 for one hundred eighty days following enactment. Additionally, if loan repayment is due prior to December 31, 2020, the repayment deadline will be extended by one year.

Delaying Required Minimum Distributions and Contributions. As the financial markets face turbulence and uncertainty, the CARES Act waives the 2020 required minimum distribution (“RMD”) and the 2019 RMD that is due by April 1, 2020 from defined contribution plans and IRAs.  RMDs are calculated based on account balances as of the prior December 31st, but retirement accounts have seen significant decreases over the past month. Additionally, the law delays application of minimum funding rules for defined benefit plans under ERISA, allowing employers to delay contributing required amounts until January 1, 2021.

Filing Deadline Delays. Although no filing deadlines relating to benefit plans have been officially delayed, the CARES Act authorizes the Secretary of Labor to postpone filing deadlines by up to one year if the Secretary of the Department of Health and Human Services (HHS) declares a “public health emergency” (which was declared earlier this year).


Limit on Executive Compensation For Loan-Eligible Businesses. The CARES Act provides $500 billion of funding to the U.S. Treasury’s Exchange Stabilization Fund. In order to qualify for various loans and loan guarantees under such funding arrangement, businesses must adhere to limits on executive compensation. First, officers and employees of the business that received more than $425,000 in total compensation during 2019 cannot receive more total compensation than they received in 2019, or severance pay upon termination that exceeds twice their 2019 compensation amounts. Additionally, officers and employees receiving more than $3 million in total compensation in 2019 must not receive more than $3 million plus 50% of the excess over $3 million paid in 2019. These limits will apply starting the date the loan or guarantee agreement is entered into, and ends one year after the loan or guarantee is repaid or resolved. Additionally, for purposes of these limits, total compensation includes salary, stock, bonuses, and other financial benefits.



Immediate Cash Incentive To Keep Your Business Going and Your Workforce Employed. $350 billion has been allocated for Small Business Interruption Loans, which may be forgivable when used for payroll, rent, mortgage interest or certain utility costs.

Who Does This Apply To?  These loans are available to small and mid-size entities, meaning less than 500 employees (with a special exception for companies in the hospitality or dining industry with multiple locations) to help make payroll and cover other expenses.  Eligible businesses include sole proprietorships, nonprofit organizations, veterans’ organizations, and tribal businesses. In order to receive a loan, a recipient must certify that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the recipient.

What Are The Benefits?  A business may get immediate cash loans from local SBA lender banks through June 30, 2020.  Part of the loans may be forgivable.

What Are More Specifics About The LoansThe maximum loan amount will be 250% of a business’s average monthly expenses for payroll, which is defined to include employee compensation (up to $100,000 per year), payments for group health benefits, retirement benefits, state and local payroll taxes, and compensation to sole proprietors and independent contractors (up to $100,000 per year).  The maximum loan to a single entity will be $10 million. Proceeds of the loan may be used for payroll costs, rent, interest on mortgages, interest on other debt obligations incurred before March 1, 2020, and utilities, up to $10 million.

What Are More Specifics About Forgivable Parts Of The Loans The amount to be forgiven is equal to the payments made by the borrower during the 8-week period beginning on the date of the loan for payroll costs (as reviewed above), mortgage interest, rent, and certain utility payments. To seek forgiveness, a borrower must submit an application to the lender which documents the above costs. This loan forgiveness will be reduced proportionately by a reduction in the business’s number of employees, or if employees’ salaries are reduced by more than 25%.  This reduction can be avoided if the employer rehires or increases the employee’s pay within an allotted time period.

How Do We Get These Loans Quickly?  Applications for these loans would be made through any lender that is authorized to make loans under the SBA’s current Business Loan Program.  The Act delegates authority to make and approve loans to qualified lenders, so lenders need not go through the federal SBA.  We are developing a quick eligibility input format and list of participating banks which can quickly deploy this new funding.



Delay of Employer Social Security Payments.  Both employers and self-employed individuals may delay payment of the employer’s share of payroll taxes until January 1, 2021.  50% of these taxes will be due on December 31, 2021, while the other 50% will be due on December 31, 2022.

Carry Back of Net Operating Losses.  Companies may take Net Operating Losses earned in 2018, 2019 or 2020 and carry such losses back five years.  In addition, the Net Operating Loss limit of 80% of taxable income is also suspended, so firms may use NOLs to fully offset taxable income. The Act also modifies loss limitations for non-corporate taxpayers.

Increase Net Interest Deduction Limitation.  The net interest deduction limitation limits a business’s ability to deduct interest to 30 percent of adjusted taxable income (which is similar to EBITDA).  The Act revises the net interest deduction limitation to allow a deduction for interest expense up to 50% of EBITDA.

Payroll Tax Credit Refunds.  The Act provides for advance refunds of the payroll tax credits – the credit for required paid sick leave and the credit for required paid family leave – enacted in the Families First Coronavirus Response Act already passed.

Employee Retention Credit.  The Act establishes an employee retention credit for employers: a) whose business was fully or partially suspended due to government orders limiting commerce, travel, or group meetings due to COVID-19; or b) have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year.  For each quarter, the business will receive a credit against its share of Social Security payroll taxes equal to 50% of the qualified wages paid to each employee, up to $10,000 of wages per employee.


Cash Payments To Individual Taxpayers.  The Act will provide a $1,200 cash payment (technically structured as a refundable tax credit) to individuals, which is doubled to $2,400 for joint taxpayers.  In addition, taxpayers with children will receive a flat $500 for each child, which is also subject to the phaseout.  The final version of the Act specifies that there are no minimum qualifying income requirements and no phase-in.  However, if an individual did not file a 2018 or 2019 income tax return, and did not receive a Form SSA-1099 Social Security Statement, that person will receive their payment as a credit against their 2020 income tax return. These payments begin to phase out above $75,000 of 2018 adjusted gross income for singles, $112,500 for heads of household and $150,000 for joint taxpayers.  Payments would drop by $5 for each $100 that their income exceeds the threshold.  For married couples with two children, they would not lose all of their payment until their AGI exceeds $218,000. No special action is needed to claim this payment.

No Penalty For Using Retirement Funds for Coronavirus Costs.  The Act waives the 10% early withdrawal penalty on distributions, up to $100,000, from qualified retirement accounts for persons who have been diagnosed with COVID-19 or who have a spouse or dependent that was diagnosed with COVID-19.  Funds may also be used by individuals who suffer adverse financial effects from a quarantine, furlough, lay off or work reduction due to COVID-19.  Funds could also be used by those unable to work due to lack of child care.  Amounts that are withdrawn may be taxable over three years, but individuals may recontribute any withdrawals to the qualified account within three years, even if over the annual limitations, to avoid this income tax.   Retirement plans may immediately adopt these rules, even if the plan does not presently allow for hardship loans or distributions.

Waives Required Minimum Distribution Rules For 2020.  The Act waives required minimum distribution rule for calendar year 2020, including 401(k), 403(b), 457(b) and IRA plans.

Changes To Charitable Contribution Rules.  The Act would provide individuals with a $300 above-the-line deduction for donations to charities, whether or not they itemize on their return.  For taxpayers who itemize deductions, the Act allows contributions to be deducted up to 100% of adjusted gross income for 2020.  For corporations, the limit increases from 10% of adjusted taxable income to 25%.


Small Business Reorganization Act of 2019 (“SBRA”).  In addition to other amendments, the CARES Act amends SBRA, to increase the eligibility threshold for businesses filing under SBRA from $2,725,625 of debt to $7,500,000.  The eligibility threshold will return to $2,725,625 after one year.  More information regarding SBRA and its benefits to small businesses can be found here.



McGrath North’s COVID-19 Response Team includes:

Labor, Employment and Benefits:


Aaron Clark
(402) 633-9580



Abbey Moland
(402) 633-9566



Business and Corporate:


Sandra Morar
(402) 341-3070


Rachel Meyer
(402) 633-6882



Tom Worthington
(402) 633-9554

Litigation, Insurance and Risk Management:


Scott Paul
(402) 341-3070



Bill Birkel
(402) 341-3070



April Hook
(402) 633-6813

Force Majeure and Commercial Transactions:


Jim Frost
(402) 341-3070



Sandra Morar
(402) 341-3070