Hardwood Federation Policy Alert: House Joins Senate in Passing COVID-19 CARES Act
March 27, 2020
The House of Representatives has joined the Senate and passed the Phase 3 “Coronavirus Aid, Relief, and Economic Security (CARES) Act”, which will now be sent to the President’s desk and is widely thought to be signed as soon as possible. Please note that application processes and guidelines for most of these programs are yet to be developed. We will work to keep you posted as this information becomes available.
As reported after the Senate vote provisions in the CARES Act that are of special interest to the forest products industry include:
Provisions for Corporations
- Net Operating Losses (NOLs) -- relaxes the limitations on a company’s use of losses from prior years. The Tax Cuts and Jobs Act had eliminated for most taxpayers the use of so-called net operating loss (NOL) carrybacks. Package would allow losses from 2018, 2019, or 2020 to be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. The goal of this language is to allow companies to utilize losses and amend prior years’ returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.
- Deferred Social Security Tax Payment -- allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2% Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.
- Refundable Payroll Tax Credit -- authorizes a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. The credit is based on qualified wages paid to the employee. For employers with greater 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.
- Corporate AMT Credits -- The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.
- Business Interest Limitation — temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30% limitation to 50% of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.
- S-Corp and Pass Throughs — language modifies the limitation on losses for taxpayers other than corporations. The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.
Small Business Provisions
- Includes several changes to the 7(a) loan program, the SBA’s primary program for providing financial assistance to small businesses.
- Establishes the maximum 7(a) loan (7a refers to section of Small Business Act that authorizes loans to small businesses) amount to $10 million through December 31, 2020 and provides a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan. Specifies allowable uses of the loan include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments. See more below.
- Increases the government guarantee of 7(a) loans to 100% through
December 31, 2020, at which point guarantee percentages will return to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.
- Allows complete deferment of 7(a) loan payments for at least six months and not more than a year and requires SBA to disseminate guidance to lenders on this deferment process within 30 days.
- Loans may be forgiven. The amount of the forgiveness is equal to the amounts spent by the borrower during the eight weeks from loan origination on payroll costs (up to $100,000 in wages), mortgage interest, rent or utilities (subject to certain restrictions).
- The forgiveness amount is reduced by layoffs (though employer may rehire workers to mitigate this reduction) or pay reductions in excess of 25%. Amounts forgiven are not treated as taxable income to the borrower.
- Loan amounts may be used for payroll, mortgages, rent, insurance premiums and utility payments.
- Funds the program at $349 billion for the 7(a) program through December 31, 2020.
Of additional interest in a supplemental act are:
Items relevant to Forest Products Value Chain in Emergency Supplemental Accompanying H.R. 748
- Department of Transportation – Federal Highway Administration – Language to clarify that states can issue special permits for overweight vehicles and loads to allow for the free flow of critical relief supplies during the current coronavirus epidemic for the duration of the fiscal year.
- Department of Commerce--Manufacturing Extension Partnership (MEP) – $50 million to be distributed among the 51 MEP centers to help small- and medium-sized manufacturers recover from the economic impacts of coronavirus. The bill also waives the statutory cost-match requirements for all FY2020 funding
- U.S. Forest Service – $70.8 million FOREST AND RANGELAND RESEARCH – $3 million to re-establish scientific experiments impacted by travel restrictions, such as the Forest Inventory and Analysis program, which is a critical forest assessment tool for states
Key Small-Medium Business Programs: Two programs that may be of interest to your small and medium sized business in the immediate period after the passage of the CARES Act.
Paycheck Protection Program – A top business relief initiative in the CARES Act is the “Paycheck Protection Program”, an emergency lending program housed in the Small Business Administration (SBA) 7(a) lending program. The PPP contains $349B in lending capacity available to businesses and qualifying entities with fewer than 500 employees and allows for federally insured, fully forgivable loans up to $10M if all criteria is met.
Details and application processes will be developed over the next week or so. For a deeper dive into the Paycheck Protection Program please visit:
Disaster Assistance Loans – Mostly used for natural disasters in standard times, the Disaster Assistance provided by the Small Business Administration (SBA) allows for affordable financial help to businesses in declared disaster zones (of which all 50 states have been declared for COVID-19). This allows for economic injury loans of up to $2M at a low rate.
This program is currently available. For more information on Disaster Assistance and to apply please visit:
Please visit our website at www.hardwoodfederation.com for a (updated as needed) list of COVID-19 Relief information and links.