Updated: March 26, 2020, 7:30 am
Congressional Response to Coronavirus
This memo summarizes the legislative response to the health- and economic-related challenges posed by the novel coronavirus epidemic.
Stay tuned for updates on the legislative response. The Government Affairs Team at AALU has also prepared more detailed briefs discussing the specific items of key importance to the membership and your clients, including SBA loans and sick leave requirements and resources.
Background: To date, President Trump has signed two stimulus packages into law. The Senate passed a historic “phase three” package worth over $2 trillion on March 25th, 2020 by a vote of 96-0. The measure is now expected to see consideration in the House of Representatives, where party leaders are urging their Members of Congress to pass the package immediately and without delay. House Majority Leader Hoyer indicated he expects a vote Friday, March 27th, 2020.
Phase one: [enacted March 6th, 2020] – The package appropriates $8.3 billion in emergency funding to give the federal government the initial tools to respond to the coronavirus outbreak. The law provides FY2020 supplemental funding for the Food and Drug Administration, the Centers for Disease Control and Prevention, the National Institutes of Health, the Public Health and Social Services Emergency Fund, and the Small Business Administration (SBA), among other agencies.
Key Highlight: The small business section allows the SBA to provide an estimated
$7 billion in low-interest disaster loans to small businesses and non-profit organizations that have been impacted by financial losses due to the coronavirus outbreak. Your Government Affairs Team produced a separate brief with details about how these loans may be accessed on Tuesday, March 24th, 2020.
Phase two: [enacted March 18th, 2020] – This law (H.R. 6201) provides paid sick leave and partially paid Family and Medical Leave Act (FMLA) leave, free coronavirus testing, expands food assistance and unemployment benefits, and requires employers to provide additional protections for health care workers.
Key Highlight: The law includes a requirement on employers to provide paid sick leave and partially paid FMLA leave to employees. The law provides refundable tax credits to employers designed to offset the costs of providing that leave. Your Government Affairs Team produced a separate piece with details on whether and how
those requirements may affect your business and how you can access those tax credits on Tuesday, March 24th, 2020.
Phase three: After days of intense wrangling, the Senate reached bipartisan agreement on the third phase coronavirus stimulus package, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The bill provides $2 trillion for assistance to healthcare providers, businesses, and employees prevented from working by coronavirus-related conditions. You can read the summary here. We will update this brief periodically as new information is available. Below are the key details of the Senate package, including the provisions impacting producers and advisors. [NOTE – drafters were still making corrections to the text before the Senate vote on Wednesday night]
- Recovery Rebates: $1,200 direct payments to individuals; $2,400 for married couples; and $500 per child dependent under 17 years
- Phase out: Individuals begins at adjusted gross income (AGI) of $75,000 and is completely phased out beyond AGI of $99,000. For married couples the phase out begins at AGI of $150,000 and ends at $198,000. For heads of household the phase out begins at AGI of $112,500 and ends at $146,500.
- No action will be required in order to receive a direct payment check as the IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return.
- Small Business Loans and Grants: the proposal would provide an additional $377 billion in assistance for small businesses during the coronavirus outbreak. In large part, loans are designed to enable small businesses to retain employees. A considerable portion of the loans also allow to small businesses to pay for other expenses such as mortgages, rent or
- $349 billion to support loans through the Paycheck Protection Program. Companies with 500 employees or fewer could be eligible for up to $10 million in small business loans. The size of the loans would equal 250 percent of an employer’s average monthly payroll. This section removes any prepayment penalties for loans made under this title on or before December 31, 2020. Eligible payroll costs do not include compensation above $100,000 in wages or employment outside the U.S. The loans also allow for deferred payments until December 31st,
- Provides $10 billion in Emergency Injury Disaster Loan (EIDL) grants to include Tribal businesses and cooperatives with fewer than 500 employees or any individual operating as sole proprietor or independent contractor. Private non-profits are also eligible for grants and EIDLs. and $10 billion for small business loan subsidies. The provisions allow small businesses to expedite access to capital through an Emergency Grant, which is an expedited advance of $10,000 within three days to maintain payroll and other
- $17 billion in small business debt relief. The bill requires the Small Business Administration to pay principal, interest, and fees on all existing SBA loan products for a period of six
- Provides loan forgiveness equal to the to the amount spent by the borrower during an 8-week period after the origination date of the covered loan on payroll and other costs prior to February 15th, 2020. A covered loan could be used to disburse payroll costs; cover costs related to paid sick, medical, or family leave; employee salaries, commissions, or similar compensation; payments of interest on any mortgage obligation; rent or utilities. The goal is to have small businesses retain as many employees as possible. Eligible payroll costs do not include compensation over $100,000 in wages. Amounts forgiven cannot surpass the principal amount of the covered loan. To encourage employers to rehire any employees who have been laid off due to the crisis, borrowers that rehire employees will be rewarded by this provision.
- Pandemic Assistance Program: Creates a temporary program through December 31st, 2020, to provide payment to those not traditionally eligible for unemployment benefits g. self-employed. The program provides payments of $600 per week to each beneficiary of the Pandemic unemployment assistance for up to four months.
- State relief fund: $150 billion would be created for States, cities and other local governments. Additional funds will be set aside for territories, tribal governments and other
- Qualified Plan Distribution Waiver: The bill waives the 10-percent early withdrawal penalty for distributions from qualified retirement accounts up to
$100,000 for coronavirus-related purposes made on or after January 1, 2020. A coronavirus-related distribution is a one made to an individual:
- Who is diagnosed with COVID-19,
- Whose spouse or dependent is diagnosed with COVID-19, or
- Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child-care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury
The distributions would be subject to tax over three years, and the taxpayer may recontribute the funds within three years without regard to that year’s cap on contributions.
- Temporary Waiver of RMDs for Certain Retirement Plans: The bill waives the required minimum distribution rules for certain qualified plans and IRAs (including 403(b) and 457(f) plans) for calendar year 2020 for individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.
- Employee Retention Credit for Employers: The bill provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose:
- Operations were fully or partially suspended, due to a COVID-19- related shut-down order, or
- Whose gross receipts declined by more than 50 percent when compared to the same quarter in the prior
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, even if the employer is subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits. The credit expires December 31, 2020.
Employers taking certain SBA loans (e.g., the paycheck protection loan) cannot use this provision.
- Student Loan Repayment Benefit: The bill waives taxes for employers that create a student loan repayment benefit for employees. An employer may contribute up to
$5,250 annually, and such payment would be excluded from the employee’s income. The $5,250 cap applies to other educational assistance (e.g., tuition, fees, books) provided by the employer. Expires December 31, 2020.
- Charitable Contributions and Deductions: The bill encourages Americans to contribute to churches and charitable organizations by permitting them to deduct up to $300 of cash contributions in 2020, whether they itemize their deductions or not. The bill suspends the 50% adjusted gross income limitation for 2020 for individuals; for corporations, the 10% limitation is increased to 25%
- Delay of Employer Payroll Taxes Payment: The bill allows employers and self- employed individuals to defer payment of their share of the 6.2% Social Security tax they otherwise pay over the next two years, with half required to be paid by December 31, 2021 and the other half by December 31,
- Short-Term Compensation Program: Provides funding to support short-term compensation programs for employers who reduce hours instead of laying off employees. The Federal government would pay 100 percent of the cost through December 31, 2020.
- Treasury’s Exchange Stabilization Fund: Provides $500 billion to the Treasury Department for loans, loan guarantees, and other investments. Borrowers of the Fund are required to limit compensation for employees to $425,000 for a period of two years, from March 1st, 2020 to March 1st, 2022. This provision also limits severance pay or other benefits upon termination which exceeds twice the amount described above. Additionally, officers or employees making over $3 million last year would be prohibited from earning more than $3 million plus fifty percent of the amount their compensation exceeding $3 million last year. Borrowers are also required to keep 90 percent of their
- Any entity borrowing from the Federal government under this program is prohibited to engage in stock buybacks or pay dividends with respect to common stock during the duration of the loan or for at least a year after the loan is no longer outstanding. Under this proposal, the Secretary of the Treasury is required to testify before Congress if he decides to waive requirements pertaining to the
- Net Operating Loss Fix: Enacts a rule for life insurance companies to modify net operating loss (NOL) rules. Currently, NOLs are subject to a taxable income limitation, and they cannot be carried back to reduce income in prior tax year. This provision provides that a NOL from 2018, 2019, or 2020, can be carried back five years. These changes will allow companies to utilize losses and amend prior years’ returns, which can provide cash and liquidity during the emergency.
- Single-Employer Plan Funding Rules: Provides single employer pension plan companies with more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier would be due with interest. The bill also provides that a plan’s status for benefit restrictions as of December 31, 2019, will apply throughout
Reminder: this update was developed while the final details were still being ironed out.
AALU/GAMA will provide updates and more detailed analysis in future updates.
Next Up?: Members of Congress and the Administration are signaling strong measures to do everything in their power to avert an economic downturn. Additional relief and stimulus efforts are likely as everyone understands the evolution of the situation faced by the nation. Once the phase three package passes both chambers, the legislation will go to the President’s desk immediately to be enacted into law.
Stay tuned here for updates and call us or email us with questions. Your GA team will update this brief periodically as new information is available.