URGENT - NEW FEDERAL RELIEF PROGRAMS WHICH ALL NEW YORK BUSINESSES AND RESIDENTS NEED TO KNOW
The CARES Act, enacted Friday, March 27, 2020, provides several additional types of significant immediate financial relief to businesses and individuals, to help soften the economic distress caused by the pandemic. The following is a summary of the key programs which you need to know.
UPDATE: On May 7, 2020, Governor Cuomo issued Executive Order No. 202.28 which extended the temporary moratorium on evictions and foreclosure proceedings to August 20, 2020, for those facing financial hardship from the COVID-19 crisis.
SIGNIFICANT SBA LOANS THAT MAY BE FORGIVEN IN WHOLE OR IN PART
The Payroll Protection Program, or PPP, is a new Small Business Administration (SBA) loan program that will provide loans to small businesses and individuals that may not have to be paid back. Here are some FAQs.
Do I qualify?
Businesses or nonprofits with 500 or fewer employees qualify if current economic conditions require that you obtain the loan to support ongoing operations.
Self-employed or independent contractor?
How much can I borrow?
Approximately 2.5 times average monthly payroll costs during the 12 months before the loan closes, or a shorter period if you have not been in business for a year, excluding any salary over $100,000 per person per year. Health insurance and some other benefits are part of payroll costs.
Example: If your average payroll costs over the past year were $50,000 per month, including health benefits but not the portion of any person’s salary that exceeded $100,000, then you can borrow $125,000.
No more than 4%. No interest or principal payments or loan fees for at least six months. You only have to pay interest on the amount which is not forgiven.
What can I use the loan for?
Salaries and other payroll costs, certain health care benefits, mortgage interest, rent, utilities, and interest on other debt incurred prior to February 15, 2020.
Who is the lender?
Banks or other lenders approved to make SBA loans.
Does the lender worry about risk?
Not much, because the SBA is giving a 100% guarantee.
No, so long as you use the loan proceeds for permitted purposes.
None to the SBA, and the SBA pays origination fees to your bank, so bank fees should be minimal or nonexistent.
Do I have to pay the loan back?
That part of the loan proceeds you spend on permitted expenses during the eight-week period after the loan is made may be forgiven. If this amount equals or exceeds the full amount of the loan, then the entire loan may be forgiven, and you do not have to pay back any of the money. You may lose part of the forgiveness if you reduce salaries or fire employees. Also, your initial payments for the first 6-12 months are deferred.
How may the amount of my loan forgiveness be reduced?
Two ways, fewer employees or reductions in salary.
Fewer employees. The average number of full-time equivalent employees per month from February 15 through June 30, 2020, may not be less than the average during one of two periods, either (your choice) February 15 to June 30, 2019, or January 1, 2020, to February 29, 2020. If less, there is a pro-rata reduction in loan forgiveness. A layoff made any time from February 15 to April 26, 2020, does not count against you if you rehire or replace the discharged person by June 30, 2020.
Reductions in salary. Although this section in the law is not clear because it appears there was an error in drafting, we believe the intent was that any salary reduction of more than 25% for an employee earning less than $100,000 results in a dollar for dollar reduction in loan forgiveness. A salary deduction made anytime from February 15 to April 26, 2020, which exceeds this amount will not count against you if you restore the pay reduction by June 30, 2020.
- Example A: Assuming you borrow $100,000, you do not lay off any employees, and you do not reduce the pay of any employees making less than $100,000 by more than 25%, then the entire loan may be forgiven.
- Example B: Assuming you borrow $100,000, you reduce your staff by 10% and you reduce the wages of the remaining employees (all who make less than $100,000) by 50%, then you would lose $10,000 ($100,000 x 10%) (for the staff reduction) plus $22,500 ($90,000 x 25%) (for the salary reduction in excess of 25% for the remaining 90% of the workforce) of the forgiveness amount, so you would have to pay back $32,500.
Does the lender lose money on the amount of the forgiveness?
No. The SBA reimburses the lender.
Will the amount of the loan forgiveness be taxable?
No. The loan forgiveness is not considered taxable income.
What about any part of the loan that is not forgiven?
You must repay it with a term of up to 10 years.
When will the loans be available?
Hopefully soon. Banks will likely not start offering the loans until the SBA issues regulations, which it is required to do within 30 days. Then, after you apply with the required documentation, the loan processing time may depend on the bank processing procedures and underwriting requirements.
What should I do to apply?
Contact your bank immediately to see if it will be offering these loans and start the loan application process. Contact us to assist you in locating a bank making such loans or with the loan application process.
You probably have other questions. Answers must await SBA regulations, expected in the next 15 to 30 days. Clients interested in PPP loans can work with us and be ready to apply once the banks start accepting applications.
ALTERNATIVE FINANCIAL RELIEF FOR EMPLOYERS IF THEY DO NOT OBTAIN A PAYROLL PROTECTION PROGRAM LOAN
The following two programs, payroll tax deferral, and payroll retention credit, only apply to employers who do not obtain a forgivable SBA Payroll Protection Loan. Employers should consult with counsel and their financial advisors in making a decision about which programs to pursue.
PAYROLL TAX DEFERRAL FOR ALL EMPLOYERS
Who is eligible?
Any employer (except an employer that received forgiveness of part of a PPP Loan).
What is deferred?
The 6.2% payroll tax owed during 2020.
Until when is it deferred?
50% must be paid by December 31, 2021, and 50% by December 31, 2022.
PAYROLL RETENTION CREDIT TO ENCOURAGE EMPLOYERS TO KEEP EMPLOYEES
Who is eligible?
Any employer (except an employer that obtained a PPP Loan), if during the applicable quarter,
a)the business was fully or partially suspended due to government orders limiting commerce, travel or group meetings due to the Coronavirus pandemic, or
b)the business suffered a reduction in quarterly gross receipts of more than 50% compared to the same quarter in 2019. The business will continue to be eligible each quarter until the business has a quarter where gross receipts exceed 80% of what they were in the same quarter the last year.
What is the amount of the payroll tax credit?
The amount depends on the size of the employer.
For employers with more than 100 employees in 2019:
Up to $5,000 per employee per quarter (50% of the wages paid in the quarter, up to $10,000), for the wages paid to a furloughed employee even though the employee is not providing any services to the employer due to the business slowdown.
For employers with 100 or fewer employees in 2019:
Up to $5,000 per employee per quarter (50% of the wages paid in the quarter, up to $10,000), for the wages paid to any employees, including those that are still working and paid furloughed employees.
How does an employer receive the payroll tax credit?
The employer can deduct the amount of the tax credit from the payroll taxes it is going to pay for all employees for the quarter. If the amount of the credit exceeds the payroll taxes for all employees for the quarter, then the employer will be entitled to a refund for such excess amount.
BOOSTED UNEMPLOYMENT INSURANCE PAYMENTS
What is the amount of the increased unemployment payment?
$600 per week, in addition to regular state unemployment insurance benefits, for a maximum of 39 weeks between January 27, 2020, and December 31, 2020.
Who is eligible?
Persons who are out of work for reasons directly related to the Coronavirus pandemic, while the person is unemployed, partially unemployed, or unable to work, for any of the following reasons:
a. The individual, or a member of the household, has been diagnosed with COVID-19 or is experiencing symptoms and seeking a diagnosis, or the individual is providing care for such a member of the household;
b. A child, or another person for which the individual is primary caregiver, is unable to attend school closed as a direct result of the COVID-19 health emergency;
c. The individual is unable to reach the place of employment because of a quarantine imposed as a direct result of the COVID-19 public health emergency, or because the individual has been advised by a health care provider to self-quarantine;
d. The individual has become major support for a household because the head of the household has died as a direct result of COVID-19;
e. The individual had to quit as a direct result of COVID-19; or
f. The individual’s place of employment is closed as a direct result of the COVID-19 public health emergency.
A person who is self-employed and seeking part-time employment, but does not have sufficient work history or would not qualify for regular unemployment benefits, may qualify for the boosted $600 weekly unemployment benefit.
Individuals who have the right and ability to telework with pay, and those individuals receiving paid sick leave or other paid leave benefits, do not qualify for the boost in unemployment insurance benefits.
Will employees be entitled to unemployment insurance benefits if they continue to work but their hours or their pay is reduced?
Only if they work three or fewer days per week.
Under the CARES Act, an employee only gets the $600 boost if the employee qualifies for any state unemployment insurance benefits.
Under New York law, if an employer reduces an employee’s hours or pay, the employee is not entitled to obtain unemployment insurance, unless
- the employer reduces their schedule to three days or less a week, or
- the employer reduces the schedule to four days (so they are considered totally unemployed for one day per week) and their reduced pay is less than $504 per week (the maximum unemployment insurance benefit).
If the employer reduces the hours to three days or less a week, or to four days but they are making less than $504 per week, the employee can obtain partial unemployment insurance benefits.
If the employer reduces the hours or pay, but the employee continues working four or five days a week (even if it is only for 1-2 hours per day), then the employee will not be able to obtain any state or federal unemployment insurance benefits, and will be disqualified from benefits if the employee resigns.
The Attorney General has recently issued guidance, and the Department of Labor has issued guidance, on this issue and other unemployment issues in light of the Coronavirus pandemic, in the form of FAQs, as follows:
“Q. What if my hours were heavily reduced? Or, what if I worked multiple jobs, and was laid off from one of the jobs?
A. Employees may be entitled to partial unemployment insurance benefits if they work fewer than four days a week and do not earn over the maximum rate of $504 per week. Depending on how many days per week you continue to work, you may receive up to three-quarters of your average weekly rate in partial benefits. Employees who receive partial benefits are entitled to receive benefits for a longer period of time than employees who receive full unemployment insurance benefits.”
“Q. My employer has reduced my hours because of COVID-19. Am I eligible for Unemployment Insurance?
It depends. If you work less than four days a week and earn $504/week or less, you may be eligible to receive partial UI benefits.”
Is there an alternative program to provide benefits to workers with reduced hours?
An employer who wants to reduce hours by 20-60% but wants the workers to continue working five days per week can submit a “short-time compensation program” or “shared work plan” to the Department of Labor, specifying the workers and the proposed reduction in hours. If the plan is approved, the retained employees can obtain “shared work benefits” even though they are still working, to boost their reduced pay by an amount equal to the percentage reduction times the amount of the unemployment insurance benefit they would have received if they were terminated.
See this guide for an explanation of the state’s existing Shared Work Program. The CARES Act does not provide additional benefits for such workers but provides that the federal government will reimburse the state for the costs of this existing program.
ONE TIME DIRECT PAYMENTS TO INDIVIDUALS
Individuals are eligible to receive a one-time payment based on their income level and number of dependents as follows:
How much will I receive?
Individuals filing taxes separately who earn up to $75,000 shall receive a payment of $1,200. For individuals earning more than $75,000, the payment shall be reduced by 5% of the amount exceeding $75,000, so that such an individual earning $99,000 will not receive any payment.
Joint filers who earn up to $150,000 combined shall receive a payment of $2,400. For joint filers earning more than $150,000, the payment shall be reduced by 5% of the amount exceeding $150,000, so that joint filers earning more than $198,000 will not receive any payment.
Individuals who file as the “head of household” and earn up to $112,500 annually shall receive a payment of $1,200. For individuals who earn more than $112,500, the payment is reduced by 5% of the amount exceeding $112,500, so that such individuals earning more than $136,500 will not receive any payment.
All qualifying individuals shall receive an additional $500 credit for each dependent they claim.
Examples: A family of four (filing jointly) earning less than $150,000 combined shall be entitled to a payment of $3,400. An individual filer earning less than $112,500 who has 3 dependents shall be entitled to a payment of $2,700.
The relief is based on an individual’s tax returns. If individuals have filed their 2019 tax returns, the stimulus payment eligibility shall be calculated using the individual’s 2019 tax returns; if individuals have not filed their 2019 tax returns the payments shall be based on individuals’ 2018 tax returns.
Who is entitled to the payment?
The stimulus payment shall be sent to individuals with valid social security numbers. Individuals who are not otherwise accounted for (i.e. adults and minors who are filed as dependents by others), non-resident aliens, trusts or estates, shall not receive a payment.
When will I get the money?
Individuals do not need to do anything to get their checks. Most taxpayers will receive a rebate check, but they are likely to get it faster if they have filed either a 2018 or 2019 tax return, and if the IRS has their bank accounts on file where the money can be directly deposited.
EVICTION AND FORECLOSURE MORATORIUM FOR PUBLIC HOUSING AND GOVERNMENT-BACKED LOANS
The CARES Act imposes a temporary moratorium on evictions of renters in federally subsidized apartments and on foreclosures against homeowners with federally backed mortgages.
1. MORATORIUM ON EVICTIONS
What properties are covered by the eviction moratorium?
Residential properties which are occupied by a tenant pursuant to a residential lease or has no lease and is on a property which is subject to:
A. the Violence Against Women Act of 1994;
B. the rural housing voucher program of the Housing Act of 1949;
C. a federally backed mortgage loan; or
D. a federally backed multifamily mortgage loan.
How long is the moratorium on evictions?
The moratorium started on March 27, 2020, and continues for 120 days. It prevents the landlord of a property subject to the conditions A through D above from:
A. filing a court case to evict for nonpayment of rent or other fees or charges, or
B. charging fees, penalties, or other charges to the tenant related to such nonpayment of rent.
The landlord must give a tenant 30 days' notice to vacate the unit and cannot give such a notice during the 120-day period that started on March 27, 2020.
Didn’t New York City already prohibit any new evictions?
Yes, in New York City, the courts, in response to the COVID-19 emergency, already imposed a moratorium on the commencement of any actions, including eviction cases.
Borrowers whose properties are located elsewhere in the state are advised to check the court rules in those jurisdictions.
2. MORATORIUM ON MORTGAGE FORECLOSURES AND RIGHT TO REQUEST FORBEARANCE
What type of loans are covered by the foreclosure moratorium and the right to request forbearance?
All mortgage loans that are owned, insured, or guaranteed by one of the following entities:
A. HUD (including Federal Housing Administration loans and reverse mortgages);
B. Department of Veterans Affairs;
C. Department of Agriculture; or
D. Fannie Mae or Freddie Mac.
but not the property that is vacant or abandoned.
How long is the moratorium?
A mortgage loan servicer cannot initiate foreclosure of the loan, or execute a foreclosure-related eviction or sale for not less than the 60-day period beginning March 18, 2020.
What are the procedures for borrowers to request forbearance?
Properties of 1 to 4 Family Units
The Act describes a simple procedure for the borrower to follow which requires the borrower to (1) submit a request for forbearance to their loan servicer and (2) affirm that the borrower is experiencing financial hardship during the COVID-19 emergency. No other documents to establish the financial hardship are required. There are no fees, penalties, or interests related to this forbearance.
This request must be submitted during the “covered period” which started on March 27, 2020, and will end on the sooner of:
A. the termination date of the COVID-19 national emergency declared by the President; or
B. December 31, 2020.
The Act requires the lender to grant forbearance for up to 180 days and if the borrower requests it, an additional 180 days. If the borrower requests that the initial or extended period of forbearance be shortened, then the period of forbearance may be shortened.
Multifamily properties with federally backed loans
The Act describes procedures for the multi-family borrower to follow which requires the borrower to (1) submit an oral or written request for forbearance to their loan servicer and (2) affirm that the borrower is experiencing financial hardship during the COVID-19 emergency. There will be no fees, penalties, or interest related to this forbearance.
The borrower must be current in its payments as of February 1, 2020.
Upon receipt of the oral or written request (we urge such borrowers to submit written requests), the servicer shall:
A. document the financial hardship;
B. provide forbearance for up to 30 days, and
C. extend forbearance for up to 2 additional 30-day periods upon the request of the borrower provided that, the borrower’s request for an extension is made during the covered period and, at least 15 days prior to the end of the forbearance period described in subparagraph B above.
The multi-family borrower has the option to discontinue the forbearance at any time.
What protections are given to tenants during the foreclosure moratorium?
The law imposes a moratorium on evictions of tenants in such government-backed housing for the duration of the forbearance period.
For the duration of the forbearance period, the borrower may not:
1. evict or initiate the eviction of a tenant from the property solely for nonpayment of rent or other fees or charges, or
2. charge any late fees, penalties, or other charges to a tenant.
The borrower who receives forbearance:
1. may not evict a tenant located in the property until the borrower issues a 30-day notice to the tenant; and
2. may not issue such a notice until after the expiration of the forbearance.
GRANTS TO THE HEALTHCARE INDUSTRY
The CARES Act includes $127 billion in grants and appropriations for the healthcare industry.
Who is getting the money?
Most of that amount – $100 billion – is granted directly to the Department of Health and Human Services to provide funds to “eligible health care providers” through “grants or other mechanisms.” Entities eligible for these funds are broadly defined as “public entities, Medicare or Medicaid enrolled suppliers and providers, and such for-profit entities and not-for-profit entities not otherwise described in this proviso as the Secretary may specify….” However, to qualify, any such entity must “provide diagnoses, testing or care for individuals with possible or actual cases of COVID-19.”
In addition to the $100 billion mentioned above, the CARES Act provides for $250 million for hospitals that have qualified as grantees or sub-grantees under the Hospital Preparedness Program. The Center for Medicare Services program which provides for advanced payment of hospital services has been modified, increasing the prepayment amount from 70% to 100%, and in the case of “critical access hospitals,” 125%. The hospital must have suffered financial difficulty due to the expected delay or experienced some other exceptional circumstance. CMS will also delay recoupment of any overpayment by waiting 120 days to seek such recoupment instead of the usual 90 days. The CARES Act also suspends The Budget Control Act of 2011, which established a 2% reduction of Medicare.
The Department of Health and Human Services has also been provided with $180 million for rural health networks and telehealth services to respond to the coronavirus. Regulatory burdens on Medicare reimbursement for telehealth services have also been relaxed, including that the patient and telehealth provider no longer need a pre-existing relationship.
The CARES Act further provides $27 billion to restock the National Strategic Stockpile with personal protection equipment and to purchase or develop vaccines. Funding to community health centers has been increased nearly $1.5 billion, from $2.5 billion to $4 billion for the remainder of the fiscal year 2020, and increased to nearly $7 billion for the fiscal year 2021.
How will the funds be disbursed?
There are few provisions in the CARES Act that address the manner in which these funds will be disbursed. The funds are specifically meant to reimburse eligible health care providers for either expenses or lost revenue “attributable to coronavirus.” Further, eligible health care providers cannot obtain these funds if they have been reimbursed from some other source.
Recipients of these funds will be required to submit reports and documentation as required by HHS, which has not yet implemented a procedure for reimbursement of these funds as of the date of this article.
Readers are encouraged to contact our firm if you have any further questions or need assistance in obtaining the benefits of these programs.