Summary and Analysis of Key Provisions of the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is the “phase three” legislative response to the COVID-19 crisis. At $2.2 trillion (more than 10 percent of U.S. GDP), the CARES Act is the most significant piece of federal disaster and economic relief ever passed in American history. The 880-page bill provides economic aid to individuals, businesses, and industries and additional support for hospitals, health care workers, and other elements of the health care system. It will be important to watch how the government does in implementing a number of time-sensitive and much-needed provisions, including rebate checks for individual Americans, expanded unemployment insurance benefits, small business loans, and distressed industries lending. Timely and effective implementation will play critical roles for the ultimate efficacy of the CARES Act and its impact on the economic landscape as well as company and industry specific outlooks.

Small Business Relief

The largest economic aid package in U.S. history became law on Friday, March 27, 2020, when Congress passed, and the president signed, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act). The CARES Act provides a total of approximately $2 trillion in economic assistance to various sectors of the economy impacted by COVID-19, with a number of provisions directly promoting the interests of small businesses. The sweeping legislation also contains relief for individual taxpayers, distressed industries, and the health care sector, among others.

The Act appropriates an additional $349 billion for the Small Business Administration’s (SBA) long-established and popular Section 7(a) loan program. In addition, the CARES Act establishes a new Paycheck Protection Program (PPP) under Section 7(a). As discussed further below, these federally backed loans are available in an amount that is 2.5 times of the monthly average payroll cost for the one-year period prior to the loan, but not to exceed $10 million. These Payroll Protection Loans may be used to pay qualified payroll and salary costs, rent, utilities, interest on mortgages, and other debt incurred before February 15, 2020. These loans may be forgiven at an amount equal to eight weeks of payroll, mortgage interest, rent, and utilities that is then reduced based on the levels at which small businesses rehire and reemploy workers, as well as restore or retain salary levels. The Act increases the maximum amount of a loan under the SBA Express Loan program from $350,000 to $1,000,000. Further, it provides for the SBA to make payments on most outstanding SBA-guaranteed loans for six months, alters the SBA Emergency Economic Injury Disaster Loan (EIDL) grant program and several other federal assistance programs and provides payroll tax relief and other benefits.

Here, we will discuss specific provisions and strategic considerations.

What Entities Are Considered Small Businesses for Purposes of Receiving A Payroll Protection Loan?

The Act provides eligible loan recipients with access to Payroll Protection Loans during the “covered period” beginning on February 15, 2020, and ending June 30, 2020. During the covered period, any business concern, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization, or Tribal business concern may be eligible. Businesses are eligible to receive a loan if they employ not more than the greater of 500 employees or the maximum number of employees established by the Small Business Administration for the industry in which the borrower operates. Many of these limits exceed 500 employees and range as high as 1,500 employees.

Normally, the SBA’s affiliation rules count the worldwide employees of the borrower and its affiliates in calculating the number of employees to determine if a borrower qualifies as a small business. However, under the Act, the number of employees is calculated on a per-location basis, without regard to the affiliation rules, for businesses in Sector 72 — Accommodation and Food Services — under the North American Industry Classification System (NAICS) (for example, hotels, bars, and restaurants). In addition, the affiliation rules are waived for (1) businesses with not more than 500 employees that are in NAICS Sector 72, (2) SBA-approved franchises, and (3) businesses that have received financial assistance from an SBA-licensed small business investment company. By relaxing these affiliation restrictions, these types of businesses are better able to take advantage of Payroll Protection Loans.

Also eligible during the covered period are individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals. Applicants must submit documentation in order to be verified as eligible, including payroll tax filings reported to the IRS, Forms 1099-MISC, and income and expenses from the sole proprietorship.

Is It Possible for Entities with Multiple Locations That Are Not Under NAICS Sector 72, a Franchise, or an SBIC Portfolio Company To Otherwise Qualify As a Small Business?

Except as set forth above, nothing in the CARES Act alters the SBA’s affiliation regulations and guidance. SBA determines whether an entity qualifies as a small business concern by counting its receipts, employees, or other measures, including those of all its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. While a company may be small on its own, if it has affiliates, the combination of those affiliates and the company itself may push it over the relevant SBA size standard, rendering the company “other than small.” In general, affiliation is all about control. SBA’s affiliation rules look to whether one firm has the power to control another, or a third firm has the power to control both. Control may arise through ownership (e.g., voting stock), common management, economic dependence, or other relationships or interactions between the companies. It does not matter if control is presently exercised, so long as the power to control exists. SBA will consider the totality of the circumstances when determining whether affiliation exists. Entities looking to take advantage of the PPP should promptly evaluate whether these affiliation rules would apply to their business structures in order to determine if they are eligible.

What Typical SBA Requirements Have Been Waived for Purposes of Payroll Protection Loans?

Unlike traditional Section 7(a) loans, personal guarantees and collateral are not required to receive Payroll Protection Loans. The CARES Act also waives the requirement that a business show that it cannot obtain “credit elsewhere,” a common barrier to qualifying for a Section 7(a) loan.

What Must a Potential Borrower Certify to in Order to Obtain a Payroll Protection Loan?

The Act requires that borrowers certify that the loan is necessary due to the uncertainty of current economic conditions, that funds will be used to retain workers, maintain payroll, or make eligible interest, rent and utility payments. Furthermore, the borrower must certify that it does not have an application pending, nor has it applied for or received duplicative amounts for the same purposes, under another Paycheck Protection Loan.

How Do You Determine the Amount of Paycheck Protection Loan for Which a Small Business Is Eligible?

Businesses that were in business during the duration of the prior year may receive the lesser of $10 million or 2.5 times the monthly average payroll cost for the one-year period prior to the loan. If the borrower was not in business from February 15, 2019, to June 30, 2019, they are eligible for 2.5 times the average total monthly payments by applicant for payroll from January 1, 2020, to Feb 29, 2020. “Payroll cost” is defined broadly to mean the sum of 1) all salary, wage, commission, or similar compensation; 2) payment of cash tips or their equivalent; 3) payment for vacation, parental, family, medical, or sick leave; 4) allowances for dismissal or separation; 5) payment of group health care benefits including premiums; 6) payment of retirement benefits; 7) local and state tax payments on compensation; and 8) the sum of payments of any compensation to or income of a sole proprietor or independent contractor in an amount under $100,000. Payroll expressly excludes any compensation in excess of $100,000, certain federal income taxes, any compensation of an employee with a principal residence outside of the United States, and qualified sick leave wages/qualified family leave wages for which credit was already provided under the Families First Coronavirus Response Act.

Although the Amount of Paycheck Protection Loan for Which an Entity Is Eligible Is Based on Payroll, Does It Have To Be Used for Payroll Only?

No. Paycheck Protection Loans may be used for payroll costs (as described above), rent, utilities, interest on mortgages, and interest on other debt incurred before February 15, 2020. However, the money cannot be used for compensation of individual employees, independent contractors, or sole proprietors in excess of an annual salary of $100,000; compensation of employees with a principal place of residence outside the United States; or leave wages already covered by the Families First Coronavirus Response Act.

The SBA would have recourse against any borrower that uses Payroll Protection Loan funds for an unauthorized purpose.

If an Entity Does Not Qualify As a Small Business Under the Act, What Other Options Are There and May a Small Business Also Avail Themselves of These Other Programs in Addition to or Instead of the Small Business Loans?

In addition to the small business-specific provisions, Section 4003 of the CARES Act provides up to $500 billion in loans, to be administered by the Treasury Department, for loans, loan guarantees, and other assistance in distressed economic sectors. Up to $46 billion is slated for relief for passenger air carriers, cargo air carriers, and businesses critical to national security. An additional $454 billion is authorized to assist “other eligible businesses.” Treasury is given broad discretion to administer these programs. On or before April 6, the Secretary of the Treasury must promulgate procedures for administering these funds and entities. There is a specific medium-size business (defined as 500 to 10,000 employees) program under this section that requires, among other things, that such employers agree to retain 90 percent of full-time equivalent employees (FTEE) at full compensation and benefits upon receipt of funding.

Section 4003 provides investment and funding to “eligible businesses,” which are defined as a U.S. business that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under this Act (emphasis added). Therefore, the CARES Act does not preclude a business with fewer than 500 employees from receiving a loan, loan guarantee, or other assistance under Section 4003. Furthermore, it may be possible for an entity receiving a Paycheck Protection Loan or other small business loan to also seek a loan or other assistance under Section 4003. In the event that an entity were to receive a Paycheck Protection Loan (or any other loan under the Act such as an SBA Express Loan), but such relief were inadequate, it may be able to demonstrate to the Treasury Department that it should be deemed an eligible business for purposes of Section 4003.

If a Small Business Applies for and Receives a Payroll Protection Loan, Is It Precluded from Seeking or Receiving Local or State Grants or Loans?

The Payroll Protection Loan requirements do not prohibit the utilization of other sources of loans, grants, or other funding such as state or local resources or sources.

How Does Forgiveness Work Under Payroll Protection Loans?

A recipient is eligible for forgiveness of indebtedness on a covered loan in an amount equal to certain costs incurred over an eight-week period beginning upon the loan closing date including payroll costs, mortgage interest payments for mortgages in existence as of February 15, 2020, rent payments, and utility payments. Once a base forgiveness amount is calculated, it is then adjusted based on a formula that effectively adjusts the forgiveness amount by the number of employees retained/rehired from and any reduction in salary on a dollar-by-dollar basis greater than 25 percent for employees making less than $100,000.

The Act includes a “smoothing” provision for the period between February 15, 2020, and April 26, 2020, where, to the extent that workers were laid off or salaries were reduced more than 25 percent, they will not be counted for purposes of downward adjusting the forgiveness amount so long as the number of employees and/or salaries are restored by June 30, 2020. It is important to note that even with such forgiveness for the February 15 to April 26 period, if such workers and/or salaries are not adjusted to prior levels after April 1, it necessarily still will cause an adverse, albeit lesser, effect on the forgiveness amount.

Generally, the forgiveness amount is multiplied by the average number of FTEE per month during the covered period divided by either the average number of FTEE employed per month from February 15, 2019, to June 30, 2019, or the average number of FTEE per month employed from January 1, 2020, until February 29, 2020. For example, for a hypothetical employer, if the average FTEE during the covered period is 300, and the monthly average of FTEE for the February 15, 2019, to June 30 period is 380 and the average FTEE during the January 1, 2020, to February 29, 2020, period is 405, then the modifier would be 0.7895 (or 300/380) or 0.74074 (or 300/405). So if, for instance, the company was eligible for $1 million in forgiveness, it would be adjusted to $789,500 based on the FTEE ratio. To the extent that an additional sum of salary above 25 percent per FTEE (with salaries capped at $100,000 for these purposes), that figure would then also be subtracted from the forgiveness amount. We expect that the application and SBA guidance or regulations may further shed light on the mechanics of these provisions.

The challenges facing each small business are unique and there is no simple solution with respect to how best to utilize Paycheck Protection Loans. Entities should consider their outstanding obligations and costs to determine various ways in which they can utilize these loans during this period of economic challenge.

What Documentation Is Required To Receive Payroll Protection Loan Forgiveness?

In addition to any other documentation required by the SBA, borrowers must (1) document FTEE on payroll and their rate of pay, covered costs/payments giving rise to forgiveness, and (2) certify that the documentation is true and correct and the forgiveness figure was used to retain employees and make other eligible payments.

What Are the Loan Terms for Any Amount That Is Not Forgiven?

For Payroll Protection Loans, payments of any unforgiven part of the loan will be deferred for at least six months, but not more than one year. Under the Act, interest rates are not to exceed 4 percent and the remaining loan balance will have a maturity of not more than 10 years, with the SBA guarantee for that portion of the loan remaining.

What Is the Difference Between the Payroll Protection Loans and Other Loans Such As the SBA Express Loan, the SBA Economic Injury Disaster Loan, and the Main Street Business Lending Program?

In addition to the loans potentially available under the PPP program, the SBA’s existing Economic Injury Disaster Loan program continues to be available for potentially affected small businesses. In connection with the COVID-19 disaster, SBA has issued disaster declarations for every state, territory, and the District of Columbia, allowing small businesses nationwide to access additional emergency funding. The EIDL program provides up to $2 million in loans to cover costs that would have been payable by the applicant had the disaster not occurred. EIDL loans for small businesses have a maximum interest rate of 3.75 percent. There is significant overlap in the costs that can be covered by EIDL loans and PPP loans, but businesses cannot receive assistance for the same economic loss under both programs. The primary changes to the EIDL program enacted in connection with the CARES Act are waivers of the requirement that the applicant was unable to access credit elsewhere, personal guarantees for loans under $200,000, and that the requirement that the business was in operation for one year.

The Act also appropriates an additional $10 billion to expanding emergency grants under the EIDL. Pursuant to this program eligible EIDL recipients are eligible for a grant advance of up to $10,000 prior to the issuance of their loan. The advance may be used toward potential eligible costs, including increased costs of materials, payroll, or rent or mortgage payment. SBA will issue the advance within three days of the application, and the advance does not need to be repaid if the EIDL loan is denied.

The SBA Express Loan program allows for payment of working capital costs that are otherwise not tied to the impact of the COVID-19 emergency, including purchasing real estate, expanding business, or refinancing existing business debt. The turnaround for this program is 36-hours from initial application. Under the Act, the maximum amount of the Express Loan was increased from $350,000 to $1 million through the end of 2020.

In addition to programs under the SBA, Section 4003 of the CARES Act further permits the Federal Reserve to develop a “Main Street Business Lending Program” to support lending by financial institutions to small and medium-sized businesses. The Federal Reserve has not yet announced details on this program.

How Do Small Business Apply for and Secure These Loans?

Current SBA-eligible third-party lenders are permitted under the Act to provide these loans. The Act extends already delegated authority to third-party lenders, which allows them to make direct determinations on borrower eligibility and creditworthiness to all current 7(a) lenders, and extends that same authority to new lenders that join the program. It is expected that the SBA will provide such lenders with an application and guidance on the process. Small business borrowers may wish to confer with their current lenders to determine whether they are qualified to provide the forthcoming Payroll Protection Loans. Furthermore, the SBA provides online lender referral tool.

Aside from Small Business Loans, What Other Provisions of the Act Impact Small Businesses?

Expanded Availability of Funds for the Entrepreneurial Development Program and the Minority Business Development Agency

The CARES Act also provides additional funding for two small business resource partnership programs: the Minority Business Development Agency of the Department of Commerce, which focuses on increasing resources for minority owned businesses, and the Entrepreneurial Development Program of the SBA, which focuses on woman-owned and general small business support. These two programs received a total of $275 million in appropriations to cover grants to small business education centers to assist with the deployment of programs aimed at addressing issues that arose in the wake of the COVID-19 pandemic. This funding must be used for education programs aimed at: i) assisting small businesses with accessing COVID-19 related aid; ii) health impacts and hazards of COVID-19 transmission; iii) mitigation of the impact of COVID-19 on supply chains; iv) methods for increasing access to telework and coping with decreased travel; vi) cybersecurity risk; and vii) other relevant business practices. This funding also includes potential grants to groups of small business education centers for the development of consolidated online platforms for education. The CARES Act further removed the requirement for matching funds for each of the programs.

Subsidy for Certain Loan Payments

In addition to providing relief in the form of additional loans for meeting fixed costs and payroll caused by the current economic slowdown, the Act also provides some relief to borrowers who have received other SBA loans prior to the enactment of the Act. Under the Act, $17 billion was appropriated to provide for six months of payments on all Section 7(a) loans (excluding Paycheck Protection loans), and certain other small business programs. This payment is made automatically, with no additional action required of borrowers. Additionally, Section 1112 requires the SBA to work with federal and state bank regulatory authorities to ensure that lenders are not adversely affected by the provision of the loan payments or deferral of the maturity date.

Bankruptcy

Section 1113 of the Act amends the Bankruptcy Code’s provisions on small business debtor reorganizations in a number of ways. First, it limits the definition of “debtor” to exclude single asset real estate owners, debtors owing more than $7,500,000, debtors subject to the reporting requirements under the Securities Exchange Act, or affiliates of issuers under the Securities Exchange Act. It also amends the current monthly income requirements to expressly exclude payments relating to the COVID-19 response. Finally, it permits debtors who are suffering from financial hardship relating to COVID-19 to modify their bankruptcy payment plan. The changes to the bankruptcy code sunset one year after enactment.

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

While small businesses that are able to maintain some extent of operations are able to receive financing and grants under the CARES Act, the Act provides another option for small businesses that need to cease or significantly curtail their operations. Under Section 2301, employers of any size, including small businesses, who have either suspended operations to some degree or experienced a loss of at least half of their gross receipts during the first quarter of 2020, are eligible to receive a refundable tax credit equal to 50 percent of the wages paid to their employees, to a maximum of $5,000 per employee. Employers are only eligible for these credits if they have not applied for Paycheck Protection Loans or received credits for wages under the Family First Coronavirus Response Act. Employers are eligible to receive the credit either for the amount of time their operations were suspended or, if the credits were based on a diminution of gross receipts, until the quarter where their gross receipts reach the level of 80 percent of the prior year average.

Delay of Payment of Employer Payroll Taxes

Section 2302 of the Act allows employers to defer payment of payroll tax or Self-Employed Contribution Act payments owed through the end of calendar year 2020. The deferred taxes would be paid in two tranches, with 50 percent due by the end of 2021 and the remainder due by the end of 2022. Employers who receive loan forgiveness under the other provisions of the Act are ineligible for the payroll tax deferral.

Modifications of Tax Code

The CARES Act contains a number of substantial technical changes to the calculation of losses, limitations on business interests, minimum tax liability for corporate taxation, and changes to the qualified improvement property. Please see our assessment under the Tax division for additional information.

Credit Protection During COVID-19

The CARES Act further protects entities, including small businesses, from adverse impacts to their credit score by requiring any entity that provides a payment accommodation — including a delay of payments, permission for partial payments, or forbearance of any payment — to report the account as non-delinquent for credit reporting purposes.

Distressed Industries

The largest economic aid package in U.S. history became law on Friday, March 27, 2020, when Congress passed, and the president signed, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act). The CARES Act provides a total of roughly $2 trillion in economic assistance to various sectors of the economy impacted by COVID-19. The sweeping legislation contains relief for individual taxpayers, small businesses, and the health care sector, including more than $500 billion of economic aid for severely distressed sectors of the U.S. economy.

First, Congress has provided, through the Department of the Treasury, up to $500 billion in loans, loan guarantees, and other investments to a range of distressed industries. $46 billion is reserved specifically for certain key sectors, including passenger air carriers, cargo air carriers, and other industries critical to U.S. security. Another $454 billion is available for a wide range of other sectors impacted by COVID-19. This $500 billion package, to be managed by Treasury, is provided for in Division A, Title IV of the CARES Act, summarized below.

Second, Congress has appropriated over $50 billion of additional funds earmarked for specific agencies and programs being impacted by COVID-19. This economic assistance will come in the form of both loans and grants. This “direct funding” is provided by Division B of the CARES Act, summarized below in greater detail below.

Treasury to Administer $500 Billion of Loans, Loan Guarantees, and Other Investments for Key Distressed Industries

Division A, Title IV of the CARES Act provides up to $500 billion in loans, loan guarantees, and other investments for distressed economic sectors. These programs will be administered by Treasury. Up to $46 billion is targeted specifically at passenger air carriers, cargo air carriers, and businesses critical to national security. An additional $454 billion is authorized to assist “other eligible businesses.” Treasury is given broad discretion to administer these programs. On or before April 6 (within 10 days of the law’s enactment), the Secretary of the Treasury must promulgate procedures for administering these funds.

Passenger Air Carriers, Cargo Air Carriers, and Businesses Critical to National Security

Treasury is authorized to provide up to $46 billion in loans, loan guarantees, and other investments to passenger air carriers, cargo air carriers, and businesses of national security, in the following amounts.

Industry Sector

Maximum Allocation of Loans/Guarantees

Passenger air carriers

Cargo air carriers

Businesses critical to national security

For purposes of the Act, “air carrier” holds the same definition as under 49 USC § 40102 (“a citizen of the United States undertaking by any means, directly or indirectly, to provide air transportation”). Thus, only U.S. businesses are eligible to receive loans and loan guarantees, and the principal executive and financial officers of applicant-companies must certify that such entity “is created or organized … and has significant operations in and a majority of its employees” in the United States.

The Act provides the Treasury Secretary with broad discretion to determine whether (1) an applicant for a loan is an eligible business and (2) the applicant suffered “covered losses” envisioned by the Act. The latter category is defined broadly as including direct and indirect harm as a result of COVID-19.

Additionally, in making determinations regarding loans and loan guarantees, the Treasury Secretary must determine, in his discretion, the following factors:

  1. The business entity is eligible under the Act and credit is not “reasonably available” at the time of the requested transaction;
  2. The intended obligation by the business entity is “prudently incurred”;
  3. The loan is sufficiently secured; and
  4. The losses incurred by the applicant jeopardize continued operations.

Recipients under these provisions are also required to maintain employment levels as of March 24, 2020, to the extent practicable, until September 30, 2020, and shall not reduce its employment levels by more than 10 percent during such period. Additionally, any loans, loan guarantees, or other investments must be “as short as practicable” and not longer than five years in any event.

Maintaining Air Transportation Services

Specifically for air carriers, the Act authorizes the Secretary of Transportation to require carriers to maintain certain air transportation services. For air carriers receiving loans and guarantees under the Act, the Transportation Secretary may, as he deems necessary, require such carriers to “maintain scheduled air transportation service” to any point a carrier served before March 1, 2020. The Act requires the Transportation Secretary to consider the “air transportation needs of small and remote communities” when rendering decisions under this provision.

In addition, the Act suspends certain aviation excise taxes for the period from enactment through December 31, 2020.

Government Protection

To provide the government with certain financial protections, the Act restricts the Treasury Secretary from issuing any loans to air carriers and businesses critical to maintaining national security unless the applicant:

  1. Has issued securities on a national security exchange; and
  2. Issues a warrant, equity interest, or senior debt instrument in the eligible business to the Treasury Secretary.

The purpose of these provisions is to provide benefits to taxpayers for this economic assistance. In the event that gains occur due to these instruments, the Treasury Secretary must deposit such monies into federal deposit accounts. Additionally, the Treasury Secretary (for the primary benefit of taxpayers) may sell, exercise, or surrender any received warrant or senior debt instrument. The Treasury Secretary, however, may not exercise voting power with respect to any acquired shares of common stock.

Other Eligible Businesses

The Act provides approximately $454 billion in loans, loan guarantees, and other investments to so-called other eligible businesses, which include states, municipalities, and business entities of all sizes. The Treasury Secretary is authorized to perform a variety of actions if the eligible businesses agree to certain restrictions regarding compensation, equity repurchasing, and dividend issuances, as discussed in greater detail below. These actions may include any of the following:

  1. Purchasing obligations or other interests directly from issuers of such obligations;
  2. Purchasing obligations or other interests in secondary markets;
  3. Making loans, including loans or other advances secured by collateral.

Any entity seeking loans under this provision must be an eligible business that has suffered a covered loss. Again, the term covered loss is defined so broadly (losses incurred directly or indirectly as a result of COVID-19) that virtually any sector of the U.S. economy could conceivably meet this criteria. However, funds available under this provision may only be loaned or advanced to “businesses that are created or organized in the United States or under the laws of the United States and that have significant operations in and a majority” of employees based in the United States.

Assistance for Mid-Sized Businesses

The Act tasks the Treasury Secretary with developing programs to provide financing to banks and other lenders to make direct loans to mid-sized businesses (500 – 10,000 employees) at an annualized interest rate that is not higher than 2 percent. Further, the terms of these loans shall provide that there be no principal or interest due or payable for the first six months after a direct loan is made, and the Treasury Secretary has discretion to extend this period.

To receive funds under this program, all eligible borrowers must certify the following:

  1. The loan request is necessary to support ongoing operations;
  2. The funds received will be used to retain at least 90 percent of the recipient’s workforce until September 30, 2020;
  3. The recipient intends to restore not less than 90 percent of its workforce that existed as of February 1, 2020, and restore all compensation and benefits to workers no later than four months after termination of the COVID-19 public health emergency;
  4. The recipient is organized and domiciled in the United States and maintains significant operations and a majority of its employees in the United States; and
  5. The recipient is not a debtor in a bankruptcy proceeding.

Additionally, recipients are prohibited from taking any of the following actions:

  1. Paying dividends with respect to common stock of the eligible business or repurchasing equity securities of the eligible business that is listed on national securities exchanges;
  2. Outsourcing or offshoring jobs for the term of the loan and two years after completing repayment of the loan; and
  3. Abrogating existing collective bargaining agreements for the term of the loan and two years after completing repayment of the loan.

The Act also requires any recipient to “remain neutral” in any effort related to union organization for the term of the loan.

Exclusions for Certain Businesses

The Act expressly prohibits certain covered entities from receiving assistance. Covered entities are entities in which certain covered individuals hold a controlling interest. For purposes of the Act, covered individual” include the president, vice president, the head of an executive department, or a member of Congress as well as any spouse, child, son-in-law, or daughter-in-law of such persons. Further, the Act requires the principal executive officer and principal financial officer of entities seeking loans under the Act to certify that such entity is eligible to engage in the transaction.

Required Business Actions and Limitations (Executive Compensation Stock Buybacks)

The Act creates several restrictions and requirements for all eligible businesses that receive funds under programs implemented by the Treasury Secretary. To begin, it places compensation limitations for a two-year period (March 1, 2020 – March 1, 2022) for those employees who received more than $425,000 in calendar year 2019 in the following manner:

  1. Such officers and employees are not eligible to receive total compensation in excess of calendar 2019 compensation; and
  2. No officer or employee may receive severance pay (or similar benefits) upon termination of employment that “exceeds twice the maximum total compensation” received by the employee or officer in calendar year 2019.

The Act includes further restrictions for employees or officers whose total compensation exceeded $3 million in calendar year 2019. Such employees or officers may not receive total compensation in excess of $3 million plus 50 percent of the excess over $3 million received in calendar year 2019. The Act defines “total compensation” to include salary, bonuses, stock awards, and “other financial benefits” provided by the eligible business. Thus, any business receiving loans or guarantees under the Act (of any amount) must implement strict monitoring of highly compensated employees through at least March 1, 2022.

Additionally, all recipients of funds are not permitted for 12 months after the date the loan or guarantee is no longer outstanding to:

  1. Purchase equity security, listed on a national exchange, of the eligible business or any parent company of the eligible business; or
  2. Pay dividends with respect to the common stock of the eligible business.

The Treasury Secretary is authorized to waive these restrictions for other eligible businesses if such action is “necessary to protect the interests of the Federal Government.” The Treasury Secretary must be available to provide reasons for any waiver to the Senate Committee on Banking, Housing, and Urban Affairs as well as the House Committee on Financial Services.

Oversight of Loan Program — Inspector General and Congressional Commission

The Act establishes two methods of oversight for the newly created coronavirus lending program. First, it creates the Office of the Special Inspector General for Pandemic Recovery within the Department of Treasury (the OIG) for a period of five years after enactment of the Act. The head of the OIG for Pandemic Recovery will be appointed by the president and approved by the Senate, and provided $25 million to carry out operations. The OIG is directed to collect and summarize the following information related to any program established by the Treasury Secretary under the Act:

  1. Description of categories of loans, guarantees, and other investments;
  2. Listing of eligible businesses receiving assistance;
  3. Explanation of the reasons the Treasury Secretary determined such investments were appropriate, including justification of the price paid for the applicable transaction;
  4. Listing of each person hired to manage/service each investment; and
  5. Current estimate of the total amount of each investment that is outstanding, the amount of interest and fees accrued/received, the total amount of matured loans, any collateral, and any losses or gains recorded or accrued.

The Act also tasks the OIG with producing quarterly reports detailing all loans, loan guarantees, and other obligations/expenditures associated with programs established by the Treasury Secretary.

Second, the Act establishes a Congressional Oversight Commission to oversee implementation of the Act’s programs by the Department of Treasury and the Federal Reserve. The commission must submit reports every 30 days detailing the use and impact of loans provided under the Act. Such commission is made up of five members, one each appointed by the speaker and minority leader of the House and the majority and minority leaders of the Senate. The fifth member, who is tasked as chairperson, is appointed by the speaker of the House and Senate majority leader after consultation with minority leadership.

Potential Enforcement Actions — Pandemic Response Accountability Committee

In addition to the oversight actions discussed above, the Act provides $80 million for the creation of the Pandemic Response Accountability Committee within the Council of Inspectors General on Integrity and Efficiency. The committee, composed of Inspectors General from any federal department disbursing funds under coronavirus-related legislation, will support OIGs on investigations, audits, and to identify/mitigate risks that cut across multiple federal programs.

The committee is empowered to hold public hearings and issue subpoenas in order to conduct its own independent investigations of disbursed funds and related federal contracts. Upon a finding of abuse, risk, or funding issues, the committee will make recommendations to various agencies and OIGs to prevent or address the findings at issue, and report to the attorney general instances of suspected violations of federal criminal law. All such recommendations will be made publicly available, and agencies must respond within 30 days any findings/recommendations and implement any necessary changes.

Agencies must submit a plan for the use of coronavirus-related funds within 90 days of enactment of the Act. All agencies must submit monthly reports to the committee, until September 30, 2021, concerning the disbursement of “large covered funds” (those over $150,000). Additionally, any entity receiving large covered funds must submit quarterly reports to both the committee and related agency. Such reports will include the amount of funds received and the details of any project using large covered funds.

Over $50 Billion of Direct Funding for Specific Sectors, Emergency Appropriations for Coronavirus Health Response and Agency Operations.

In addition to the $500 billion of economic assistance provided by the Treasury Department (discussed above), the Act also provides supplemental appropriations that will allow various departments to provide direct financial assistance (in the form of loans or grants). Division B of the Act contains these direct funding appropriations.

Department of Agriculture

Assistance to Agricultural Producers — $9.5 billion to assist (1) specialty crop producers, (2) producers who support local food systems such as farmers markets, schools, and restaurants, and (3) livestock producers, including dairy.

Departments of Commerce, Justice, Science, and Related Agencies

Economic Development Administration (EDA) — $1.5 billion for economic adjustment assistance to help revitalize local communities after the pandemic. This money may be used to rebuild hard hit industries such as tourism or manufacturing, as well as capitalize local funds to provide low-interest loans to any business. This assistance is expected to leverage an additional $20 billion in local and private investment, with a corresponding increase of 10,000 jobs.

Support for Manufacturing — $50 million is provided for the Hollings Manufacturing Extension Partnership to help small- and medium-sized manufacturers recover by finding value within the supply chain and expanding markets. The bill also includes an additional $10 million for the National Institute for Innovation in Manufacturing Biopharmaceuticals to support the development and manufacture of new medical countermeasures and biomedical supplies to combat the coronavirus.

Assistance for Fishermen — The bill provides $300 million to help fishermen nationwide who are suffering due to disappearing economic markets. Eligible parties include tribal, subsistence, commercial, and charter fishermen, as well as aquaculture farmers. The eligibility criteria for such funds is as follows:

  1. Economic revenue losses greater than 35 percent compared to the prior five-year average revenue; or
  2. Any negative impacts to subsistence, cultural, or ceremonial fisheries.

The funds are to remain available until September 30, 2021, and may be issued on a rolling basis as well as within a fishing season in order to ensure rapid delivery of funds.

Energy and Water Development, and Related Agencies

Army Corps of Engineers — $70 million to the U.S. Army Corps of Engineers (USACE) to prepare for and respond to the coronavirus by providing additional equipment, licenses, and IT support to improve teleworking capabilities and ensure secure remote access for corps staff. Funding will also improve capacity for remote operations of USACE projects and activation of Emergency Operations Centers nationwide to support continued operations of USACE projects.

Strategic Petroleum Reserve — Department of Energy permitted to postpone required sale of petroleum from the SPR through FY 2022.

Department of the Interior

National Endowment for the Art and Humanities — Provides $150 million to state arts and humanities agencies to provide grants and support arts organizations, museums, libraries, and other organizations during the coronavirus crisis. The bill includes $75 million for the National Endowment for the Arts and $75 million for the National Endowment of the Humanities.

Departments of Labor, Health and Human Services, Education, and Related Agencies

Institute for Museum and Library Services — $50 million for the Institute of Museum and Library Services to expand digital network access in areas of the country where such access is lacking, including the purchase of internet-enable devices and provisions for technical support services in response to the disruption of schooling and other community services during the COVID-19 emergency.

Department of Transportation

The bill includes $36.018 billion for transportation activities to address the COVID-19 outbreak. This funding addresses the specialized transportation workforce to mitigate furloughing of 1.6 million employees, provide safe conditions for workers, and maintain mobility assets for commuters and the traveling public.

Airports — $10 billion in federal assistance for publically owned, commercial airports to address the COVID-19 crisis as the aviation sector grapples with the most steep and potentially sustained decline in air travel in history. These funds will help airport operators meet ongoing needs and to manage current construction projects as operating expenses increase and revenues plummet. The magnitude of these challenges are significant given the aviation industry is experiencing an 80 percent system-wide decline in passenger traffic, while airports are expected to face even more severe operational and financial impacts in the months ahead.

Essential Air Service — $56 million is made available for the Essential Air Service and Rural Improvement Fund, to remain available until expended, to prevent, prepare for, and respond to coronavirus while maintaining commercial air service to small and rural communities.

Amtrak and Rail Safety — $1.018 billion is available to Amtrak to adjust to changing operational needs due to significant reductions in passenger rail service in the Northeast corridor as well as other state-supported and long-distance routes. This provision includes direct funding to states to assist in meeting obligations under the FAST Act. Additionally, the bill provides $250,000 to the Federal Railroad Administration for safety equipment and other assistance to inspectors in responding to COVID-19.

Transit Systems — $25 billion is provided to public transit operators to protect public health and safety while ensuring transportation access to jobs, medical treatment, food, and other essential services remain available during the COVID-19 response. As the revenues that sustain this essential service are severely impacted due to a reduction in fare box revenue and dedicated sales taxes, this increased federal investment will help to sustain more than 430,000 transit jobs and preserve access to our public service and critical workforce that are the backbone of our COVID-19 prevention, response, and recovery efforts.

Tax Provisions

Tax Provisions Applicable to Individuals

Rebate Checks for Individual Taxpayers (Section 2201 of the Act and Section 6428 of the Code)

The legislation generally provides $1,200 payments (referred to in the legislation as recovery rebates) to eligible individuals. Eligible individuals are generally any U.S. resident with adjusted gross income up to $75,000 ($150,000 for joint filers), who are not a dependent of another taxpayer. The rebate is $2,400 for joint-return filers. Additionally, eligible individuals can receive $500 for each child that qualifies as a dependent. Individuals are eligible for the rebate even if they earned no taxable income.

The rebate phases out for individuals in higher tax brackets. The rebate amount is reduced by $5 for each $100 that a taxpayer’s adjusted gross income exceeds specific phase-out thresholds. The rebate is completely phased-out for single filers with adjusted gross income exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children. No action is required on the part of an eligible individual in order to receive a rebate check. The legislation authorizes the IRS to use a taxpayer’s 2019 tax return information, if already filed, or, in the alternative, their 2018 return in order to generate the rebate check. For individuals who provided direct deposit information to the IRS, rebates will be direct deposited. This rebate payment applies only to the 2020 tax year.

Special Rules Providing More Flexibility in the Use of Retirement Account Funds (Section 2202 of the Act and Section 72 of the Code.

In order to facilitate the use of, and access to, cash in retirement funds, the legislation permits distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes during calendar year 2020 without the distributions being subject to the otherwise applicable 10 percent penalty in premature distributions. The legislation provides further flexibility to the taxpayer by allowing a re-contribution of those distributed funds to another eligible retirement plan within three years without regard to that year’s cap on contributions, and such amounts would be treated as a roll-over to such eligible retirement plan.

In addition, the taxable income attributable to any such distributions would be included ratably over three years rather than in the taxable year the distribution is received. The income deferral is not mandatory and a taxpayer may elect out of the three-year income deferral and include the income in the year of the distribution. Given the anticipated prevalence of losses by many taxpayers in 2020, a taxpayer may find it advantageous to elect to recognize the income in 2020 and offset the income with a current loss. The legislation is not clear how the income inclusion rules are to be coordinated with the re-contribution rules.

Further, the provision provides another mechanism to access cash from a retirement fund, by allowing for flexibility for loans from certain retirement plans for coronavirus-related relief. The legislation increases the allowable principal amount of retirement plan loans from $50,000 to $100,000 and extends the time frame in which such loan must be repaid.

A coronavirus-related distribution is a distribution made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) 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 Secretary. The provision allows the plan trustee to rely on a qualification certification from the employee.

Plan sponsors may need to amend the terms of their plans to accommodate these changes.

Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts (Section 2203 of the Act and Section 401 of the Code)

The Act waives the required minimum distribution (RMD) rules for certain defined contribution plans and IRAs for calendar year 2020. This waiver applies to both individuals who are in RMD status and those who enter RMD status in 2020. The required minimum distribution rules might otherwise require that the plan or plans liquidate assets in order to make distributions required to be made.

This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.

Allowance of Partial Above the Line Deduction for Charitable Contributions (Section 2204 of the Act and Section 170 of the Code)

The Act provides for an above-the-line deduction for cash contributions of individuals of amounts up to a $300. This above-the-line deduction is available only to those taxpayers who do not itemize their deductions, but rather claim the standard deduction. As a result of this provision, even taxpayers who claim the standard deduction and do not itemize may claim a deduction up to $300 for cash charitable contributions.

Contributions to private foundations and donor advised funds are not contributions that qualify for this above-the-line deduction.

Modifications to the Limitations on the Amount of the Allowable Deduction for Charitable Contributions during 2020 for Individuals and Corporations (Section 2205 of the Act and Section 170 of the Code)

The Act further provides relief from the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations. For individuals, the 60 percent of adjusted gross income limitation is suspended for 2020. For corporations, the 10 percent of taxable income limitation is increased to 25 percent of taxable income for 2020. This provision also increases the percentage limitation on deductions for contributions of food inventory from 15 percent to 25 percent.

Similar to the above-the-line relief for non-itemizers, this provision also does not eliminate the percentage limitation caps for contributions to private foundations and donor advised funds.

Educational assistance break (Section 2206 of the Act and Section 127 of the Code)

An employer may pay up to $5,250 annually toward an employee’s student loans, and that payment may be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as any other educational assistance (e.g., tuition, fees, books) provided by the employer (such other educational assistance is not taxable income to the employee under current law so long as the benefit does not exceed $5,250).

This new student loan provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before January 1, 2021. It is unclear at this point whether the student loan payment provisions can be adopted as part of a salary reduction plan or whether the student loan payments must be incremental.

Business Income Tax Provisions

Employee Retention Tax Credit for Employers Subject to Closure and/or Reduced Sales Due to COVID-19 (Section 2301 of the Act)

A new refundable payroll tax credit is available for employers (including tax exempt organizations) whose (1) operations were fully or partially suspended in a calendar quarter, due to a COVID-19 related shutdown order, or (2) gross receipts declined in a 2020 calendar quarter by more than 50 percent when compared to the same quarter in 2019 (with the credit continuing until the employer has gross receipts greater than 80 percent of the prior year’s comparable calendar quarter).

The credit is calculated with respect to each calendar quarter and is equal to 50 percent of the “qualified wages” for such quarter. The credit is allowed against the applicable employment taxes for a calendar quarter relating to all employees of the employer but may not exceed the total employment taxes of the employer for such quarter.

For eligible employers having more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services during a COVID-19 related shutdown order or during the quarter in which the employer experienced a decline in gross receipts as described above. Therefore, wages paid to employees “working from home” would not be qualified wages. For eligible employers with 100 or fewer full-time employees, all employee wages paid qualify for the credit, whether the employer is open for business, the employees are working from home, or the business is subject to a shutdown order.

The qualified wages to be taken into account may not exceed $10,000 of compensation, including health benefits, paid to an eligible employee in a calendar quarter. In general, wages paid to persons who owns 50 percent or more of the business are not taken into account for this credit. The credit is provided for wages paid or incurred from March 13, 2020, through December 31, 2020. Any employer taking a Small Business Interruption Loan is not eligible for this payroll tax credit.

Free Delay in the Required Deposit of Employer Social Security Taxes and Self-Employment Taxes of Individuals (Section 2302 of the Act)

Employers may 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 for the taxes relating to wages paid from the date of enactment through the end of 2020. Employers generally are responsible for paying a 6.2 percent Social Security tax on employee wages. The new law allows the deferral to extend for two years, requiring that the deferred tax be paid half by December 31, 2021, and the other half by December 31, 2022.

With respect to self-employed individuals, the new law permits 50 percent of the self-employment tax due for the remainder of 2020 to be deferred for two years, with half to be paid by December 31, 2021, and the other half by December 31, 2022.

Modification of the Treatment of Net Operating Losses (Section 2303 of the Act and Section 172 of the Code)

The legislation relaxes the limitations on a company’s use of losses that were enacted as part of the Tax Cuts and Jobs Act (TCJA) in December 2017. Currently, the ability of a taxpayer to use the taxpayer’s net operating loss (NOL) carryforwards are subject to an annual limitation based on the taxpayer’s taxable-income and cannot be carried back to reduce income in a prior tax year and obtain a refund for taxes paid in the earlier period. The legislation amends the Code so that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years and used to offset taxable income during that five-year period, producing a refund that would be paid to the taxpayer. The legislation temporarily removes the percentage of taxable income limitation enacted as part of TCJA and allows an NOL to fully offset the taxpayer’s taxable income. Although these changes will allow a more tax-efficient use of NOLs by taxpayers, they will also require that companies amend prior tax returns in order to capture the benefit of the NOL carryback.

This legislation applies to business losses of corporations, unincorporated businesses, and sole proprietorships. It will likely act as encouragement for companies to harvest the maximum amount of their potential 2020 losses in order to capture the benefit of the no-percentage-limitation exemption and the five-year carryback. The historical ability of a taxpayer to waive the carryback of NOLs is retained. IRS guidance will explain how taxpayers with NOLs in 2018 and 2019 can waive the carryback for previously filed returns.

Retroactive Suspension of the Limitation on the Excess Business Losses of Noncorporate Taxpayers (Section 2304 of the Act and Section 461 of the Code)

The TCJA temporarily limited the ability of noncorporate taxpayers to deduct business losses in excess of their business income against nonbusiness income. The TCJA restriction denied noncorporate taxpayers deductions for their “excess business losses” in taxable years beginning after December 31, 2017, and ending before January 1, 2026. Instead, the taxpayer was required to carry forward the amount of the excess business loss. The losses carried forward then become part of the taxpayer’s NOL carryforward in the succeeding taxable year.

The amount of a taxpayer’s excess business loss in a year is the excess (if any) of: (i) the taxpayer's aggregate deductions for the taxable year from the taxpayer’s trades or businesses (without regard to the limitation on excess business loss), over (ii) the sum of (x) the taxpayer’s aggregate gross income or gain attributable to such trades or businesses, plus (y) a stated dollar floor.

The Act postpones the effective date of the excess business loss limitation in Code Sec. 461(j) to taxable years beginning after December 31, 2020. Therefore, taxpayers with otherwise disallowed excess business losses in 2018 and 2019 can amend their tax returns and claim their losses without regard to the excess business loss restriction. The 2020 taxable income of noncorporate taxpayers are free of that limitation as well. Because the excess business loss limitation was applied at the partner or S corporation shareholder level, partners and S corporation shareholders will need to file amended returns for their 2018 and 2019 taxable years in order to claim the benefits of the postponement.

The postponement is not elective with the taxpayer so that taxpayers should file the amended returns and claim the benefit. Otherwise, it is “use it or lose it.”

Modifications to the Limitation on Business Interest Deductions (Section 2306 of the Act and Section 163(j) of the Code)

One of the most far-reaching changes in the TCJA was the enactment of a limitation on the deductibility of interest on debt of the taxpayer properly allocable to the taxpayer’s trade or business. Subject to a number of exceptions and special rules, the TCJA amended the Code to limit a taxpayer’s deduction for interest allocable to the taxpayer’s trade or business in a taxable year to the sum of: (i) the business interest income of the taxpayer in the year; (ii) 30 percent of the taxpayer’s “adjusted taxable income” for the year; plus (iii) in the case of automobile dealers, an add-back for their eligible floor plan financing interest expense.

The Act temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns by increasing the 30 percent of adjusted taxable income limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020.

The Act provides special relief for business entities classified as partnerships for their 2019 taxable years. Instead of requiring that the partnership file an Administrative Adjustment Request to claim the benefit (as would otherwise be required under the Code), 50 percent of the partner’s excess business interest allocated from the partnership for its 2019 taxable year is deemed to have been paid or accrued by the partner in the partner’s first taxable year beginning in 2020 and is not subject to the percentage of adjusted taxable income percentage limit and the remaining 50 percent is subject to the business interest limitations in the same manner as any other excess business interest allocated to the partner. An additional special rule allows the taxpayer to substitute its 2019 taxable income for its 2020 taxable income in computing the percentage limitations.

Correction to the TCJA Rules for Bonus Depreciation for Qualified Improvement Property (Section 2307 of the Act and Section 168 of the Code)

In attempting to simplify the rules for bonus depreciation for qualified improvement property, e.g., improvements to the interior portion of a nonresidential building such as partitions and commercial kitchen installations, the TCJA actually removed qualified improvement property from the class of property eligible for bonus depreciation. The Act fixes this mistake, referred to as the “Retail Glitch,” retroactive to the date of enactment of the TCJA.

Modification of the Credit for Prior Years’ Minimum Tax Liability of Corporations (Section 2305 of the Act and Section 53 of the Code)

The corporate alternative minimum tax (AMT) was repealed as part of the TCJA, but corporate AMT credits were made available as refundable credits over several years. The credit carryover was available to offset regular tax and was refundable for 50 percent of the uncredited balance for tax years 2018 – 2020, with 100 percent being refundable in 2021.

The Act accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now, by making the full refundability applicable to the corporation’s first taxable year beginning in 2018.

Health Care

Much of the stimulus package — the third coronavirus response package — focuses on bolstering the health care sector as those on the front lines battle COVID-19. In addition to inclusions directly intended to address COVID-19, the package extends funding for a number of programs that were scheduled to expire this May, including Community Health Centers, Teaching Health Center Graduate Medical Education, the National Health Service Corp, and the Special Diabetes Program. It also delays Disproportionate Share Hospital (DSH) payment reductions that were scheduled to go into effect at the same time and extends Medicaid’s Money Follows the Person demonstration and spousal impoverishment protections. Some other highlights of the package include temporarily lifting the Medicare sequester (which reduces provider payments by 2 percent), expanding flexibilities for telehealth (which the administration has also been releasing guidance on), making targeted expansions to Health Savings Account allowable uses, enabling Medicare beneficiaries to more easily obtain 90-day supplies of prescriptions, providing hospitals with an add-on payment for patients they treat with COVID-19, aligning 42 CFR Part 2 regulations with HIPAA requirements, providing permanent liability protection for manufacturers of personal respiratory protective equipment in the event of a public health emergency, and requiring the FDA to prioritize and expedite the review of drug applications and inspections to prevent or mitigate drug shortages. We expect there to be a fourth and potentially a fifth COVID-19 response package from Congress as well.

$100 Billion Appropriation for Hospitals and Health Care Providers – Division B – Emergency Appropriations for Health Response and Agency Operations – Title VIII – Health And Human Services

The Act provides for $100 billion to be distributed to “eligible health care providers” through grants or “other mechanisms” for health care related expenses or lost revenues that are attributable to coronavirus domestically or internationally. These funds may not be used to reimburse expenses or loses that may or have been reimbursed from other sources.

The Act defines eligible health care providers as “public entities, Medicare or Medicaid enrolled suppliers and providers, and such for-profit entities and not-for-profit entities not otherwise described as specified by HHS, located within the United States (including territories) that provide diagnoses, testing, or care for individuals with possible or actual cases of COVID–19.” In order to receive a payment under this appropriation, an eligible health care provider must submit an application to HHS that includes a statement justifying the provider’s need for the funding as well as a valid tax identification number. HHS will, on a rolling basis, review provider applications and make payments provided for under the Act.

The Act notes that funds appropriated under this provision may be used for the building or construction of temporary structures, the leasing of properties, medical supplies and equipment including personal protective equipment and testing supplies, increased workforce and trainings, emergency operation centers, retrofitting facilities, and surge capacity for hospitals and other health care facilities. Any hospitals or health care facilities that receive funding under this provision will have to submit reports and maintain documentation as determined by HHS to determine compliance with any conditions of funding imposed by HHS.

The Act requires HHS to provide a report to Congress within 60 days of the enactment of the Act and every 60 days thereafter until the funds are expended. The report must set forth the funds provided to eligible health care providers and be summarized by state. The initial 60-day limit indicates that the congressional goal is for HHS to begin distributing these funds as soon as possible.

Future pronouncements and guidance is expected from HHS concerning more detailed information on the application procedures, requirements of and criterion for funding, and the required documentation and reporting. We will report on any such guidance as soon as it is available.

COVID-19 Testing

Expansion of COVID-19 Diagnostic Tests Covered by Health Insurers and Payment for Such Test

The Families First Coronavirus Response Act already requires health plans to cover, without imposing any cost sharing, preauthorization, or medical management requirements, tests to detect SARS-CoV-2 or the diagnosis of the virus that causes COVID-19 that are administered during the national emergency and are approved, cleared, or authorized under the Food, Drug and Cosmetic Act (FDA Act). The Act added to this requirement tests that/for which:

The Act, for the first time, set the price health plans are required to pay providers for such tests as:

The Act requires providers to post their cash price for such tests during the national emergency on the provider’s public internet website or face a fine of $300 per day.

Coverage Of Preventive Services And Vaccines For Coronavirus

The Act, for the first time, requires health plans to cover, without imposing any cost sharing requirements, an item, service, or immunization that is intended to prevent or mitigate COVIV-19 and that is:

The coverage requirement attaches to each item, service, or immunization 15 days after the date on which a recommendation is made relating to such item, service or immunization.

Expansion of Telehealth for Americans During the COVID-19 Crisis

In an effort to provide care during the COVID-19 emergency, the CARES Act greatly expands funding for telehealth initiatives and reduces barriers to the widespread use of telehealth around the country. The vast majority of the legislation providing for increased telehealth comes out of the Finance Committee. Critical advancements in telehealth provided for in this legislation include the following.

Telehealth Network and Telehealth Resource Centers Grant Programs

Section 3213 reauthorizes the grant programs administered by the Health Resources and Services Administration to promote the use of telehealth services for health care delivery, education, and health information services.

Waived restrictions on Health Savings Accounts

A High Deductible Health Plan with a Health Savings Account can now cover telehealth services without cost-sharing even before the participant reaches their yearly deductible. There is no requirement that the telehealth services result in the participant receiving an order for a COVID-19 test.

Elimination of Treatment History Requirement for Telehealth

The Act eliminates the requirement (which was a feature of Public Law 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020) that for a care provider to treat a Medicare patient by telehealth, that provider must have treated the patient within the preceding three years.

Increased Access to Telehealth in Rural Communities

Federally qualified health centers and rural health clinics may now serve as distant sites for telehealth consultations, providing sites for care providers to be located during the telehealth visit while the participants can access the care from their home. Medicare will reimburse providers for these services consistent with payment rates for comparable telehealth services.

Reduced Barriers to Telehealth for Home Dialysis Patients

Section 3705 removes the requirement that a nephrologist conduct periodic face-to-face evaluations of participants on home dialysis.

Telehealth to Fulfill Hospice Care Provider’s Recertification Requirements

The CARES Act allows practitioners to conduct recertification for hospice care using telehealth technologies, rather than requiring these practitioners to obtain their recertification via face-to-face requirements.

Encouraging the Use of Telehealth for Home Health Services under Medicare

Section 3707 requires Health and Human Services to issue clarifying guidance encouraging the use of telecommunication systems to provide home health services to Medicare patients.

Additionally, the Act provides the following additional significant funding targeted to increase the use of telemedicine:

Medicare, Medicaid, and Public Health

Public Health Extenders

Section 3831 contains extenders for three public health programs: community health centers (CHCs), the National Health Service Corps, and the Teaching Health Center Graduate Medical Education (THCGME) program. These programs focus on providing access to medical care and health care providers for medically underserved areas.

Though there is interest in Congress for extending these programs on a longer-term basis, they are often renewed on temporary bases. The COVID-19 legislation serves as the latest legislative vehicle for renewing them. These programs were set to expire on May 22, 2020, and this legislation will extend their funding, at current levels, through November 30, 2020.

Expansion of Mandatory Funding for Public Health Service Act’s Special Diabetes Program for Type 1 Diabetes

The Act amends grant appropriations under the Public Health Service Act regarding the special diabetes program (program) for type 1 diabetes to extend such appropriations through November 30, 2020. The program provides funding for research on the prevention and cure of type 1diabetes. The National Institute of Diabetes and Digestive and Kidney Diseases, in collaboration with the CDC and NIH, administers this program on behalf of the Secretary of HHS. This program supplements funding the NIH receives for diabetes-related research.

Medicare Sequestration

Temporary Suspension of Medicare Sequestration

Section 3709 provides temporary economic assistance to health care providers by temporarily reducing the Medicare payment reductions resulting from federal sequestration. The sequestration, which is required under the Budget Control Act, reduces Medicare payments by 2 percent annually, which was to result in Medicare savings totaling approximately $15.3 billion for fiscal year 2020.

Specifically, this section would temporarily lift the current Medicare sequester during the period from May 1, 2020 through December 31, 2020, to increase Medicare payments for hospital, physician, nursing home, home health, and other care to help offset costs related to the COVID-19 pandemic.

However, it is important to note that the suspension of the 2 percent sequester-related reductions in Medicare payments is temporary and ends on December 31, 2020. Further, the Act extends the Medicare sequester by one year through fiscal year 2030.

Medicare Post-Acute Care

Increased Access to Post-Acute Care During COVID-19 Emergency Period

The Act temporarily waives certain Medicare requirements under the Social Security Act and its regulations applicable to inpatient rehabilitation facilities (IRF) and long-term care hospitals (LTCHs). In an effort to address the strain on hospitals and to allow hospitals to prioritize their resources, including prioritizing space necessary to treat COVID-19 patients during this emergency period, the Act waives the following: