Aspects of the CARES Act You Need to Know, in Addition to the Paycheck Protection Program

Most attention to the CARES Act has focused on the Paycheck Protection Program. There are, however, other important aspects to that Act.

Federal contractors who cannot perform work at their normal duty-station due to COVID-19 or telework because of the type of work they perform will continue to get paid. This is good news for federal contractors having to consider laying off workers.

Single employer pension plan companies will have until January 1, 2021 to satisfy their 2020 funding obligations but will have to do so with interest if the payment is out of time. A plan’s benefit restrictions as of December 31, 2019 will apply to calendar year 2020. The Act waives certain required minimum distribution rules for beneficiaries 70-1/2 and older for 2020. In the other direction it waives the 10 percent tax on early withdrawals (up to $100,000) from a retirement plan or IRA if made on or after January 1, 2020 for individuals or their spouses: (1) diagnosed with the Virus; (2) who cannot work or whose hours have been reduced due to the pandemic; (3) who must care for a child; and (4) for an individual who has closed a business or reduced work hours due to the pandemic. Taxes on such distributions may be paid over three years or the amount repaid tax-free over that same three-year period. This could ease the financial burden on many who are furloughed or whose hours are reduced.

The Pandemic Unemployment Assistance program will assist many not traditionally eligible for unemployment compensation. This will include self-employed individuals, independent contractors, and those with a limited work history if laid off due to the pandemic. Also provided is a $600 per week additional federal benefit through July of this year and funding for the first week of unemployment, which usually is a “waiting” week. An additional 13 weeks of benefits will be available after state benefits are exhausted. A three-tiered system is created. Tiers 1 and 2 require that the employee be eligible for unemployment compensation benefits under state law. The only difference between these two tiers is that the Federal Government will pick up the cost of the state’s portion of benefits in tier 2.  The third tier permits employees who do not qualify for state UC benefits either individually or because their employer does not participate in the state system to receive unemployment compensation at the same rate as those that do qualify. This will benefit employees of many 501(c)3 non-profit entities, including religious organizations. To be eligible for tier 3 benefits, the employee must meet at least one of several criteria.  

One hundred percent of all testing for COVID-19 must be paid for by private health insurers (i.e., no co-pays or deductibles). This applies to all services provided during a health-care visit (including telemedicine) if the visit results in Virus testing or screening.

Employers and the self-employed may defer payment of Social Security taxes, which may be paid over the two ensuing years. (i.e., half by December 31, 2021 and half by December 31, 2022.) The Act creates a refundable tax credit for 50 percent of “qualifying wages” (several tests that must be met) paid by Employers during the crisis (i.e., between March 13 and December 31, 2020) if certain conditions are met with a cap on the compensation paid per employee.

Section 501(c)3 organizations, including religious organizations, should be aware that they are eligible to participate in the Paycheck Protection Program aspects of the CARES Act. Additionally, under section 139 of the Internal Revenue Code a “disaster relief plan” to aid employees may be established. Under such plans Employers may provide tax-free payments to employees for over-the-counter medications, hand sanitizer and home disinfectant supplies; child care or tutoring due to school closings; work-from-home expenses such as setting up a home office, increased utilities expenses and higher Internet costs; increased commuting costs: and unreimbursed health-related expenses. The payments may not cover non-essential products or services or wages, including paid leave or other paid time off. All such payments would be taxable (including payroll taxes) under section 139, as would be any benefits covered by any insurance.

An Employer, including a religious organization, can create an “Employee Relief Fund” to address COVID-19 as a charitable fund under section 501(c)(3). The fund would be tax-exempt and contributions to it tax-deductible as charitable contributions. Contributions to the fund may be made by the employer or others, such as members of the organization. Funds in an Employee Relief Fund can be used for tax-free benefits to employees that are not available under section 139; however, an Employee Relief Fund must meet several IRS tests, and those selected to receive benefits from the fund must be chosen base on certain objective standards. Such a plan could bridge the gap between an employee’s regular wage and a reduced wage caused by the pandemic.