Highlights of the CARES Act for Small Business Owners

The Coronavirus Aid, Relief and Economic Security — the CARES Act — was signed into law on March 27, 2020. It provides assistance to small business owners who have been directly and indirectly affected by COVID-19. The assistance comes in various forms including loans, postponement of tax payments, expansion of unemployment and additional tax deductions.

Your advisor is available to help you understand what provisions are most relevant to you and can help you understand how provisions from the act may relate to your financial situation. Below are highlights of the Paycheck Protection Program and tax relief for employers.

Paycheck Protection Program

The original CARES Act made available nearly $349 billion in loans and grants to small businesses with additional funding subsequently approved. The loans under this program will be backed with a 100% government guarantee.

  • Covered Loan Period – Retroactive to February 15, 2020, through June 30, 2020.
  • Application Period
    • April 3: Small businesses and sole proprietorships can start applying for paycheck protection loans from existing SBA lenders.
    • April 10: Independent contractors and self-employed individuals can start applying for paycheck protection loans from existing SBA lenders.
    • June 30, 2020: The program application window closes.
    • While Payroll Protection Program loans are available through June 30, the total amount available under the loan program is limited. If you are interested in this loan, you should act quickly.

Eligible business/entity

Small businesses with up to 500 employees are eligible for this program. In addition, businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries. Non-profits, sole proprietorships, self-employed individuals, and independent contractors with fewer than 500 employees are also eligible for this program.


The Small Business Administration’s (SBA) standard “no credit elsewhere” test is waived. Approved SBA lenders and non-SBA lenders approved by Treasury will be authorized to offer loans to eligible small businesses. The maximum guaranteed loan amounts are the lesser of $10 million and 2.5 times the average monthly payroll amount during the 12 months prior to loan disbursement. The Treasury’s loan application suggests this calculation will be based on 2019 payroll costs. For an independent contractor or sole proprietor, payroll costs are wages, commissions, income, or net earnings from self-employment or similar compensation. However, payroll costs exclude compensation of any individual employee in excess of $100,000 in one year, as prorated for the period between February 15, 2020 and June 30, 2020.

An employer will be required to certify that they will maintain their average full-time equivalent employment, with incentives to re-hire if employees have been furloughed.

Loan forgiveness

Under the law, the borrower may have a portion of their loan forgiven in the amount equal to their payroll costs, and interest payments on mortgages (incurred pre-February 15, 2020), rent payments (in force pre-February 15, 2020), and utility payments (for services pre-February 15, 2020) for an 8 week period, beginning on the date of the origination of the loan. No more than 25% of the forgiven amount may be for non-payroll costs. Forgiven amounts would not be taxable.

Loan forgiveness will be reduced if a borrower reduces salaries and wages by more than 25% or reduces their number of employees during the 8 week period. Small businesses that may have reduced their workforce between February 15 and April 26, 2020 may still be eligible for loan forgiveness if they bring back those employees or restore their wages by June 30, 2020.

Paycheck Protection Program Flexibility Act Signed into Law

On June 5, 2020, the president signed into law the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”) which is intended to provide small businesses with more flexibility and time to make qualifying expenditures qualifying for forgiveness of PPP loans. The PPP was introduced in March, as part of the CARES Act, as an incentive for small businesses to retain staff on payroll. The PPP Flexibility Act extends much of the program through December 31, 2020 (but the application deadline remains June 30, 2020) and provides the following:

  • Extends the loan term to five years for all new loans. Existing loans retain their 2-year term, though the Act does not prevent lenders and borrowers from modifying the maturity terms of those loans if they both agree.
  • Originally, at least 75% of the loan proceeds needed to be spent on payroll in order to be eligible for maximum loan forgiveness. This legislation lowers the amount to 60%, giving businesses more flexibility to spend some of the loan proceeds on expenses other than wages, such as rent and utilities, and still get their loan forgiven.
  • Gives PPP borrowers more time to use the funds. In the original CARES Act, employers were limited to an 8-week period to use the funds. The new bill extends this period to 24 weeks or the end of the year – whichever comes earlier.
  • Expands the exemptions related to reduction of employees based on employee availability. The forgiveness amount will not be affected by a reduction in employees if the borrower is able to document an inability to rehire individuals, to hire similarly qualified employees, or to return to the same level of business activity as it was operating at on February 15, 2020.
  • Allows PPP borrowers to defer payment of the employer’s portion of Social Security taxes for the remainder of 2020, which was not previously allowed under the CARES Act.
  CARES Act PPP Flexibility Act
PPP Application Deadline June 30, 2020 December 31, 2020
Loan Maturity 2 Years 5 Years (For loans post enactment of the PPP Flexibility Act only)


Loan Forgiveness Changes

  CARES Act of 2020 PPP Flexibility Act
Required payroll percentage in the forgivable amount 75% Payroll/25% Other Expenses 60% Payroll/40% Other Expenses
Forgiveness expenditure calculation period (at receipt of loan proceeds) 8 Weeks 24 weeks or until the end of 2020(current borrowers can elect the 8 week period)
Covered period for allowable uses of the loan June 30, 2020 December 31, 2020
Date to restore staffing or salary levels previously reduced June 30, 2020 December 31, 2020
Safe harbor provisions for:
Staffing difficulties
Restricted operations
Social Security employer payroll tax deferral Not available once informed of PPP loan forgiveness Available with PPP loan forgiveness
Deferred loan repayments 6 months Deferred until the date when the amount of forgiveness is determined or 10 months after the last day of the covered period if the borrower fails to apply for forgiveness within 10 months.
37% Over $510,301  $153,798.50 plus 37% of the amount over $510,300


Additional relief

The CARES Act also provides for an increase in the SBA Express Loan program to a maximum $1,000,000 through December 31, 2020. An Economic Injury Disaster Loan provides emergency assistance of up to $10,000 available through an expedited process for eligible small businesses.

Further details about processes and requirements are still being developed by the U.S. Treasury Department and the SBA. As more details are released, Ameriprise will provide updated information.

Tax relief for employers

Delayed payment of employer 6.2% Social Security tax

Effective with the signing of the CARES Act, employers and self-employed individuals can generally defer payment of the 6.2% employer share of Social Security tax (and corresponding one-half portion of self-employment tax) for the remainder of 2020.

The deferred tax for the period beginning March 27 through December 31, 2020 is instead payable in the following two years: 50% is due by December 31, 2021, and the remaining 50% is due by December 31, 2022. The Medicare tax portion of payroll taxes, as well as the employee share of Social Security tax, are not impacted by this deferral provision. The deferral is not available to companies that have loans forgiven under certain provisions of the CARES Act.

Increased ability to deduct Net Operating Losses (NOLs)

The 2017 tax reform bill eliminated the carryback of NOLs under prior law and limited the NOL deduction to 80% of taxable income. The CARES Act provides a 5-year carryback of NOLs arising in 2018, 2019, and 2020, and also retroactively defers the 80% limitation to 2021 which allows the entire NOL to offset taxable income in those years. Businesses with NOLs in 2018, 2019, and/or 2020 may be able to obtain refunds of taxes paid in those years and/or prior years.

Increased ability of noncorporate taxpayer to deduct NOLs

The 2017 tax reform bill added temporary rules (for 2018-2025) that limited NOL deductions for noncorporate businesses, such as sole proprietors and pass-through businesses (partnerships and S corporations). The CARES Act retroactively defers the application of those rules until 2021 and makes certain technical corrections to those rules (also retroactive), which means that this limitation does not apply to tax years 2018, 2019, and 2020. Business owners whose deductions were previously limited by this rule may be able to obtain refunds for tax paid in those years.

Workforce retention tax credits

The law creates a refundable payroll tax credit for 50% of certain wages (up to $10,000) paid by employers during this public health emergency. The credit is available to employers who retain employees and whose operations were fully or partially suspended due to a COVID-19-related government order, or if gross receipts declined by more than 50% when compared to the same quarter in the prior year. The credit is not available to employers who take loans under the Paycheck Protection Program.

Acceleration of recovery of alternative minimum tax (AMT) credits

The 2017 tax reform bill repealed the corporate AMT and allowed corporate taxpayers to recover certain AMT taxes paid prior to the repeal as refundable credits against their regular tax liability, but only over four years beginning in 2018. The law accelerates the ability of corporations to recover these credits entirely into 2018.

Qualified Improvement Property (QIP)

The law fixes an error in the 2017 tax reform law, and now permits taxpayers to immediately write off costs associated with improving their facilities rather than having to depreciate such improvements over 39 years. This provision is retroactive to the enactment of the 2017 tax reform law.

Relaxation of limits on business interest deductions

The law increases the limitation on the ability to deduct business interest expense from 30% to 50% of adjusted taxable income for 2019 and 2020. It also permits a taxpayer to elect to determine its deductible interest expense for 2020 based on its adjusted taxable income for 2019.

CARES Act retirement plan provisions 

The CARES Act allows plan sponsors to adopt provisions to allow participants easier access to their retirement savings during the coronavirus pandemic. Regardless of the plan’s current allowable provisions as adopted in their plan document, plans can begin administering these relief measures to their participants immediately. The plan document will need to be amended on or before the last day of the first plan year beginning on or after Jan. 1, 2022 (Jan 1, 2024 for governmental plans). For example, if a plan has a plan year end of Dec. 31, then the plan would need to be amended on or before Dec. 31, 2022.

Work with your recordkeeper or third-party administrator on the best way to implement CARES Act provisions into your plan.

If allowed by the plan, participants who meet the following criteria qualify for these retirement plan provisions:

  • Diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention
  • Spouse or dependent is diagnosed with SARs-CoV-2 or COVID-19
  • Experiences adverse financial consequences as a result of being quarantined because of SARs-CoV-2 or COVID-19
  • Being laid off or furloughed or having work hours reduced because of SARs-CoV-2 or COVID-19
  • Being unable to work due to lack of childcare because of SARs-CoV-2 or COVID-19
  • Closing or reducing hours of a business owned or operated by the individual because of SARs-CoV-2 or COVID-19
  • Other factors as determined by the Secretary of the Treasury

Coronavirus-related distributions (CRD) 

  • The CARES Act establishes a new type of in-service withdrawal: An eligible participant may take one or more withdrawals, up to $100,000 in the aggregate, as a CRD.
    • The distribution limit of $100,000 applies in aggregate across all plans of the employer and at the controlled group level.
  • The plan sponsor may rely on the participant’s self-certification that he or she is eligible.
  • The CRD may be repaid as in indirect rollover to the plan or an IRA within three years of distribution, as measured from the date of distribution.
  • Distributions are exempt from the 10% early withdrawal penalty and not subject to the 20% mandatory withholding; the 402(f) notice is not required.
  • Taxation may be spread out ratably over three taxable years, including the year of distribution.
  • The distribution is available through 2020 and is retroactive to Jan. 1, 2020.

Increased loan limits for coronavirus-impacted participants

  • For qualified individuals, the maximum permissible loan limits are increased to the lesser of $100,000 or 100% of the participant’s vested account balance.
  • Applies to loans made to qualified individuals for the 180-day period beginning on the date of enactment (3/27/2020-9/22/2020)

Suspension of loan repayments

  • For qualified individuals with an outstanding loan on or after the date of enactment, any loan repayments due between 3/27/2020 and 12/31/2020 may be suspended for a one year period.
  • At the end of the suspension period,
    • Loan repayments will be adjusted to reflect the interest accrued and
    • The loan’s term will be extended to reflect the suspension period

Waiver of all 2020 required minimum distributions (RMDs)

  • Qualified 401(a)/(k), 403(b), and governmental 457(b) plans will not be required to make any RMD payments for 2020.
    • Participants who turned age 70½ prior to 2019 will not be required to receive an ongoing RMD for 2020.
    • Participants who turned age 70½ in 2019 and who did not receive their first RMD for 2019 on or before Jan. 1, 2020, will not have to receive their first (2019) RMD or their 2020 RMD.
  • RMDs for 2021 for participants and beneficiaries are still required.

Defined benefit plan relief

  • Delay in 2020 funding obligations 
    • All single employer defined benefit plan funding obligations due during 2020 are not required to be made until Jan. 1, 2021.
    • Accrued interest will be due on the delayed payments.

Treatment of paid sick leave under the Families First Coronavirus Response Act (FFCRA) 

  • The FFCRA expanded the Family Medical leave Act (FMLA) by, among other things, adding a new emergency paid sick leave for victims of the coronavirus and for those caring for victims or for children displaced from school or childcare through Dec. 31, 2020.
  • In general, whether coronavirus-related sick leave under the FFCRA is or is not benefits-eligible will depend on how the plan document defines benefit-eligible pay with respect to sick leave.

We are here to help you

An Ameriprise advisor can help you understand what the CARES Act means for you and your financial situation. We are here to help you navigate any short-term financial needs while we continue to support your long-term financial goals.


Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.