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The Coronavirus Aid, Relief, and Economic Security Act Paycheck Protection Program

In response to the spread of the 2019 Novel Coronavirus (COVID-19), President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law on March 27, 2020. The CARES Act is the third phase in Congress’ response to COVID-19 following the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 and the Families First Coronavirus Response Act (FFCRA). In addition to providing emergency relief aimed at individuals and hospitals, the roughly $2 trillion CARES Act provides emergency relief to small businesses. This Advisor focuses on the Paycheck Protection Program administered by the Small Business Administration (SBA) and the Department of the Treasury (Treasury), which will undoubtedly be instrumental in ensuring the survival of small businesses during the COVID-19 crisis.

Paycheck Protection Program

The Paycheck Protection Program (the PPP) was established under the CARES Act in order provide small employers with an incentive to keep workers on their payroll during the COVID-19 crisis. Under the PPP, which is an extension of the SBA Section 7(a) loan program, qualifying small businesses are eligible to borrow up to $10 million, in order to maintain their workforce from February 15, 2020, until June 30, 2020. All or a portion of the loan may be forgiven if the borrower follows the SBA guidelines. Treasury has issued FAQs and the application form on its website


In order to qualify for a loan, the business must have 500 or fewer employees (full-time, part-time, or other basis) or if higher, the maximum number specified for the type of business in the SBA’s table of small business size standards.  Accommodation and food service businesses that have 500 or fewer employees for each business location are eligible for a loan. Eligibility extends to non-profits, veterans organizations, tribal concerns, sole proprietorships, self-employed individuals, and independent contractors. In order to qualify, the business must have been in operation on or before February 15, 2020, and must have paid salaries and payroll taxes or paid independent contractors as documented by the issuance of Forms 1099. The guidance indicates that an individual with self-employment income is eligible to apply.

  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans.
  • Application Deadline: June 30, 2020.

Loan Amount

Eligible employers may borrow an amount equal to the employer’s average monthly payroll cost, determined based upon the costs incurred during the one-year period prior to the date the loan was made, and then multiplied by 2.5. The loan is therefore the employer’s monthly average payroll multiplied by 2.5. For example, if the employer’s monthly payroll is $300,000 for the preceding 12-month period, the average monthly payroll expense would be $25,000 ($300,000/12). Multiplying the average monthly payroll by 2.5 equals $62,500, which is the maximum loan amount. When determining the average monthly payroll, salaries in excess of $100,000 cannot be included.

Loan Forgiveness

The SBA has indicated that the PPP loan may be forgiven if the loan is used to cover the following permissible expenses over the eight-week period beginning February 15, 2020, and ending June 30, 2020, and employee retention and compensation levels are maintained:

  • Payroll costs (as defined below), including benefits
  • Interest on mortgage obligations incurred before February 15, 2020
  • Rent under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020

Permissible payroll costs include:

Salaries, wages, commissions, or tips (capped at $100,000 on an annualized basis per employee);

  • Employee benefits including costs for vacation, parental, family, medical or sick leave, allowance for separation or dismissal; payments required for the provision of group health care benefits including insurance premiums; and payment for retirement benefits;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor, wages, commissions, income or net earnings from self-employment, capped at $100,000, on an annualized basis for each employee.

Excluded from payroll costs are:

Payroll taxes (Social Security and Medicare), railroad retirement taxes, and income taxes;

  • Any compensation of an employee whose principal place of residence is outside of the United States;