Here’s How Small Businesses Can Benefit from the CARES Act

Gusto Editors

Update as of April 24, 11:45am, PT: 

The Economic Injury Disaster Loan program has been replenished with an additional $50 billion for loans and $10 billion for $10,000 cash grants. Applications that have already been submitted will continue to be processed on a first-come, first-served basis. If you have not already done so, apply now. 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump. This is the second major piece of legislation enacted in less than two weeks in response to the coronavirus or COVID-19 outbreak. It follows the Families First Coronavirus Response Act (FFCRA), which primarily focused on supporting individuals who are unable to work due to COVID-19-related reasons by providing emergency and family paid leave, coverage for COVID-19 testing, and other assistance.

The CARES Act focuses on providing $2 trillion in economic relief to families and businesses, becoming the largest stimulus act in US history. The bill hopes to put money in the hands of people and businesses as quickly as possible.

While the bill covers a lot, we’ll focus primarily on the parts with the greatest relevance to small businesses. For areas of the law that are unclear, or unexplained, we have tried to point those out, and will be making updates to this post as guidance from either the Treasury Department or the Small Business Administration (SBA) becomes available.

Small business loans and grants

Paycheck Protection Program

Update as of August 11, 1:00pm, ET: The PPP Application has closed and Congress is currently negotiating the next financial relief package.

The Paycheck Protection Program (PPP) is a new SBA loan program that will allow certain finance businesses, like banks and payroll providers, to act as lenders to companies adversely affected by COVID-19. These loans will help small businesses get necessary funds to help cover payroll costs, debt, health insurance premiums, and more.

Through the program, employers with fewer than 500 employees are eligible to borrow up to $10 million through June 30, 2020, and the loans are also eligible for forgiveness. Read our full breakdown of the PPP for more details, and what we know so far about how to apply.

Economic Injury Disaster Loans

Economic Injury Disaster Loans (EIDL) are low-interest loans provided by the SBA to help borrowers recover from declared disasters. Currently, small business owners in all 50 states are eligible to apply for EIDL due to the coronavirus crisis. The CARES Act waives many of the requirements and makes additional changes to EIDL terms.

Economic Injury Disaster Loans under the CARES Act

These loans are provided by the SBA to SBCs1, private non-profits, small agricultural co-ops, and employee stock ownership plans (ESOP) with less than 500 employees. A business can receive $2,000,000, including a $10,000 advance at the time of application, for assistance to overcome a disaster, which now includes the COVID-19 public health emergency. 


The “covered period” for an EIDL is January 31, 2020 through December 31, 2020.

What are the terms of Economic Injury Disaster Loans?

Under the CARES Act, EIDLs can be approved based solely on an applicant’s credit score and do not require them to submit tax returns, look for credit elsewhere, or make a personal guarantee. The borrower must have been in operation as of January 31, 2020, but doesn’t need to have been in business for one year prior to the disaster (as the previous criteria stated).

An applicant can request an advance  of up to $10,000 from an EIDL within three days of their application being received. If the advance is granted, it will be included in the total approved loan amount.

The money from an EIDL can be used to pay for sick leave, payroll, materials, rent or mortgage payments, or repaying obligations that cannot be met due to revenue losses.

Loan subsidies and bankruptcy

Two other critical components of the CARES Act concern loan subsidies and bankruptcy. We’ll look at both of them individually.

Loan subsidy eligibility

If a business had an SBA loan before the disaster, they are still eligible and can apply for a subsidy where the SBA will make payments directly to the lenders, and forgive the borrower for those payments for six months.

Virtually all SBA loans are eligible, including: 

  • A loan made before the CARES Act was passed and where repayment is not currently deferred 
  • A covered loan made before the enactment of this Act and where repayment is currently deferred,
  • A covered loan made between the enactment of CARES and six months after its enactment.


One notable exception are loans made under the Paycheck Protection Program discussed above. They are not eligible for loan subsidies under the CARES Act.


The SBA will begin making payments within 30 days after the first payment is due.

Bankruptcy definitions

The CARES Act also alters certain definitions under U.S. bankruptcy law for a one-year period. Those include:

  • Small business debtor: This definition now includes persons engaged in commercial activity whose total debt is not greater than $7,500,000, and not less than 50% of the total debt taken on in the course of business. 
  • Income: Coronavirus-related payments from the federal government will not be classified as income. 
  • Disposable income: Under Chapter 13 bankruptcy filings, disposable income will not include coronavirus-related payments.
  • Payment plan modifications: Businesses filed under Chapter 13 can seek payment plan modifications if they are experiencing a financial hardship due to the coronavirus crisis. This allows for extending payments for up to seven years after the initial plan payment was originally due. 

Employee retention credits and payroll tax relief

Two major provisions of the CARES Act are designed to provide payroll relief to employers specifically: employee retention credits, and payroll tax deferrals. We will address these separately in this section, starting with retention credits.

Employee retention credits

The employee retention credits are intended to give employers a break on the cost of keeping people employed when their business may be closed or is experiencing a significant slowdown. 

How does it work?

Eligible employers can receive a retention credit for up to 50% of the first $10,000 of qualified wages (including qualified health plan expenses) for each employee paid between March 12, 2020 and January 1, 2021.

Example: In the second quarter of 2020, Widgets, Inc. was closed due to the COVID-19 public health emergency. During this quarter, Widgets had five employees who each had $12,000 in qualified wages, and the company elected to receive the employee retention credit. Here’s what the math looks like:

Number of employees = 5
Quarterly qualified wages per employee: $12,000
Max employee retention credit per employee: $10,000 x 50% = $5,000
Widgets’ max employee retention credit: $5,000 x 5 = $25,000

The excess $2,000 in qualified wages for each employee cannot figure into the maximum credit. Therefore, Widgets’ maximum employee retention credit in 2020 is $25,000.

Who’s eligible?

To be eligible for retention credits, employers must:

  1. Have been subject to closure because of COVID-19, or 
  2. Have had a decline in gross receipts of more than 50% when compared to the same quarter in the prior year.

Eligibility ends under condition #2 once gross receipts in a subsequent calendar quarter are greater than 80% of gross receipts in the same quarter of the prior year.

Terms, conditions, and whatnot

There are several, so pay close attention.

  • The employee retention credits are fully refundable. This means that if the credit amount is greater than the employment taxes owed, the employer may receive a refund.
  • The retention credit cannot exceed the 6.2% Social Security tax on the wages paid with respect to the employment of all employees.
  • Any employers taking the research and development tax credit will apply it first, followed by FFCRA tax credits, and finally the employee retention credit. Should the latter two credits exceed the Social Security tax due, they are fully refundable. 
  • Employers can elect not to use the retention credit.
  • Employers that receive an SBA loan under the CARES Act are not eligible for this credit.
  • Tax-exempt organizations can participate—but only if they experience closure, not a decrease in gross receipts.
  • Qualified wages for employers with more than 100 full-time employees in 2019 are defined as wages paid to employees not providing services due to COVID-19 circumstances. 

Example: Widgets, Inc. had 150 employees with total wages of $9,000,000 in 2019. Of those 150 employees, 125 had total wages of $7,000,000 and were not providing services related to COVID-19. Widgets’ qualified wages for the purposes of the employee retention credit is $7,000,000.

  • Qualified wages for employers with 100 or fewer employees in 2019 are: 
    • Wages during closure if that’s what qualified the employer, or 
    • Wages during gross receipts reduction if that’s what qualified the employer.
    • These wages also exclude those with credits under Families First Act.
  • For employers with more than 100 employees in 2019, the limit is what would have been paid to employees in the preceding 30 days had they been working normally.
    • This includes amounts paid or incurred to provide and maintain group health insurance but only if those amounts are excluded from gross income of employees.

Using the previous example: In the 30 days prior to its closure due to COVID-19, Widgets, Inc. paid $7,500,000 in qualified wages to 125 employees, including $750,000 for providing a group health insurance plan. The cost of providing the plan is not included in the employees’ gross income. The $7,000,000 in qualified wages for the purposes of the employee retention credit will not be limited.

  • There are no penalties for failure to deposit employment taxes due to reasonable anticipation of the credit being allowed. 
    • This means credits are awarded in each pay period rather than waiting to get the credit at the end of the quarter.

Payroll tax deferral

Update as of August 11, 1:00pm, ET: on August 8, 2020 President Trump signed an executive memo on an employee-side payroll tax deferral that may affect your team.

Read Gusto’s analysis of the Executive Memorandum: Payroll Tax Deferral.

For employers that wish to delay paying taxes rather than receive a credit, the payroll tax deferral is another option provided by CARES.

How it works

Employers and self-employed folks can defer the 6.2% Social Security payroll tax from the date of enactment through December 31, 2020, with 50% of the deferred amount due by December 31, 2021 and the remaining 50% due by December 31, 2022.

Terms, conditions, and whatnot

  • Employers that have loans forgiven under this Act are not eligible for the deferral.
  • Employers can opt not to use this deferral. 
  • If an employer directs a third-party who helps them process payroll (e.g., Gusto), then the employer assumes liability. 

Modifications to net operating losses (NOL)

CARES includes changes to how businesses who suffer losses in one tax year are allowed to use them to offset income in a past or future tax year. 

Temporary repeal of taxable income limitation

Under the Tax Cuts & Jobs Act, losses occurring in a tax year after December 31, 2017 were limited to 80% of taxable income. CARES repeals this limitation temporarily.

To elaborate: 

  • For a tax year that starts before January 1, 2021, a company may take a deduction for all of the NOL carryovers leading up to that year, as well as the NOL carrybacks to such year, and 
  • For a taxable year starting after December 31, 2020 a company may take a deduction equal to: 
    • The aggregate amount of NOLs from taxable years before January 1, 2018
    • plus the lesser of:
      • The aggregate amount of NOLs from taxable years after December 31, 2017 
      • Or 80% of the excess of taxable income computed excluding the deductions under this section and the qualified business income (QBI) deduction and the deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI)3.

Here are a couple of examples how those work:

Example A: In 2018 and 2019, Widgets, Inc. had net operating losses (NOL) of $1,000,000 and $500,000, respectively. Widgets has a total NOL carryover of $1,500,000 that it may use to offset income in 2020.

2018 NOL = $1,000,000
2019 NOL = $500,000

$500,000 + $1,000,000 = $1,500,000 total carryover

Example B: In 2017, 2018, and 2019, Widgets, Inc. had net operating losses (NOL) of $1,000,000; $500,000; and $200,000 respectively. In 2021, Widgets had taxable income of $100,000, excluding its deductions for qualified business income. Widgets did not have a deduction for foreign-derived intangible income and global intangible low-taxed income. Widgets may take a deduction of $1,700,000 to offset its income in 2021 and subsequent years. 

2017 NOL = $1,000,000
2018 NOL = $500,000
2019 NOL = $200,000

$1,000,000 + $500,000 + $200,000 = $1,700,000 total deduction

NOL carrybacks

Finally, NOL carrybacks are… back! TCJA got rid of carrybacks for losses that occurred in tax years after December 31, 2017, but CARES has resurrected them. So, for any NOL arising in a taxable year between December 31, 2017, and January 1, 2021, it can be used as a NOL carryback for each of the five tax years preceding the year of the loss.

Labor provisions

The following updates to labor laws can help employers keep more cash in their pockets to weather the public health emergency.

Access to minimum required contributions

The Employee Retirement Income Security Act (ERISA), or the federal law that establishes minimum standards for private pension plans, has been amended so that minimum required contributions due during 2020 are now due on January 1, 2021. This allows employers to hold onto any collection of employee contributions for premiums during 2020 all the way until the end of the year. But do note that interest will start accruing after the original due date.

Clarified FFCRA requirements for employers

The CARES Act amends the FMLA Expansion and emergency paid sick leave to clarify that leave ends when an employer has paid the 80 hours or when the employee returns to work after taking the paid leave, whichever comes first.

The definition of “employee” in the FMLA expansion was also updated to include employees who were laid off after March 1, 2020, worked for their employers for at least 30 of the last 60 calendar days, and were rehired.  

Real-time reimbursements

In addition to these, FFCRA allows emergency paid sick leave and FMLA tax credits to be advanced, up to certain amounts. The same amendment waives penalties for failure to deposit taxes that are anticipated to be credits, which means employers essentially get real-time reimbursements.

Relief for individuals

If small businesses are the lifeblood of our communities, then people are the pump that keeps the blood flowing. The CARES Act contains several provisions designed to provide financial relief to individuals in various areas of personal life.

Recovery rebates

Individuals, other than non-residents and individuals claimed as dependents, who earn $75,000 or less are eligible for a one-time refundable federal income tax credit. The tax credit amounts to:

  • $1,200 for individuals
  • $2,400 for individuals filing jointly on a tax return
  • Plus an additional $500 for each eligible dependent 

For individuals who earn more than $75,000, the amount of the tax credit is slowly reduced (or “phased out”) as the Adjusted Gross Income (AGI) increases until it hits zero. The tax credit phase-out happens for:

  • Single tax filers with AGI’s greater than $99,000,
  • Head of household tax filers (with at least one child dependent) with AGIs greater than $146,500,
  • Married filing jointly tax filers (with no children) with AGIs greater than $198,000, and
  • Families of four with AGIs greater than $218,000. 

One thing to note: The IRS may pay the tax credit via direct deposit or by check. Current understanding is that the IRS will mail a notice to the eligible taxpayers (at their last known address) indicating how the payment was made. This may or may not slow down tax relief for those in desperate need of it.     

Unemployment insurance

Pandemic unemployment assistance

The Act establishes additional unemployment compensation for individuals who are unemployed or partially employed due to COVID-19 and who are not eligible or have exhausted other state or federal unemployment programs. The coverage includes:

  • Assistance during the weeks of unemployment between January 27, 2020, and December 31, 2020, up to a total of 39 weeks
  • Funds equal to the state’s authorized weekly benefit amount, so long as it’s not less than the Federal Pandemic Unemployment Compensation amount. Self-employed folks get the federal amount.
  • No waiting periods

Note that this coverage doesn’t extend to folks who can telework for pay or are receiving paid sick leave.

Short-time compensation

CARES also provides financial incentives to encourage states to create short-time unemployment compensation, or unemployment insurance for reduced hours, that’s 50% paid by employers. If a state already provides short-time compensation, they’ll be reimbursed 100%.

Retirement account disbursements

Individuals who have been impacted by COVID-19 are allowed to take up to $100,000 out of their retirement accounts without penalty during this emergency. This counts for distributions made on or after January 1, 2020, until December 31, 2020.

For a three-year period after distribution, individuals can make contributions back to their retirement account, so long as they don’t exceed the amount from the disbursement.

Student loan relief

The following measures are meant to ease the financial burden of student expenses.

  • Deferral of student loan payments: The Secretary is suspending all payments due for loans through September 30, 2020, without interest. Non-payment during this time will not affect credit reports, and all collections processes will be paused.
  • Loan cancellation: If students have to withdraw from courses because of the COVID-19 emergency, their associated federal loans will be canceled for that period. That’s right, the Secretary will cancel the student’s obligation to pay the entire loan. 
  • Grant expansion: Institutions of higher education can waive the need calculation requirement and award emergency financial aid grants to help students with unexpected expenses.
  • Employer assistance: Employers are allowed to contribute up to $5,250 tax-free annually to assist their employees with student loan payments.

Charitable contributions

In this time of need, the CARES Act also expands the charitable contribution deduction for both individuals and corporate taxpayers. You can receive the deduction if those donations are made in cash during 2020 to an IRS confirmed 501(c)(3) charity or organizations that support other charities and donor-advised funds.

The expansion includes the following:

  • An immediate $300 “above-the-line” deduction for taxpayers who take the standard deduction and don’t itemize
  • An increase of the 60% AGI limitation to 100% of AGI for qualified contributions
  • An increase of the 10% taxable income limitation for corporations to 25% of taxable income for qualified contributions
  • An increase of the charitable deduction for C corporations from 15% of their corporate income to 25%

Additional relief

Beyond the immediate relief stipulations for employers and employees, there are additional updates aimed at health care providers, industries—and even educational institutions that can have a financial impact on you and your team.

Here are the most notable provisions to be aware of.

Health provisions

The CARES Act builds on the work of the FFCRA to provide health care relief for workers and employers who provide coverage for their teams.

Expanded insurer coverage

  • Suspended cost-sharing: Insurers are now required to include not only COVID-19 testing and diagnostics, but also preventive services—without any cost-sharing. This includes any item, service, or immunization that prevents or mitigates the disease, even if they are not yet approved by the FDA. Once a preventive service is recommended by the government, insurers have 15 business days to support them. 
  • More services: The Act provides more funding and support for telehealth services related to COVID-19—again, without cost sharing. In addition, HSAs and FSAs now cover menstrual care products.
  • Bulk prescriptions: Medicare drugs are moving to default three-month supplies to minimize the need to go to pharmacies and leave fewer folks without access to their prescriptions.

Information sharing and HIPAA compliance

Information is important to health officials working to contain a fast-moving virus like COVID-19, so some HIPAA regulations were loosened to get federal and state agencies access to anonymized data as they managed the coronavirus emergency.

Employers may also be exposed to more of their employees’ protected health information than normal, but remember, non-discrimination and privacy requirements still apply. It’s your responsibility to make sure you don’t share or make employment decisions based on this private information.

Stabilizing distressed sectors

The CARES Act provides $500 billion to be used for stabilization of industries, states, and cities. These funds are available to US businesses that cannot access relief from other loans under the Act. Here’s how that sum is allocated:

  • $29 billion to passenger air, cargo air, and servicers to them
  • $17 billion for businesses important to maintaining national security
  • $454 billion to eligible businesses, states, municipalities

Bank relief

A number of provisions provide more flexibility to banks and credit unions in anticipation of difficulties and credit losses. This will allow them to reduce their capital, provide more deposit insurance to individuals, and be more flexible about how to treat delinquent loans.

A credit protection provision also aims to shelter consumers from negative credit reporting when a forbearance or modified account agreement is in place. This protection is available beginning January 31, 2020 and ends after 120 days, or 120 days after the national emergency declaration is terminated, whichever comes later.

Foreclosure and eviction relief

Mortgage and rent provisions will help Americans keep their homes amid financial hardship related to the coronavirus emergency. Specifically, the CARES Act:

  • Prohibits foreclosures on federally-backed mortgage loans for 60 days starting on March 18, 2020.
  • Provides up to 180 days of forbearance on federally-backed mortgage loans if the borrowers have been impacted by COVID-19.
  • Provides up to 90 days of forbearance on federally-backed, multifamily mortgage loans.
  • Prohibits evictions or penalties for renters for 120 days.

More financial relief

A Coronavirus Relief Fund also provides $150 billion to help states and cities with expenses related to the COVID-19 emergency. We expect states to quickly take action to distribute this funding to local communities once they get it.

In addition, non-bank financial companies are temporarily authorized as lenders, if their transactions are in the public interest. This exemption will last through December 31, 2020 or on the date when the coronavirus national emergency declaration has been terminated, whichever is earlier.

We’ll be watching for new grant and loan options for small businesses and will keep you updated.

[1] Remember, these are businesses with fewer than 500 employees (i.e., full-time, part-time, and seasonal), and includes sole proprietors, independent contractors, and self-employed individuals.

[2] Talk to an accountant, obviously. Sheesh.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
Back to top