COVID-19 Frequently Asked Questions
Employment | Corporate Finance | Tax
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act provides nearly $2 trillion in support to individuals and businesses in response to the economic devastation caused by the coronavirus (COVID-19) pandemic. On March 27, 2020, the House of Representatives passed the CARES Act and President Trump signed the bill into law the same day. Here are the highlights:
- Provides $1,200 to Americans making $75,000 or less ($150,000 in the case of joint returns and $112,500 for head of household) and $500 for each child, to be paid “as rapidly as possible.”
- Creates a $349 billion loan program for small businesses, including 501(c)(3) non-profits and physician practices. These loans can be forgiven through a process that incentivizes companies to retain employees.
- Expands eligibility for unemployment insurance and provides people with an additional $600 per week on top of the unemployment amount determined by each state.
- $500 billion for assistance to businesses, states, and municipalities, with no more than $46 billion to support passenger air carriers, air cargo carriers, and businesses important to maintaining national security. The remaining $454 billion may be used to support lending to eligible businesses, states, and municipalities.
- Allocates $130 billion in relief to the medical and hospital industries, including for medical supplies and drug and device shortages.
- Expands tele-health services in Medicare, including services unrelated to COVID-19 treatments.
- Expands the Defense Production Act, allowing for a period of two years when the government may correct any shortfall in resources without regard to the current expenditure limit of $50 million.
It depends on the court. Courts are exempt from Governor Newsom’s shelter-in-place order. Nonetheless, California superior courts are handling their operations and functions differently during the COVID-19 crisis. Some are closed for anything other than emergencies, while others remain open and are accepting filings. Whether a specific court is currently open and handling a certain procedure should be answered by visiting that court’s website. A collection of court orders can be found here.
In an effort to create some consistency among the counties, the Chief Justice of California/Chair of the Judicial Council has issued multiple orders and implemented certain Emergency Rules as part of the California Rules of Court, which are applicable throughout the State. Links to those orders and rules can be found here.
Federal courts are generally accepting filings electronically, although the courthouses are largely closed to the public. Operations are being handled on a district-by-district basis, with any required hearings being held to the fullest extent possible via telephone or video conference. Litigants should consult the applicable court’s website for answers to specific questions.
Contact > Annie Amaral
Use of NOLs to offset income in prior years. Net operating losses (NOL) are currently subject to a taxable-income limitation and cannot be carried back to reduce income in a prior tax year. The CARES Act provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. It also temporarily removes the taxable income limitation to allow an NOL to fully offset income; the 80% limitation is temporarily removed on the amount of income that can be offset by post-2017 NOLs through the 2020 tax year. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.
Accelerated use of AMT credits. The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act in 2017, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The CARES Act accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency through 2 options: (1) the default option gives the balance of the refundable credit to taxpayers with their 2019 tax return; and (2) an election to claim the entire credit in 2018.
Increased limit on interest expenses. The CARES Act temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30% limitation to 50% of taxable income (with adjustments) for 2019 and 2020. Taxpayers may also elect to use their 2019 adjustable tax income in the computation of the 2020 expense limitation. This provision will allow businesses to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.
Immediate write-off of depreciable improvements. Businesses, especially those in the hospitality industry, are able to write off immediately costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. The provision corrects a drafting error in the Tax Cuts and Jobs Act that intended for qualified improvement property to have a 15-year life that was eligible for 100% bonus depreciation. The provision not only increases companies’ access to cash flow by allowing them to amend a prior year return, but also incentivizes them to continue to invest in improvements as the country recovers from the COVID-19 emergency.
Contact > Aaron Johnson
The IRS has announced that the filing deadline and payment of taxes has been pushed back to July 15, 2020. Additionally, any estimated tax payments due on April 15 can be paid on July 15. Relief for filing California tax returns and making payments was granted before the IRS announced any relief, and then amended afterwards. Initially, Governor Newsom, in his Executive Order, granted an extension to June 15, 2020 to file income tax returns and pay related taxes. After the IRS announcement, the Franchise Tax Board (FTB) said that taxpayers affected by COVID-19 have until July 15, 2020 to file their returns and make payments.
Contact > Aaron Johnson
The Families First Coronavirus Response Act was signed into law on March 18, 2020, and it allows employees affected by the coronavirus to receive paid leave. Under the Act, employees can receive paid sick leave if they are quarantined, experiencing COVID-19 symptoms, caring for someone who is quarantined or caring for a child whose school has been closed. The Act also provides payroll tax credits to employers to cover wages paid to employees while they are taking time off under the Act’s sick leave and family leave programs.
The sick leave credit for each employee would be for wages of as much as $511 per day while the employee is receiving paid sick leave to care for themselves, or $200 if the sick leave is to care for a family member or child if their school is closed. The family leave credit for each employee would be for wages of as much as $200 per day while the employee is receiving paid leave, or an aggregate of $10,000. The measure would provide a similar refundable credit against self-employment tax. It would be the lesser of $511 per day or a person’s average daily self-employment income. If they are caring for someone else, it would be the lessor of $200 or 67% of their average daily self-employment income.
Eligible employers who pay qualifying sick leave or child care leave under the Act will be able to retain the payroll taxes equal to the amount paid in sick and family leave, instead of depositing the money with the IRS. The payroll taxes that are available for retention are (1) withheld federal income tax, (2) employee share of Social Security and Medicare taxes, and (3) employer’s share of Social Security and Medicare taxes. If there is not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS.
Under the CARES Act, signed into law on March 27, 2020, employers and self-employed individuals 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. Employers generally are responsible for paying a 6.2% Social Security tax on employee wages. The deferred employment tax must be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.
Contact > Aaron Johnson
Current economic indicators are startling and fast-moving. Already, in California, restaurants, bars, and public gatherings are being closed or curtailed, not to mention current travel restrictions. It is going to be a rough few months, or more, from a business perspective. If your revenue has or is about to drop precipitously, you need to be prepared and proactive. First, review your loan documents. Events of default typically include not just payment default, but financial covenant defaults, material adverse event defaults, and others. Understand where you are headed, try to understand when it is happening, and plan accordingly. Second, be in contact with your lender; we believe that there is currently a shared sense of working for the common good, and lenders should understand your current circumstance, as they are facing the same issues. Whether you have reporting requirements or not, it can’t hurt to let your lender know if your potential insecurity, and to keep them in the loop. They will be expecting your call. If you cannot make a payment, then your lender will have a choice to make, whether enforcement or forbearance is appropriate. A lender’s decision in that regard is based on many factors, including internal policies, what shape their portfolio is in, how secured the debt is, and what the borrower’s current and future prospects are. Borrowers and lenders can work together for mutual benefit here, which requires communication.
Contact > Jamie Dreher
You may ask employees with visible symptoms to go home and stay at home. You may also ask those who worked closely with employees who test positive to stay at home. You may ask employees with visible symptoms to get tested, though you cannot administer any testing yourself. You may inform employees that someone has tested positive, but you may not reveal the identity of that individual. It pays to be sensitive to employees in high risk groups and consider providing leave or telework to the extent those options are feasible.
On Thursday, March 19, 2020, the President signed the Families First Coronavirus Response Act (“FFCRA”), which includes the “Emergency Family and Medical Leave Expansion Act” and the “Emergency Paid Sick Leave Act.” Both laws apply to public agencies and employers with fewer than 500 employees. The laws will expire on December 31, 2020.
Click on our March 20, 2020 Legal Alert for a full summary of the amendments.
The Department of Labor (“DOL”) continues to issue additional guidance and new regulations regarding the FFCRA. You can view a few highlights in our March 29, 2020 Legal Alert and our April 6, 2020 Legal Alert.
Two potential areas of recovery here include each of event-cancellation and business interruption insurance policies.
Businesses and Associations are proactively, and in some instances being required, to cancel events, conferences, meetings, fund-raisers (especially in the non-profit area), and conventions. If your business or association has purchased event cancellation insurance, it is important to review the policy, applicable riders, and claim filing deadlines. Event cancellation insurance is typically industry specific; there may be exclusions for the type of current events, and some policies may require a government action trigger as opposed to a strictly voluntary cancellation. In the current environment, given widespread travel and gathering restrictions, whether as policy, recommendation, or mandate, there may be the potential for coverage disputes. We also understand that recent event cancellation policies include COVID-19 exclusions.
Business operation insurance policies are common, and can cover losses as a result of property damage. While a standard business loss policy may not appear to cover losses arising out of a pandemic, there are specific endorsements offered that may provide such coverage, including for losses arising out of infectious diseases. We also understand that industry is developing COVID-19 endorsements, so you should check with your insurer or broker as to availability. The recent declaration of a national emergency should give additional credence to business loss claims, and most especially if your facility or business is shut due to a positive test or quarantine.
Contact > Jamie Dreher
Trusts & Estates
Ensuring that you have the requisite documents in place to protect yourself—and your loved ones—during a period of incapacity is a good place to start. Completing an Advanced Health Directive allows you to appoint a health care agent to make medical decisions on your behalf in the event you are unable to do so for yourself. Many local medical providers offer Advance Health Care Directive Forms on their websites (links below), and California law does not require Advance Health Care Directives to be notarized; instead, they may be witnessed by two individuals, so you needn’t risk exposure to the virus in a public space and can complete the form in your home with the help of neighbors and friends. You can then scan and upload the form to your medical provider’s online portal so that hospitals know whom has the authority to make medical decisions on your behalf. Note, however, the witnesses to your Advance Health Care Directive cannot be your health care provider or the individual(s) nominated as your health care agent(s).
- Kaiser Advance Health Care Directive Form can be found here.
- Dignity Health Advance Health Care Directive form can be found here.
- Sutter Health Advance Health Care Directive form can be found here.
Beyond completing an Advance Health Care Directive, it is also a good idea to have a General Durable Power of Attorney in place. By executing a General Durable Power of Attorney, you appoint an attorney-in-fact to make financial decisions if you are incapacitated. This document gives your attorney-in-fact a broad set of powers and grants them the authority to pay your bills, manage your investments, your business, your retirement benefits, attend to tax matters, insurance transactions, retrieve your mail, etc. In the event your health and mental capacity becomes compromised by COVID-19, or any other illness, designating another person to handle your financial affairs means your bills will be paid, your taxes filed, and your employees receive their paychecks.
A Will designates a personal representative to harness your assets at your death, pay any of your last debts, and work to distribute your remaining assets to your chosen loved ones. A Will also allows you to designate guardians for your minor children. A word of caution, however, even with a Will, a probate proceeding would be required and a court action necessary. To avoid this, you should consider a revocable trust, naming designated beneficiaries on your retirement accounts, and/or adding pay-on-death beneficiaries for your other assets.
The Sacramento County Law Library has forms for a Uniform Statutory Power of Attorney and a Will on its website for free. You can find those forms here.
If you do not already have a Will or a revocable trust, you may want to consider seeking the advice of competent estate planning counsel. Yet in light of the current outbreak and the need to adhere to social distancing standards, face-to-face meetings should be avoided and discussions with counsel should be limited to video and telephone conferencing.
Contact > Kristin Capritto
Family Law | Child Custody
Schools throughout the state have implemented mandatory closures in response to the coronavirus. Commencing March 16, 2020, all school districts in Sacramento County were closed to students for up to three weeks. Other school districts implemented similar closures. On April 1, 2020, state officials announced that all of California’s public K-12 school campuses will remain closed for the remainder of the academic year in response to the escalating coronavirus pandemic. If you have minor children and are going through a divorce, or if you have a custody order pursuant to a previous marital dissolution action, you need to look at your custody order to determine parenting time during the school closures. You also need to look at the child care provisions in your custody order, as you may now be faced with an unexpected need for child care. For example, does your order require that one parent has the right of first refusal if the other parent needs child care for more than eight hours?
Ultimately, communication is the best thing you can do right now to respond to the ever-changing school and child care landscape resulting from the coronavirus outbreak. If possible, you should communicate directly with your child’s other parent and try to reach an agreement on how to handle any child care changes during these unexpected school closures. Of course, your situation may not lend itself to communicating directly with the other parent. If that is the case, then it is important you contact your attorney as soon as possible so that your attorney can help resolve any issues related to the school closures.
Now is the time, hopefully while you are healthy, to think about what will happen if you, your child, or your child’s other parent get sick or are required to self-quarantine. Again, the first step is to review your existing custody order, as it may generally address what will happen in the event one or both parents are ill and unable to care for the child. This is an unprecedented set of circumstances, and so even if your order does address such a situation, it would still be a good idea to reach out to your child’s other parent (either directly or through the parties’ attorneys) to make sure everyone is on the same page about what will happen if anyone becomes ill or is required to quarantine.
It is possible that your custody order does not cover what would happen if one or both parents are unable to care for the child (either due to quarantine or illness). If that is the case, then you should reach out to your child’s other parent right away – again either directly or through attorneys – to try to come up with a plan.
It would also be a good idea to communicate with your child’s other parent, and discuss how to respond if your child becomes ill. For example, you should discuss which parent would stay home with the child in the event the child is ill and/or has to be quarantined. Will you continue to follow the regular parenting schedule even if the child is ill? Communication is key to hopefully heading off unnecessary conflict during what is already a stressful time for everyone.
Finally, if possible, prepare to be flexible.
Contact > Kelly Pope