CARES Act Assistance for Employers and Employees—The Paycheck Protection Program, Employee Retention Tax Credit, and Unemployment Insurance Benefits: Overview (Part 1) (IN11324, Version 2, Updated April 10, 2020)

Summary

This Congressional Research Service Insight, updated April 10, 2020, compares three CARES Act supports for employers and employees: Paycheck Protection Program loans, the employee retention tax credit and unemployment insurance. It describes PPP loans as carrying a 100% SBA guarantee, a two-year term and 1.0% interest, with no payments for six months and $349 billion authorized, in amounts up to the lesser of 2.5 times average monthly payroll costs or $10 million. Forgiveness depends on maintaining full-time-equivalent employees and not cutting compensation by more than 25% during the eight-week period. The retention credit is 50% of up to $10,000 in wages per employee, a maximum of $5,000, and cannot be claimed with a PPP loan. For unemployment insurance it lists an added $600 a week through July 31, 2020 and Pandemic Unemployment Assistance of up to 39 weeks.

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INSIGHTi

CARES Act Assistance for Employers and
Employees—The Paycheck Protection
Program, Employee Retention Tax Credit, and
Unemployment Insurance Benefits: Overview
(Part 1)

Molly F. Sherlock, Coordinator
Specialist in Public Finance

Jane G. Gravelle
Senior Specialist in Economic Policy

Katelin P. Isaacs
Specialist in Income Security

Sean Lowry
Analyst in Public Finance

Julie M. Whittaker
Specialist in Income Security

Updated April 10, 2020
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) includes numerous
provisions to assist employers and employees during the COVID-19 economic downturn. This Insight
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CRS INSIGHT
Prepared for Members and
Committees of Congress
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compares (1) SBA’s Paycheck Protection Program; (2) the employee retention tax credit; and (3)
Unemployment Insurance. A companion Insight, CRS Insight IN11329, CARES Act Assistance for
Employers and Employees—The Paycheck Protection Program, Employee Retention Tax Credit, and
Unemployment Insurance Benefits: Assessment of Alternatives (Part 2), coordinated by Molly F.
Sherlock, highlights factors employers might consider in choosing which program offers them the best
support.

Small Business Administration (SBA) Paycheck Protection Program (PPP)
Loans
Lenders can issue Paycheck Protection Program (PPP) loans to assist eligible borrowers to pay certain
payroll and operating costs for a period of eight weeks. These covered loans have a 100% SBA loan
guarantee and charge no borrower’s fees. The loans will have a two-year term and 1.0% interest rate. No
interest or principal payments are required for the first six months. The covered period runs from
February 15, 2020, through June 30, 2020. The CARES Act authorized $349 billion in PPP loans, and
they are available on a first-come, first-served basis.
Who is Eligible? Eligible borrowers generally include
 small businesses defined as either businesses that have 500 or fewer employees or that
meet the general size standards under the Small Business Act (with special rules for
businesses in the accommodation and food services industry),
 sole proprietors and independent contractors (with no employees),
 501(c)(3) nonprofit organizations (with 500 employees or fewer), and
 501(c)(19) veterans organizations (with 500 employees or fewer).
Benefit Amount: A borrower may generally apply for a PPP loan amount up to the lesser of
 2.5 times the average total monthly payments by the applicant for “payroll costs”
incurred during the preceding one-year period, or
 $10 million.
Proceeds of PPP loans can be used to cover “payroll costs,” plus other enumerated expenses (e.g., rent,
utilities, interest on loans). Payroll costs are capped at $100,000 on an annualized basis per employee.
Interim final regulations state that no more than 25% of the loan may be used for nonpayroll costs.
PPP loans can be forgiven if the borrower maintains its number of full-time equivalent employees and
does not reduce their compensation by more than 25% during the eight-week period after the loan’s
origination date. Otherwise, the amount of forgiveness is reduced by those measures, relative to base
periods specified in the act. Currently, there is not SBA guidance on how these formulas would apply to
loans taken out by sole proprietors or independent contractors with no employees. Loan forgiveness is
excluded from gross income for tax purposes.
Interaction with Other Programs: Employers taking a PPP loan cannot claim an employee retention tax
credit.

Employee Retention Tax Credit
The employee retention tax credit (ERTC) is a refundable tax credit that reduces an employer’s payroll
taxes. The credit can be claimed for wages paid after March 12, 2020, and before January 1, 2021.
Who is Eligible? Eligible employers are those who
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 are required to fully or partially suspend operations due to a COVID-19-related order
(including nonprofit employers); or
 have gross receipts 50% less than gross receipts in the same quarter in the prior calendar
year.
Wages used to determine the credit depend on the number of employees the employer had during 2019. If
the employer had more than 100 full-time employees, qualified wages are wages paid to employees who
are not providing services (i.e., not working). If the employer had 100 or fewer full-time employees, all
employee wages paid by eligible employers are credit-eligible. Government employers and self-employed
individuals are generally ineligible.
Benefit Amount: Tax credit of 50% of up to $10,000 in wages paid (maximum tax credit of $5,000).
Interaction with Other Programs: Employers receiving a PPP loan cannot claim the ERTC.

Unemployment Insurance
The CARES Act Unemployment Insurance (UI) provisions provide federally funded income support to
unemployed individuals by temporarily (1) augmenting all weekly UI benefit payments by $600/week;
(2) expanding UI benefit eligibility; and (3) providing an additional 13 weeks of benefits to regular
Unemployment Compensation (UC) exhaustees; among other provisions.
Additionally, in states that have Short-Time Compensation (STC, also known as work-sharing) programs,
workers whose hours are reduced (in lieu of layoffs) under these formal work-sharing plans may be
compensated with STC, which is a regular UC benefit that has been prorated for the partial work
reduction. The CARES Act temporarily pays 100% of benefits (50% if the state creates a temporary STC
program) if employers have a formal STC agreement with a state when employee hours are reduced.

$600/Week Federal Pandemic Unemployment Compensation (FPUC)
Who is Eligible: Unemployed individuals receiving any UI benefit, including UC, Extended Benefits
(EB), and the temporary benefits discussed below.
Benefit Amount and Duration: $600/week; federally financed; authorized in each state after signing an
agreement to administer the program (beginning the week after March 24, 2020) through July 31, 2020.
No retroactive payments. No payments for weeks of unemployment after July 31, 2020.
Interaction with Other Programs: FPUC augments all weekly UI benefits, including UC, EB, and all
temporary UI programs discussed below.

Expanded UI Eligibility: Pandemic Unemployment Assistance (PUA)
Who is Eligible? Unemployed individuals who (1) are ineligible for any other state or federal UI benefit;
(2) meet conditions related to being unemployed, partially unemployed, or unable to work due to COVID-
19; and (3) are not able to telework and not receiving any paid leave. Eligibility includes those
unemployed individuals who were self-employed, independent contractors, or gig economy workers.
Benefit Amount and Duration: PUA provides up to 39 weeks of federally financed UI benefits to
unemployed workers. PUA is payable for weeks of unemployment beginning on or after January 27,
2020, and ending on or before December 31, 2020 (and may be paid retroactively). The PUA benefit
amount is calculated under state UI law based on recent earnings (subject to the minimum benefit under
Disaster Unemployment Assistance [DUA], which is half of the state’s average weekly benefit amount).
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Interaction with Other Programs: All PUA benefits are augmented weekly by the $600 FPUC for weeks
of unemployment beginning after March 27, 2020, through July 2020. The maximum duration of PUA is
reduced by weeks of certain UI benefits payable to an individual, including UC and EB.

Additional 13 Weeks of Benefits for UI Exhaustees: Pandemic Emergency
Unemployment Compensation (PEUC)
Who is eligible? Unemployed individuals who exhaust regular state and federal UI benefits (and are able,
available, and actively seeking work, subject to COVID-19-related flexibilities), through the end of
December 2020.
Benefit Amount? The PEUC benefit amount is identical to the regular UC benefit and is calculated under
state law based on recent earnings.
Interaction with Other Programs: PEUC benefits are augmented weekly by the $600 FPUC through July
2020. PEUC is paid out after exhaustion of regular UC and before any EB. Only permanent law UI
programs (regular UC and EB) are available after the last full week in December 2020.

Federal Cost Sharing of Short-Time Compensation (STC)
Who is eligible? Workers with reduced hours if employer has STC agreement with state.
Benefit Amount? Prorated UC benefit based upon percentage of usual work hours.
Interaction with Other Programs: STC-based UC benefits, like all UC benefits, are augmented
weekly by the $600 FPUC through July 2020. Because the CARES Act temporarily funds 100%
of STC-based UC benefit in states with permanent STC programs (50% in temporary STC
states), states have the option to noncharge employers, thereby mitigating an employer’s
potential State Unemployment Tax (SUTA) increase. Federal cost-sharing of STC benefits is
available from March 27, 2020, through December 31, 2020.

IN11324 · VERSION 2 · UPDATED
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