On March 27, Congress passed the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES) to mitigate the negative economic impact of COVID-19. The CARES Act provides small businesses and individuals with extended unemployment insurance benefits, loans for paycheck protection, refundable tax credit, and business tax provisions. Attorneys who own their own practice can take advantage of the 2020 CARES Act to protect their business and employees during the economic downturn brought on by COVID-19.
How the CARES Act Applies to Lawyers
The CARES Act could alleviate the negative economic impact of COVID-19 on your law firm while the entire world waits for what’s next.
The CARES Act helps law practices with:
- Paycheck protection program (PPP): completely forgivable loan to cover payroll costs
- Employee retention credit
- 2020 Payroll tax deferment
- Economic injury disaster loan emergency advance (EIDL)
Paycheck Protection Program (PPP) for Attorneys, Legal Administrators, and Staff
- Law firms with fewer than 500 employees are eligible to apply for a CARES loan to cover payroll costs. Some businesses with more than 500 employees are eligible if they meet certain criteria.
- Sole proprietorships, independent contractions, self-employed persons, private non-profit organizations, or 501(c)(19) veterans organizations are all eligible to apply.
- Legal professionals may be eligible for a CARES loan that covers up to two months of your average monthly payroll costs, figured by last year’s payroll expenses plus an additional 25%, up to a $10 million cap. Each employee is capped at $100,000 annualized.
- Lawyers can use the PPP loan to cover all payroll expenses including benefits. You are also allowed to use it for rent, utilities, and mortgage interest, as long as these expenses were in place before Feb. 15, 2020. (In other words, you can’t use the loan to lease a new office).
For more detail, please refer to the PPP FAQs published by the Treasury Department on Wednesday, April 8, 2020.
Coverage for Payroll Costs
- Salary, wages, commissions, or tips
- Employee benefits including costs for vacation, parental, family, medical, or sick leave
- Allowance for separation or dismissal
- Payments required for the provisions of group health care benefits including insurance premiums
- Retirement benefits
- State and local taxes assessed on compensation
For more detail, please refer to the Tax Foundation’s summary of the SBA Paycheck Protection Program in the CARES Act.
Coverage for 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
- Extends duration of benefits from 26 weeks (available in most states) to 39 weeks
- Provides an additional $600 per week in benefits for first four months
For more detail, please refer to the summary from the law firm Rudman Winchell.
Paycheck Protection Program (PPP) Loan Forgiveness
Applications are already in play. While there is a lot of money available, it is not unlimited. Apply as quickly as possible.
- You use the money strictly for allowed expenses
- 75% of the loan amount is spent on payroll costs
- You maintain your entire full-time staff until June 30
- Rehire fired or laid-off employees quickly
- Caps payment at $100,000 per person
- You do not cut employees wages more than 25% for any employee who made less than $100,000 in 2019
- For whatever amount is not covered, PPP loans have a 1% interest rate and payments are deferred six months with interest during the deferment. The loan must be fully repaid in two years.
For more detail, please refer to the Small Business Administration’s Docket No. SBA-2020-0015.
Employee Retention Credit
You may qualify for a refundable payroll tax credit for 50% of wages if:
- your law practice was fully or partially suspended due to COVID-19 related shut-down orders.
- you lost more than 50% in gross receipts compared to last year’s same-quarter performance.
Payroll Tax Deferment
To further lower expenses at your law firm, you may defer your share of payroll taxes and split the deferred payments over the next two years, with half due by Dec. 31, 2021, and the other half due by Dec. 31, 2022.
Economic Injury Disaster Loan Emergency Advance (EIDL)
If you are a sole proprietor, you may be eligible for a EIDL loan of up to $2 million, repayable over 30 years at 3.75% interest rates for small businesses and 2.75% for most private non-profits under the EIDL. Payments are deferred for the first year, but interest accrues during that time.
- You’ll have to put up collateral for loans over $25,000 and a personal guarantee for loans exceeding $200,00.
- If you qualify for an EIDL, you can use the money for any business expense (with a few exclusions).
- Under the same provision, small business owners may be eligible for a one-time grant of up to $10,000 that you won’t have to pay back.
For more detail, please refer to the U.S. Small Business Administration’s “Economic Injury Disaster Loan Emergency Advance” overview page.
What Happens If You Enroll for PPP and EIDL?
If you decide to enroll for both the EIDL and PPP, the amount of the EIDL grant will be subtracted from the PPP amount eligible for forgiveness. In other words, you’ll ultimately wind up paying it back.
The 2020 CARES Act Can Help Your Law Firm
Law firms are uniquely poised to understand the full extent of the CARES Act and its protections. With the financial boost from the CARES Act, attorneys are more likely to retain talent and be ready to hit the ground running when court activity ramps up again.
CARES Act 2020 Resources
Check out our COVID-19 Resource Center for more information on how you can manage your law firm during this pandemic.