The CARES Act: A brief guide for small business owners

The Coronavirus Aid, Relief, and Economic Security (CARES) Act seeks to offset the impact COVID-19 has had and will continue to have on the U.S. workforce and economy. It was signed into law on March 27, 2020. The law authorizes a number of credits, rebates and loans. For small business owners, and other eligible applicants the largest pool of support is contained in the $349 billion Paycheck Protection Program.

The new law infuses $2 trillion into the U.S. economy through a combination of business loans, unemployment benefits, tax credits, and other benefits.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act assists small businesses through:

  • Paycheck Protection Program (PPP) loans with forgiveness, under certain requirements.
  • Economic Injury Disaster Loans (EIDLs) and advances.
  • More flexibility in unemployment benefits, retirement accounts, and tax filing and payment dates.

Under the CARES Act, unemployment insurance:

  • Is authorized for up to 13 additional weeks of federally funded benefits (for a total of 39 weeks) for individuals who exhaust state and federal benefits and are able, available, and actively seeking work.
  • Includes a $600 supplemental weekly benefit for all weeks of unemployment between April 5, 2020, and July 31, 2020.
  • Is available to independent contractors, self-employed individuals, and workers with a limited work history.
  • Contains self-certification requirements allowing workers to state that they are unable to work due to the coronavirus outbreak.

The CARES Act makes some changes to retirement plans: 

  • The CARES Act relaxes required minimum distributions and waives minimum distributions for eligible retirement plans in 2020.
  • The 10% early withdrawal penalty that generally applies to withdrawals made by those who are younger than 59 ½ is waived on retirement account distributions related to the coronavirus, with a $100,000 distribution cap.
  • Taxes associated with these distributions may be paid ratably over three years, beginning with taxable year 2020.

For more information, please consult the Internal Revenue Service (IRS).

The CARES Act also increases loan flexibility on retirement plans:

  • Loan limits increase from $50,000 to $100,000.
  • Loan limits increase from 50% of the vested benefit to 100% of the vested benefit.
  • Loan repayments may be suspended for one year.

The CARES Act also authorizes new tax credits for businesses, including:

1. Businesses that are either forced to close due to a government order relating to COVID-19 or experience a decline in gross receipts as compared to 2019—are eligible for an employee retention tax credit. The credit is equal to 50% of the total wages of employees who are not providing services starting on March 13, 2020, through December 31, 2020, up to a maximum of $10,000 total per employee. This credit is not available to businesses who receive Paycheck Protection Program funding.

2. The employer share of Social Security taxes (6.2% of wages up to the Social Security ceiling) that accrue from March 27, 2020, through and including December 31, 2020, are deferred. 50% of 2020 Social Security taxes are due by December 31, 2021, with the remainder due by December 31, 2022. This credit does not apply to employers who receive debt forgiveness under Section 1106.

3. For single-employer plans, any minimum employer contributions that would be due during the calendar year 2020 are due January 1, 2021. Interest accrues for the period between the original due date for the contribution and the payment date.

The CARES Act and Paycheck Protection Program (PPP) loans

Under the CARES Act, small businesses and other eligible organizations can apply for Paycheck Protection Program loans to cover payroll costs and other certain operating expenses. Borrowers can also use PPP loans to cover allowable uses, including group health care benefits, insurance premiums, and some forms of paid leave. Loan proceeds may also cover mortgage interest, rent, and utilities.

Businesses that meet eligibility must, in good faith, certify:

  • The business was in operation on February 15, 2020, and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC
  • Current economic uncertainty makes the PPP loan necessary to support ongoing operations
  • PPP funds will be used to retain employees and maintain payroll
  • PPP funds will be used to make mortgage interest, rent, and utility payments
  • No more than 25% of the forgiven amount will be for non-payroll costs
  • They will not receive another loan under the Paycheck Protection Program
  • They will provide all the necessary lender documentation to the lender to verify the number of employees on payroll and the dollar amounts for covered costs for the eight weeks following the loan
  • That the information submitted is true and accurate and that the lender will confirm the eligible loan amount using the tax documentation submitted

PPP loans are available for up to 2.5 times the average monthly payroll of an eligible small business up to $10 million.

Small businesses may have loans forgiven, in whole or in part, under certain criteria. After the eight-week period following disbursement of a PPP loan, borrowers can apply for loan forgiveness with their lenders.

The loan may be forgiven if the funds are used as directed by the SBA, including, but not limited to, meeting the following criteria:

  • Only loan proceeds spent on payroll and other permissible uses during the eight-week period following the disbursement of your loan are forgivable (costs incurred after the eight-week period are not forgivable).
  • Maintain the same number of employees on the payroll.
  • Maintain employee salary levels.

To qualify, business owners will need to organize documentation of:

  • The number of employees on the payroll.
  • Employee pay rates.
  • Payroll tax filings.
  • Payroll costs paid in the eight weeks following disbursement of the loan.
  • Mortgage interest payments in the eight weeks following disbursement of the loan.
  • Rent or lease payments in the eight weeks following disbursement of the loan.
  • Utility payments in the eight weeks following disbursement of the loan.
  • Any advance received under the CARES Act EIDL Emergency Grant program.

Small businesses and other eligible applicants can apply for PPP loans through SBA lenders.

Economic Injury Disaster Loans (EIDLs)

Economic Injury Disaster Loans can help businesses, renters, and homeowners affected by declared disasters. Under the EIDL provisions of the CARES Act, small business and other eligible applicants can apply for working capital loans up to $2 million. Borrowers can use loans to pay fixed debts, cover payroll costs, and pay other bills they cannot otherwise pay due to the economic impact of the coronavirus.

Business owners can also apply for an EIDL emergency advance of up to $10,000. These funds will be made available within days of application and will not need to be repaid, even if the business’ application for an EIDL loan is denied.

Qualifying businesses affected by the coronavirus can apply for an EIDL now.

Eligibility for Economic Injury Disaster Loans:

In addition to small businesses, entitles eligible for an EIDL loan have been expanded to include:

  • private nonprofit organizations
  • small agricultural cooperatives
  • sole proprietorships, with or without employees, and independent contractors
  • any business, cooperative, employee stock ownership plan or tribal small business with not more than 500 employees

To be eligible, businesses must have also been in existence on January 31, 2020.

Business owners who have an existing SBA loan may still be eligible for an EIDL, but they cannot consolidate loans. Potential borrowers must have a credit history acceptable to the SBA and the ability to repay the loan. Business owners must be able to prove that their business has suffered substantial economic hardship as a result of the coronavirus.

The resources described above are made available to businesses within the United States of America.

COVID-19 relief programs are evolving regularly. Please visit for the most up to date information. 

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