CARES Act: A lifeboat for Puerto Rico

The stage is set for Puerto Ricans to benefit directly from key provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which was enacted to help individuals, local and state governments, small businesses, nonprofits, and others affected directly by the coronavirus disease 2019 (COVID-19) pandemic.

Economic stimulus package

The $2 trillion economic stimulus package is the largest economic stimulus package in US history. The bipartisan package extends direct relief payments to individuals within the US (including any State, the District of Columbia, or any territory of the US) and includes $3 billion to assist in responding to the crisis.

Although the CARES Act as a whole applies generally to Puerto Rico, its provisions granting federal income tax benefits generally do not apply to Puerto Rico, given Puerto Rico’s unique tax status.

Programs available in Puerto Rico

The following programs are applicable to both US and Puerto Rico employers, and could potentially help prevent workers in Puerto Rico from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic:

Payroll tax deferral

The Act allows employers (and self-employed individuals) to defer paying their portion of the Social Security payroll tax (currently 6.2 percent) otherwise due for the period ending December 31, 2020. Such deferred taxes are due in two installments: 50 percent by December 31, 2021, and 50 percent by December 31, 2022.

This payroll tax deferral applies to all employers, without a requirement to certify or prove any specific COVID-19-related impact. However, the deferral is not available to any employer that receives loan forgiveness under the Paycheck Protection Program (PPP program).

Employee retention refundable tax credits

The Act provides a refundable tax credit against employment taxes paid by eligible employers in an amount equal to 50 percent of the first $10,000 of “qualified wages” paid to employees. The credit is applied against the employer’s portion of Social Security payroll taxes (the “employer portion”). Employers can also elect not to have the credit apply to any particular quarter during that period.

An employer may be eligible for the employee retention tax credit if, during any calendar quarter of 2020, it has either (i) operations fully or partially suspended due to a governmental order related to COVID-19 or (ii) a decline in gross receipts of more than 50 percent compared to the same quarter of the prior year. This credit is not available to employers that receive a loan under the PPP program.

“Qualified wages” are treated differently for employers based on number of full-time employees:

• For employers with more than 100 full-time employees, “qualified wages” only covers wages paid to those employees who are not providing services due to a qualifying COVID-19-related impact.
• For employers with 100 or fewer full-time employees, “qualified wages” covers wages paid to all employees of the employer during any applicable quarter in which it experiences a COVID-19-related impact as described above, including employees who are continuing to provide services to the employer.

Paycheck Protection Program

Click here for a more detailed overview of the Paycheck Protection Program (“PPP”).

If you have any questions regarding these new requirements and their implications, please contact the authors, any member of the DLA Piper Government Affairs or Employment groups, or your DLA Piper relationship attorney.

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This information does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.