Legal Practice

Impact of the CARES Act on Legal Professionals

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were passed by Congress in the U.S to alleviate the burden of millions of Americans due to the negative economic impact of COVID-19. It was put into motion to aid small businesses employing millions of people who lost their means of livelihood due to the pandemic. The CARES Act is packed with emergency government grants, unemployment insurance benefits, refundable tax credit, and business tax, and, most importantly, loans for paycheck protection. 

Effect of CARES Act on Legal professional- Watch the video here

The CARES Act, through the following packages, helps legal professionals to sustain their practice through this pandemic. It is as follows:

  • Paycheck protection program (PPP):

The Paycheck Protection Program (PPP) is the most assuring part of this legislation. The $350 billion loan program with its low-interest rates completely covers payroll costs. It is a guaranteed loan from a bank or credit union. It helps the legal professionals (inclusive of sole proprietors and independent contractors) to eliminate significant debt to be paid off after the pandemic gets over.
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Applicability:  Legal firms with less than 500 employees are eligible to seek the benefit of a CARES loan. Businesses with more than the prescribed number of employees are eligible to the loan if they satisfy specific criteria given under the legislation.  

Features:  CARES loan will cover up to two months of average monthly payroll costs of lawyers. The previous year’s payroll expenses calculate it with an additional 25% up to a $10 million cap. It can also be used to pay up the rent, mortgage interest, and utilities accumulated before 15th February 2020. Hence, the CARES loan cannot be made use for a prospective loan, for example, in order to lease an office.
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Coverage for payroll costs includes-

  1. Salaries, wages, commissions or tips
  2. Employee benefits such as costs for vacation, medical or sick, and parental leave. 
  3. Any retirement benefits
  4. Group health care benefits including premiums. 
  5. State or local tax assessed on the compensation of employees
  6. Allowance for dismissal or separation.

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  • Employee Retention Credit:

A legal professional is entitled to 50% of qualified wages. Qualified wages include health plan expenditure but are limited only to a maximum of $10,000 per employee (i.e., per employee must have a maximum qualified wage of $5,000). If an employer obtains a PPP loan, they cannot avail the benefit of Employee Retention Credit.

The employer is entitled to Employee Retention Credit if they satisfy the below mentioned two conditions:

  1. If the legal practice was partially or fully suspended due to COVID-19 related shut-down directives.
  2. If the legal professional lost more than 50% in total when compared to previous years’ same quarter performance.
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  • Payroll Tax Deferment:

Legal professionals can make deferred payments of their payroll taxes over the subsequent two years. The first half can be paid by 31st December 2021 and the other remaining half by 31st December 2022. Even if an employer avails PPP loans, they are still entitled to Payroll Tax Deferment.

  • Economic Injury Disaster Loan Emergency Advance (EIDL):

EIDL is a direct loan from the Small Business Association to companies with fewer than 500 employees. Legal professionals can apply for EIDL Grant from Small Business Administration (SBA) for an advance on the loan of up to $10,000. Lawyers will not have to pay back the Emergency EIDL.
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  • CARES Act provides for emergency funding of $50 million to the Legal Services Corporation. It is aimed to address the growing legal needs of the low-income earning Americans who will be worse hit due to the pandemic. 
  • Federal Courts and their staff will be allotted $7.5 million to support their legal activities. It is done to bolster telework capabilities and to cover higher costs of pre-trial and other probation-related services.
  • The Act also caters to funding to the Federal Bureau Prisons for personal protective equipment, electronic monitoring, and various other things to improve the conditions in prison. 
  • It is also a boon to low-income, generating Americans. They are provided with affordable housing and homelessness assistance programs. Consequentially, there will be a drastic reduction in evictions and foreclosures.
  • The CARES Act allocated $850 million for Jails and local police departments so as to provide those with health protection needs. Ad hoc rules will be formulated to facilitate video and audio conferences for legal procedures such as detention hearings and misdemeanor pleas. 
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In conclusion, it can rightly be pointed out that the CARES Act addresses the unprecedented economic upheaval by reducing the burden on the legal fraternity. Therefore, it is a positive step taken by the government to address the hardships of American citizens during a disastrous period. 
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