CARES Act: Key Takeaways for the Technology Industry

April 03, 2020

President Donald Trump signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act) into law on March 27. The CARES Act aims to offer economic relief to companies and their employees due to the coronavirus (COVID-19) pandemic in the United States. Many of the CARES Act provisions impact the technology industry although the Act does not expressly provide industry-specific relief.

This LawFlash identifies several key statutory provisions. As such, it only addresses key provisions applicable to businesses, and is not exhaustive of other available federal and state relief programs. The CARES Act also provides relief for individuals, which this summary does not address outside the context of employee and unemployment benefits. We anticipate additional guidance to be released by the Small Business Administration and the US Department of the Treasury in the coming weeks and will report on it as applicable.

Loans and Loan Forgiveness

The CARES Act contains various provisions addressing loans, loan guarantees, and loan forgiveness for small businesses and businesses “critical to maintaining national security.” These provisions could be pertinent to small businesses, in particular, in the technology industry. Such provisions provide loans to small businesses to keep their workers employed (Sections 1101-1114); provide loans to businesses “critical to maintaining national security” that have not otherwise received adequate economic relief under the CARES Act (Sections 4011-4029); and make borrowers eligible for loan forgiveness, where the borrower uses the loan to support its employees and its business (Section 1105).

Small Business Loans

Sections 1101-1114 of the CARES Act support workers and small businesses weathering the economic impacts of the COVID-19 crisis. The Act provides new and increased federally guaranteed Paycheck Protection Program (PPP) loans through the Small Business Administration (SBA) to small businesses that keep their workers employed. By maintaining employees on their payroll through the duration of the crisis, these small businesses can qualify for PPP loan forgiveness. The Act is retroactive, incentivizing small businesses to rehire employees that have recently been laid off.

Specifically, Section 1102 of the CARES Act authorizes the SBA to offer federally guaranteed loans of up to $10 million to small businesses under the PPP. It also expands the definition of “small business” for purposes of the PPP. To qualify for a loan under the PPP, the business must (1) employ no more than 500 employees, or (2) employ no more than the applicable size standard for the industry established by the SBA in 13 CFR § 121.201, if the size standard is greater than 500 employees. In this regard, please also see the section on Startup Companies below.

The SBA will guarantee 100% of the loans issued to small businesses under the PPP during the period of February 15, 2020, through June 30, 2020. Small businesses can use the loan proceeds to cover payroll costs (excluding individual employee compensation over $100,000), group healthcare benefits, mortgage interest payments, rent, utilities, and interest on other debt. For additional information on the Payroll Protection Program, please see our recent LawFlash on that topic.

In addition, under Section 1110 of the CARES Act, small businesses may be eligible for Economic Injury Disaster Loans (EIDLs), which can provide up to $2 million to cover fixed debts, payroll, accounts payable, and other working capital needed to cover substantial economic injuries caused by COVID-19. For additional information on the Emergency Economic Injury Disaster Loan Program, please see our LawFlash on that topic.

Relief for Businesses That Do Not Otherwise Receive Targeted Relief

Sections 4011-4029 of the CARES Act provides emergency relief for certain businesses, including businesses “critical to maintaining national security,” that have not otherwise received adequate economic relief under the CARES Act. The secretary of the Treasury has the discretion to determine which businesses will qualify for such assistance, particularly, which are “critical to maintaining national security.” The secretary will be issuing procedures and guidance on this emergency relief within 10 days after the Act’s enactment. We will continue to monitor for this guidance and report on it as applicable.

Loan Forgiveness

Section 1105 of the Act provides that borrowers – including small businesses, among others – will be eligible for loan forgiveness where the borrower uses the loan to support its employees and its business, subject to certain limitations and reductions. Specifically, borrowers will be eligible for loan forgiveness for loans used to pay (i) payroll costs (including additional wages paid to tipped workers), (ii) mortgage interest payments, (iii) rent payments on leases in place before February 15, 2020, and (iv) utility payments. The loan forgiveness amounts cannot exceed the principal amount of the loan and will be reduced based on a number of stated criteria. In addition, the loan forgiveness amounts will be treated as nontaxable cancelled indebtedness and not as income.

Startup Companies

According to the CARES Act, in order for a small company to qualify for assistance under the Small Business Act (SBA) programs included in the economic stimulus, it must have fewer than 500 employees. However, even if a small company has fewer than 500 employees, if it has a majority owner that is a private equity fund or venture capital firms, then it must also satisfy the “affiliation rules” under the SBA. The affiliation rules require the small company to add together its employees and the employees of all other companies that the private equity fund or venture firms also control or has the power to control (the control need not actually be exercised to qualify if the power to control exists). The original purpose of the aggregation rules, was to make sure that traditional 7(a) loans are available to individual owned small businesses. A group of technology trade associations including the National Venture Capital Association (NVCA) have written to the Treasury Department and SBA requesting that the affiliation rules not apply to the stimulus programs. Without this limitation most venture backed emerging technology companies will be excluded from the Care Act SBA loan program.

Intellectual Property

The CARES Act authorizes the US Patent and Trademark Office (USPTO) and US Copyright Office (USCO) to extend statutory deadlines in response to the coronavirus pandemic.

US Patent and Trademark Office

Section 12004, paragraph (a) of the CARES Act gives the director of the USPTO discretion to toll, waive, adjust, or modify deadlines that are established by “[T]itle 35, United States Code [Patents], the Trademark Act, section 18 of the Leahy-Smith America Invents Act (35 U.S.C. 321 note), or regulations promulgated thereunder.”

The director of the USPTO issued notices that most USPTO deadlines that fall between March 27 and April 30 are eligible for a 30-day extension if a statement is filed attesting that the delay “is due to the COVID-19 outbreak” and someone involved in the filing “was personally affected.” The people covered include the applicant, patent owner, third-party requester, inventor, practitioner, etc. The “personally affected” requirement includes office closures, cash flow interruptions, inaccessibility of files, travel delays, family illnesses, etc. The offices covered include the patent office, trademark office, PTAB, and TTAB. There are certain deadlines that are not extendable and are not covered by the Act, so the notices should be consulted, and it should not be assumed that every deadline will be extended.

United States Copyright Office

The CARES Act provides similar emergency provisions for copyrights. In particular, Section 19011, paragraph (a) creates new Section 710 of the Copyright Act, which affords the register of copyrights “emergency relief authority” to temporarily “toll, waive, adjust, or modify any” timing provision, effective period, or procedural provision under the Copyright Act or related regulations in Title 37 of the Code of Federal Regulations (other than most statutes of limitations and most copyright term provisions).

For both the USPTO and the USCO, notice to Congress is required within 20 days if a modification is to be in effect for a consecutive or cumulative period exceeding 120 days.

One of our many resources includes a list of current known IP office closures and extensions around the world. For additional information on the provisions of the Act affecting IP applicants, registrants, and owners, please see our LawFlash on that topic.

Employee Benefits

The CARES Act contains various provisions addressing employee benefits that apply to companies of all sizes, including those in the technology industry. Such provisions promote employee retention (Section 2301); provide unemployment benefits and compensation (Sections 2102 – 2116); expand the scope of employees who are eligible for paid leave (Section 3605); incentivize certain distributions from eligible retirement plans (Section 2202(a)); and increase certain retirement plan loan limits (Section 2202(b)).

These key sections are summarized below. We invite interested clients to contact the Morgan Lewis labor, employment, and benefits group for more information.

Employee Retention Credits for Employers Subject to Closure or 50% Reduction in Gross Receipts Due to COVID-19

Section 2301 of the Act provides a refundable tax credit against the employer portion of Old Age, Survivors and Disability Insurance (OASDI) or Railroad Retirement Tax Act (RRTA) taxes for 50% of “qualified wages” for each employee from March 13, 2020, through December 31, 2020. The credit is available to any employer carrying on a trade or business in 2020 whose operations were fully or partially suspended due to a COVID-19-related shutdown order or whose gross receipts (or operations, for tax-exempt employers) declined by more than 50% as compared to the same calendar quarter in the prior year.

For an employer that had more than 100 full-time employees during 2019, “qualified wages” are wages paid to its employees who are not providing services due to the circumstances described above. For an employer with 100 or fewer full-time employees, all employee wages qualify for the credit whether or not the employer is open. The amount of qualified wages subject to the credit is limited to $10,000 of taxable compensation, including health benefits, paid to each employee.

This tax credit could provide some relief from the employment tax burden to vendors and service providers to the technology industry whose activities are affected by the COVID-19 crisis, making it easier to retain their employees.

Unemployment Benefits and Compensation

Sections 2101-2116 of the CARES Act provide for additional unemployment compensation and benefits for employees through (i) a pandemic emergency unemployment compensation, (ii) an emergency increase in unemployment compensation benefits, and (iii) a new temporary “Pandemic Unemployment Assistance” program. The federal government will fund the unemployment compensation. Employers should consider providing information on the benefits available to newly separated employees.

Pandemic emergency unemployment compensation is available to individuals who have exhausted all rights to regular compensation under state or federal law, have no right to compensation under state or federal law or any state unemployment compensation, are not receiving unemployment compensation under Canadian law, and are able, available, and actively seeking work. States have the option of entering into an agreement with the secretary of Labor to provide these benefits. The program makes available $600 per week in addition to benefits payable under state law and would be made available to eligible individuals for up to 13 weeks.

To be eligible for benefits under the temporary Pandemic Unemployment Assistance program, the individual must certify that (i) he/she is able or available to work as defined by applicable state law, but is “unemployed, partially unemployed, or unable or unavailable to work” for reasons related to COVID-19; or (ii) is self-employed, seeking part-time employment, does not have sufficient work history, or otherwise would not qualify for regular unemployment or extended benefits under state or federal law or pandemic emergency unemployment compensation. Individuals who can telework for pay or who are receiving paid sick leave or other paid leave benefits are not eligible.

Emergency Family and Medical Leave Expansion Act

Section 3605 of the CARES Act expands the scope of employees who are eligible for paid leave. More specifically, an employee who was laid off on or after March 1, 2020, but was rehired by the employer is eligible for paid leave as long as the employee worked for that employer for no less than 30 of the last 60 days before the layoff. Employers with fewer than 500 employees who laid off employees may recall the employees to make them eligible for the paid leave benefit. Because of the tax credit associated with the bill, this would result in no cost to the employer.

Special Coronavirus Distribution Option for Eligible Retirement Plans

Under Section 2202(a) of the Act, an individual may be permitted to take “coronavirus-related distributions” of up to $100,000 (in the aggregate) from their 401(a) plans, 403(b) plans, IRAs, or eligible 457(b) plans.

A “coronavirus-related distribution” is a distribution to an individual (1) who is diagnosed, or whose spouse or dependent is diagnosed, with SARS-CoV-2 or COVID-19 using a CDC-approved test, or (2) who experiences adverse financial consequences because of an inability to work due to quarantine, furlough, lay off, reduced hours, loss of child care, or the closing or reduction of hours of a business owned or operated by the individual because of SARS-CoV-2 or COVID-19. Plan administrators can rely on an individual’s certification that he or she meets the eligibility requirements for a coronavirus-related distribution.

Coronavirus distributions will be exempt from any application of the 10% early-distribution penalty, and unless the recipient elects otherwise, any income from the distributions will be subject to federal income tax ratably over three years. Moreover, an individual can repay any coronavirus-related distribution during the three-year period beginning the day after the distribution date, and the repayment will be treated as a 60-day rollover in a direct trustee-to-trustee transfer. Importantly, although terminated employees might already be able to access their retirement plan accounts, under other existing provisions, a coronavirus withdrawal eliminates any 10% early distribution penalty that may otherwise be applied and allows for the resulting taxable income to be spread over three years.

Retirement Plan Loan Limits Expansion

Section 2202(b) of the Act increases the qualified retirement plan and 403(b) plan loan limit from the current limit of the lesser of $50,000 and 50% of the vested account balance to the lesser of $100,000 or 100% of the vested account balance for participants who meet the requirements to receive a coronavirus-related distribution (discussed above). This increase is effective for loans made within 180 days following the passage of the Act. In addition, the due date for any plan loan repayments that are due between the date of enactment (March 27, 2020) and December 31, 2020, will be extended for qualified individuals by one year (with interest), and subsequent loan repayments may be “appropriately adjusted” to reflect the delay. This extension is permitted even if the term of the loan is extended beyond five years (i.e., into a sixth year).

The Retirement Plan Loan Limits Expansion allows plan sponsors to offer participants the option to access funds through loans, which will be repaid to the plan, rather than withdrawals, which generally are not repaid. The delay of loan repayments, which applies to new loans as well as existing loans, may be helpful for participants working reduced hours or on furlough and appears to apply to new coronavirus-related loans issued during the 180-day period following passage of the Act.

Tax Implications

The CARES Act contains various provisions that will have tax implications for US companies, including those in the technology industry. Such provisions will modify limitations on charitable contributions during 2020 (Section 2205); delay payment of employment taxes (Section 2302); modify net operating losses (Section 2303); modify credit for prior year minimum tax liability of corporations (Section 2305); and modify limitations on business interest (Section 2306), among others.

These key sections are summarized below. For additional information on the major tax changes under the CARES Act, please see our LawFlash on that topic.

Modifications for Limitations on Charitable Contributions During 2020

Section 2205 of the CARES Act suspends percentage limitations on charitable cash contributions for corporations during 2020. Corporations may deduct any qualified contributions that, in the aggregate, do not exceed 25% of the corporation’s taxable income. Corporations may carry over any contributions in excess of its taxable income to later tax years.

Delay of Payment of Employment Taxes

Section 2302 of the Act provides that payment of 50% of the employer share of the OASDI tax, Tier I of the RRTA tax, and 50% of self-employment taxes and any estimated taxes due thereon by self-employed individuals between the enactment of the Act and January 1, 2021, are delayed until December 31, 2021. The due date for the remaining 50% of the employment taxes is delayed until December 31, 2022. In the event that an agent or certified professional employer organization is directed to defer payment of employer payroll taxes under the Act by a customer, the Act makes the customer solely liable for the payment of the applicable employment taxes before the applicable deadline.

Modifications for Net Operating Losses

Section 2303 provides modifications for net operating losses (NOLs). Specifically, it temporarily repeals the 80% of taxable income limitation on the utilization of NOL carryovers imposed by the Tax Cuts and Jobs Act (TCJA) (PL 115-97). This means for a taxable year beginning before January 1, 2021, a taxpayer can fully offset its taxable income in that year with NOLs permitted to be carried to that year from other years. NOLs arising after December 31, 2020, however, will be subject to the 80% of taxable income limitation. Taxpayers can carry back NOLs arising in 2018, 2019, and 2020 to the taxpayer’s five preceding taxable years.

Taxpayers can file amended income tax returns in the carryback years to receive a refund if they generated losses during their 2018, 2019, and 2020 tax years. For carrybacks to pre-2018 tax years, corporations may obtain refunds of taxes paid at the pre-TCJA corporate rate of 35%.

Corporations requesting refunds in excess of $5 million should expect a significant delay in receiving the refunds. Additionally, filing amended federal returns will likely trigger state filing requirements, as well.

Modification of Credit for Prior Year Minimum Tax Liability of Corporations

Section 2305 permits corporations with alternative minimum tax (AMT) credit carryovers to accelerate the recovery of refundable AMT credit carryovers. Specifically, the Act limits Internal Revenue Code Section 53(e), which addresses AMT refundable credit amounts, to taxable years beginning in 2018 and 2019, and for taxable years beginning in 2020 and 2021, the increased Code Section 53(c) limitation on allowable credits does not apply.

The Act also increases the AMT refundable credit to 100% beginning in 2019 (as opposed to 2021, under the TCJA). This means that taxpayers can claim the full amount of the AMT refundable credit, without reduction by the Code Section 53(c) limitation, for its taxable year beginning in 2018.

Corporations with newly allowed refundable AMT credits can file an application for a tentative refund. The application is verified in the same manner as an application under Code Section 6411(a), which provides the guidelines for tentative carryback and refund adjustments, and must be filed before December 31, 2020. The secretary of the Treasury will process the refund claim within 90 days of the date of filing.

Modifications of Limitation on Business Interest

Section 2306 increases the limitation on deductible business interest expense under IRS Code Section 163(j) for tax years beginning in 2019 and 2020. Taxpayers can use 50% of its adjusted taxable income (ATI) rather than 30%. For partnerships, however, the increase in limitation only applies to tax returns filed for the 2020 tax year. Additionally, taxpayers can elect to use 2019 ATI amounts when computing their business interest deduction limitation in 2020.


With regard to telecommunications, the CARES Act allocates $200 million to the Federal Communications Commission (FCC) to support telehealth services and $125 million to the US Department of Agriculture’s Rural Utilities Service to expand an existing distance learning, telehealth, and broadband initiative. The CARES Act also takes several steps to expand access to telemedicine services. The provisions regarding telehealth and loan forgiveness for utility payments that could assist companies providing broadband and communications services and their customers are summarized below.

  • FCC telehealth. The CARES Act allocates $200 million to the Federal Communications Commission (FCC) to support telehealth services. The FCC has discretion to direct funding in response to COVID-19, including for telecommunications services, information services, and devices necessary to enable the provision of telehealth services during an emergency period.
  • RUS broadband program. The CARES Act allocates an additional $125 million to the Rural Utilities Service (RUS), a division of the Department of Agriculture, for a “Distance Learning, Telemedicine, and Broadband Program” established with a $600 million appropriation in FY2018.
  • Emergency loans and loan forgiveness for small businesses. Under the CARES Act’s Paycheck Protection Program (PPP), small businesses, nonprofits, and other specified businesses that have been operational since February 15, 2020 are eligible for PPP loans through the Small Business Administration’s 7(a) program for payroll, benefits, rent/mortgage, and utility payments including internet and telephone services.
  • Telemedicine. Many other provisions of the CARES Act support the use and growth of telehealth applications. Congress eases restrictions on healthcare providers and insurance companies to encourage the use of telemedicine, which will in turn drive demand for telecommunications services. The Act provides support for telehealth services provided through qualified health centers, rural health clinics, and to certain rural and high-risk veterans.


The CARES Act includes provisions that are meant to address what information about a person’s health can be disclosed in connection with the COVID-19 health emergency, and consistent with requirements under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Disclosure of Records Related to Substance Use Disorder (§ 3221)

The Act makes changes to align the substance abuse disorder confidentiality rules in 42 CFR Part 2 regulations (Part 2) with HIPAA. In particular, this provision describes how covered entities, including group health plans, have to safeguard protected health information for participants undergoing substance use disorder treatment by requiring that authorization be obtained before protected health information can be used or disclosed.

The secretary of Health and Human Services (HHS) has been ordered to provide updated regulations within one year of the enactment of the Act so that covered entities or other entities creating or maintaining these substance use disorder records can provide plain language notice to patients regarding privacy practice, such that compliance with the requirements of § 3221 is possible no later than 12 months after the date of enactment.

HIPAA Guidance Related to COVID-19 Public Health Emergency (§ 3224)

The Act instructs HHS to issue, within 180 days of the enactment of the Act (September 23, 2020), guidance regarding sharing of protected health information during the COVID-19 public health/national emergency, including compliance with HIPAA and policies that might come into effect during such emergencies. Many uncertainties exist with respect to the sharing of protected health information during a pandemic, even though sharing of information could be critical to preventing the spread of disease. The additional insight provided by HHS through the regulations may provide clarity on what information may be disclosed during the COVID-19 public health/national emergency.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Silicon Valley
Dion M. Bregman

Silicon Valley/San Francisco
Rahul Kapoor

Washington, DC
Catherine Wang

Jason C. White