April 01, 2020

CARES Act Offers Loans and Tax Relief to Radiology Practices

The Coronavirus Aid, Relief and Economic Security Act (CARES Act), signed into law on March 27 by President Donald Trump, offers loans and opportunities to defer employer payroll to ease the detrimental financial impact of the COVID-19 on radiologists, radiation oncologists, medical physicists and their professional practices.

Emergency Relief and Taxpayer Protections (Sections 4003 and 4004 of the CARES III) provides $500 billion to the Treasury’s Exchange Stabilization Fund to provide loans, loan guarantees and other investments. Criteria for all direct lending includes many provisions, among them:

  • Alternative financing is not reasonably available to the business
  • The loan is sufficiently secured
  • The duration of the loan shall not exceed 5 years
  • Borrowers and their affiliates cannot engage in stock buybacks, unless contractually obligated, or pay dividends until the loan is no longer outstanding or one year after the date of the loan, and
  • Borrowers must, until Sept. 30, 2020, maintain their employment levels as of March 24, 2020, to the extent practicable, and retain no less than 90 percent of its employees as of that date.
  • Additionally, Section 4004 stipulates a limitation on certain employee compensation, specifically:
    • Prohibits increases in compensation for employees with total compensation of $425K
    • Prohibits offering such employees severance pay upon termination of employment, which exceeds twice the maximum total annual compensation received by that employee, and
    • The compensation limitations are in place until one year after the loan is no longer outstanding.
  • Employees making over $3 Million in 2019 would also be prohibited from earning more than $3 million plus 50 percent of anything exceeding $3 million.

Emergency Payroll Tax Deferrals

Section 2302 of the Care Act defines how employers — including radiology practices — can defer paying the employer portion of their usual share of Social Security taxes through the end of 2020. Half of the deferred amount will be due Dec. 31, 2021, and the remainder will be due Dec. 31, 2022. This provision is essentially an interest-free loan with no strings attached, provided the business pays when that loan matures.

In general, employers are required to deposit 6.2% of the amount of wages up to the social security wage base ($137,700 for 2020) after making a wage payment. This amount is in addition to any federal income tax withholding, the employer share of Medicare taxes and the employee share of Social Security and Medicare taxes. Section 2302 delays the timing of required federal tax deposits for certain employer payroll taxes and self-employment taxes incurred March 27, 2020 through Dec. 31, 2020.

The relief program is governed by the following limitations, however:

  • The deferral provision applies only to the employer’s share of social security tax. It does not apply to the employer’s Medicare taxes nor to the employee’s share of social security or Medicare taxes.
  • This provision for the employer portion of social security taxes is not available to any employer that “has had indebtedness forgiven” under Section 1106 with respect to a Payroll Protection Program or PPP loan (a loan under paragraph (36) of Section 7(a) of the Small Business Act as amended by Section 1102). Therefore, receiving a PPP loan may prevent or limit an employer from receiving this delayed payroll tax provision.
  • Employers seeking to take advantage of this payment deferral should take extra care to ensure that they have the funds available to pay amounts borrowed under this provision on time.

The aforementioned information is for educational purposes only. Employers should seek regulatory guidance before withholding payments. The American College of Radiology® will post guidance as it becomes available.