On March 25, 2020, the U.S. Senate unanimously passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act, often referred to colloquially as the stimulus bill or package, is a record-setting $2 trillion deal.
The U.S. House of Representatives will consider the measure on Friday. Both the House and the President are anticipated to approve the measure to put it into law.
The Federal government has been promising assistance over the last couple weeks, and now that passage of the CARES Act seems to be imminent, many are starting to ask, “how will this help my family?” and “how will this help my business?” The full text of the CARES Act is hundreds of pages and covers a wide range of issues affecting families and businesses across a broad cross-section of industries. Thus the precise effects of the Act are still being processed. But a few notable points from the Act include:
- For Individuals:
- Payments to Individuals. Many adults in the U.S. will receive direct payment from the government of $1,200 ($2,400 for individuals filing jointly) and $500 per qualifying child. These payments (technically tax refunds for new credits), begin to phase out for individuals earning $75,000 per year, for heads of household at $112,500, and for joint taxpayers at $150,000. The law requires the Treasury Secretary to issue these payments “as rapidly as possible.”
- Expanded Unemployment Benefits. The new bill expands the universe of individuals eligible for unemployment benefits to include federal funding for self-employed individuals, contractors, and gig economy workers affected by the COVID-19 pandemic. In addition, it offers $600/week in additional benefits to individuals on top of whatever individuals are paid through state programs for the first four months of unemployment and extends the unemployment eligibility period from 26 weeks to 39 weeks.
- Access to Retirement Funds. The bill waives early withdrawal penalties on distributions from retirement accounts (such as IRAs and 401(k)s) for individuals dealing with virus-related challenges. Note that the bill does not waive the tax due on any such distribution, but does allow taxpayers to recontribute funds to retirement accounts without affecting eligible caps on contributions.
- Student Loan Freezes. Individuals that have borrowed directly from the Federal government will have payments for loans held by the government suspended until September 30. Individuals may still pay down principal during that time, but the new law provides that interest shall not accrue. Note that while other lending institutions may have other programs in place to assist borrowers, these requirements do not apply to private student loans.
- For Businesses:
- Incentives to Prevent Layoffs.
- The “Paycheck Protection Program” is meant to incentivize businesses affected by the pandemic to keep employees on payroll. Small businesses of 500 employees or less can receive loans to cover payroll and other expenses (such as rent, interest on a mortgage and utilities) from February 15 through June 30, 2020. Such loans may be forgiven if the employer uses it for payroll and other eligible expenses, subject to some limitations.
- In addition, the law provides that businesses may be eligible for a 50% refundable payroll tax credit on up to $10,000 of qualified wages per employee. For eligible employers with less than 100 employees, all wages should qualify for the credit. For employers with more than 100 employees, qualified wages are those paid to an employee when they are not working due to COVID-19.
- Deferral of Payroll Taxes. Employer-side social security payroll taxes from 2020 would be delayed until January 1, 2021, with half owed due on December 31, 2021, and the other half due December 31, 2022.
- Net Operating Loss Carrybacks. Prior to the CARES Act, most taxpayers no longer had the option to carryback any net operating loss to prior years. The Act provides that any net operating losses from 2018, 2019, or 2020 may be carried back five years, which could result in tax refunds related to prior years.
- Incentives to Prevent Layoffs.
Stay tuned for additional resources and more in-depth exploration of these important changes when the Act is passed into law.