CARES Act Relief Bill: What does this mean for you?

As anticipated, President Trump signed into law the CARES Act, short for the “Coronavirus Aid, Relief, and Economic Security Act” on March 27, 2020.

This stimulus bill will bring relief to individuals and businesses that have suffered as a result of the novel coronavirus pandemic.

What does this mean for individuals and small businesses?

Phase 1:

Benefits for Individuals –

Cash Payments –

1. Stimulus checks will be sent to individuals earning less than $75,000 in the form of a one-time cash payment of $1,200. Married couples will receive a check for $2,400 and additionally, $500 per child.
2. These payments phase out after the $75,000 income threshold until they reach $99,000 after which they completely disappear for individuals earning more than $99,000 or married couples making more than $198,000 combined.
3. The payments are based on your 2018 or 2019 tax filings.
4. People who receive social security benefits, but do not file tax returns are eligible too.

Unemployment Benefits –

1. Freelancers, employees, and self-employed individuals can now apply.
2. The unemployment period has been extended by 13 weeks and the benefits have increased.
3. The CARES Act adds $600 per week from the Federal Government on top of whatever is paid by the State.

Tax Returns –

The federal filing deadline has been pushed out to July 15 without the need to file an extension.  Please check with your state tax authorities if they have also provided automatic extensions.  For example, Massachusetts has extended this to July 15, but New Hampshire has extended this only to June 15.

Student Loans –

Borrowers with federal loans are permitted to defer payments until September 30, penalty-free. Employers can contribute to Employee student loan payments up to $5,250 on a Tax-Free basis.

Insurance –

All private insurance plans must cover Covid-19 treatments.  The Government is bearing the cost of the testing, so it is Free, same with Medicare and Medicaid.

Retirement Plans and IRA –

Participants can now take up to $100k as covid-19 related distributions with the 10% penalty for early distribution being waived. However, you still need to pay the income tax on this in a deferred manner over a three-year period.  The 401k loan amount cap is now increased to $100k.

Phase 2:

Small Businesses –

1. Economic Injury Disaster Loans (EIDL) – The SBA encourages small businesses (fewer than 500 employees) impacted by the pandemic, to apply for the EIDL to fund their Working Capital needs
   1. The loan amount is capped at $2 million
   2. The loan term is 30 years at 3.75% interest rate for small businesses and 2.75% for nonprofits with a variable term of up to 30 years.
2. Emergency Grants – Once you apply for the EIDL directly through the SBA, you can request an advance of $10,000 in the form of a grant. If your loan is denied, you do not have to repay the grant – https://www.sba.gov/page/disaster-loan-applications#section-header-0. This grant can be used for paid sick leave, payroll expenses, and other debt obligations.

Phase 3:

Small Businesses –

Forgivable Loans – The CARES Act has rolled out the Paycheck Protection Program which covers employer payroll expenses, utilities, rent/mortgage payments for office premises between February 15 and June 30. Any small business with fewer than 500 employees is eligible to apply, including sole proprietorship, self-employed individuals and nonprofit and veteran organizations.

1. The application period starts from April 3 and ends on June 30.
2. Any small business can reach out to its primary banking institution to see if it is an SBA lender, if not, you can find an approved lender through the lender tool on the SBA website.
3. The application is also available on the Department of State website – https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
4. Businesses can receive 2.5 times their Average Monthly Payroll cost for 2019, capped at $10 million. The loan term is 10 years and the interest rate is capped at 4%. 
5. No Collateral is required.
6. This loan will be Forgiven if the employer keeps all his employees on the payroll for the eight-week period and all the loan money is used for the above-mentioned expenses.
7. Below is a list of the preliminary documents your bank may need from you to process your application:
   1. If your business files Form 940, you will need to submit Form 940 and 941 for 2019
   2. If you are a sole proprietor or self-employed who does not file Form 940, you will need your 2019 Profit & Loss statement and your 1040 Schedule C if available
   3. For all other small businesses, you will need to submit Form 1099 Misc. for 2019.
      Please reach out to your bank for the most accurate details on the application process and document checklist.

Payroll Tax Provisions –

Employee Retention Credit – The CARES Act provides a Refundable Tax Credit towards taxes paid by employers in an amount equal to 50% of the first $10,000 of the “Qualified Wages”. Employers will be eligible for this if they meet the following conditions:

1. Operations have been partially or fully suspended due to a government-issued order
2. Decline in gross receipts by more than 50% compared to the same quarter in the previous year

For businesses with more than 100 employees, qualified wages means wages paid to employees that are not providing services due to the pandemic, for businesses with fewer than 100 employees, qualified wages cover all wages paid to their full-time employees.

Note: This credit cannot be availed by employers that receive a loan under the Paycheck Protection Plan.

Delay of Employer Payroll Taxes – This measure allows employers to delay in remitting the employer portion of the Social Security taxes (6.2%) until December 31. This deferred amount has to be paid back in two equal parts by December 31, 2021, and December 31, 2022. All other payroll taxes, including the Medicare (1.45%) portion of the employer taxes are excluded from this.

Note: This credit cannot be availed by employers that receive loan forgiveness under the Paycheck Protection Plan.

The Net Operating Loss Rules – Losses from 2018, 2019 and 2020 will be permitted to be carried back up to five years or carry the loss forward.

This is the most expansive stimulus package in the history of the United States, and it will bring relief to all the individuals and businesses that are in an economically fragile situation due to the pandemic.