On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which is the third major piece of legislation to address the coronavirus crisis. The unprecedented $2 trillion relief bill provides, among other things, stimulus payments to individuals, expanded unemployment insurance, student loan and retirement account rule changes, and massive loans for businesses (some of which are forgivable).
Stimulus Payments to Individuals
Under the CARES Act, the federal government will send stimulus payments to certain individuals (U.S. residents who have Social Security numbers and file taxes) as follows:
- $1,200 for a single adult who earns up to $75,000 per year;
- $2,400 for a married couple who earns up to $150,000 per year (or for a married taxpayer filing as head of household who earns up to $112,500);
- An additional $500 per child age 16 and under;
- Decreasing payments for people earning more than these amounts; and
- No stimulus payments for single people earning over $99,000, married people with no children earning over $198,000, and married people with two children earning over $218,000.
Individuals do not have to take any action to receive these payments. The Internal Revenue Service will issue these payments based on 2019 income-tax figures (or 2018 for those who have not yet filed 2019 tax returns) and will transfer the funds by direct deposit to individuals who provided their bank account information when filing tax returns. Most individuals should receive their stimulus payments within three weeks.
The CARES Act significantly impacts the unemployment system by:
- Expanding unemployment insurance to cover certain workers who are typically not covered, such as part-time workers and self-employed individuals (e.g. independent contractors, freelancers, gig workers) and workers who cannot work for reasons related to the coronavirus (e.g. the worker has or is suspected to have COVID-19; the worker is caring for a family member who has or is suspected to have COVID-19; or the worker is caring for a family member whose school or care facility is closed because of the coronavirus);
- Providing eligible workers with an extra $600 per week of federal pandemic unemployment benefits in addition to their state unemployment benefits; and
- Providing unemployment benefits for an additional 13 weeks beyond the number of weeks covered by state benefits (which is 26 weeks in many states).
Student Loan and Retirement Account Rule Changes
Under the CARES Act, automatic payments for all student loans held by the federal government will be suspended through September 30, 2020, and interest on such loans will not accrue during that time period.
In 2020, individuals will not have to take required minimum distributions from individual or workplace retirement plans like 401(k)s. In addition, an individual can withdraw up to $100,000 from a retirement account without incurring the usual 10% penalty and can spread out any income taxes owed over three years from the date of the distribution, provided that the withdrawal is because of the coronavirus pandemic. Finally, individuals will be permitted to borrow up to $100,000 from their retirement plans during the 180 days after the bill passed, effectively suspending the rule that an individual may only borrow up to half the account’s balance.
The CARES Act provides for three major loan programs:
- Small Business Paycheck Protection Program: This program expands the availability of loans under the Small Business Act to businesses with fewer than 500 employees to cover operational costs like payroll (including leave payments made under the Families First Coronavirus Response Act), rent, health benefits, insurance premiums, and utilities from February 15, 2020 to June 30, 2020. Significantly, an employer must continue paying employee salaries and payroll taxes to be eligible for this program. These loans are guaranteed by the federal government and are eligible for forgiveness up to the aggregate amount of payroll, mortgage interest, rent, and utility payments made during the eight-week period following loan origination. More information about the small business loans is available here.
- Federal Reserve Lending Program: This program is intended to target businesses with between 500 and 10,000 employees.
- Direct Lending and Grants to Specific Industries: This program gives the Secretary of the Treasury broad discretion to make loans and loan guarantees to air carriers, businesses critical to maintaining national security, and certain other businesses that have not received “adequate economic relief” in the form of other loans under the CARES Act.
Employee Retention Credit
The CARES Act provides eligible employers with a refundable credit against payroll taxes equal to 50% of the first $10,000 in wages (per employee) that are paid between March 13, 2020 and December 31, 2020. This credit is available to employers who:
- Have business operations fully or partially suspended due to government orders (such as those limiting travel, group gatherings, and non-essential businesses); or
- Experience a year-over-year (comparing quarters) reduction in gross receipts of at least 50% (until gross receipts exceed 80% year-over-year). For example, if a business’s gross receipts in Q2 2019 were $1,000,000 and gross receipts in Q2 2020 were $300,000, that would be a 70% reduction and the business would be eligible for the credit. If a business’s gross receipts in Q4 2019 were $300,000 and gross receipts in Q4 2020 were $250,000, that would be 83% year-to-year, so the business would no longer be eligible for the credit.
This credit primarily benefits employers with fewer than 100 employees. For employers with more than 100 employees, only employees who are not working because of the coronavirus are eligible for the credit.
If you have questions or concerns about how the CARES Act could affect your business, please contact Maureen Carr at email@example.com or 703-526-5597.
This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors, and are not necessarily the views of any client.