As a response to the coronavirus, or COVID-19, pandemic, Congress passed and the President signed into law the CARES Act. CARES stands for Coronavirus Aid, Relief, and Economic Security Act and this legislation is designed to provide government support in the economic fallout of the COVID-19 quarantine that has ordered citizens to stay home and non-essential businesses to close.
Many are wondering how the stimulus package will affect them and whether they qualify for a stimulus check. While the CARES Act has a lot of components to it, there are three major areas that it focuses on: assistance to individuals, loans for small businesses, and tax credits for small businesses.
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Assistance to Individuals
Stimulus Check
Qualified Americans will receive a stimulus check from the government. The amount each person receives is based on 2019 tax returns if you have already filed and 2018 tax returns if you have not. Single adults with an income of less than $75,000 will receive a check for $1,200 and married couples who filed jointly with a combined income of less than $150,000 will receive $2,400. There is also a $500 payment for each child under the age of 16.
Single adults who make more than $99,000 and married couples who make more than $198,000 combined are not eligible for the stimulus check. However, they may still qualify to receive the $500 per child under 16. Anyone on social security or disability also qualifies for the check, provided all income requirements are still met. Americans living abroad also qualify provided income requirements are met and their social security numbers are valid.
If you make more than $75,000 and less than $99,000 as an individual or more than $150,000 but less than $198,000 as a jointly filing married couple, you won’t qualify for the full $1,200 or $2,400 check, but you will still receive a check. However, the amount received will decrease by $5 for each $100 that your income exceeds the stated limit.
Changes to Unemployment Benefits
Unemployment benefits across the nation have been changed in response to the coronavirus. Many Americans across the country are facing unemployment as businesses have closed due to quarantine rules and to help slow the spread of the virus. In many states, qualifications for unemployment have been changed and unemployment payments have been increased. However, unemployment benefits are on a state-by-state basis, so it’s important to check your individual state’s unemployment website for more details.
In Florida, the maximum unemployment benefits are $275 per week for up to a twelve-week period. The stimulus package adds $600 maximum per week for up to four months from the federal government. Even though this $600 is from the federal rather than state government, workers applying for unemployment benefits apply for through the state and receive the benefits on top of and along with their state unemployment benefits.
The coronavirus has also increased the types of employees that qualify for unemployment benefits. Previously, part-time, furloughed and freelance workers didn’t qualify, but can now apply for unemployment benefits. In addition, the Florida governor has waived waiting periods and online work registration requirements.
In Florida, due to a high volume of applications on the website, the Florida Department of Economic Opportunity is now offering paper applications. For those who are having difficulty applying online for any reason, they are encouraged to print a paper application form and mail it in. Paper application forms are also available in boxes across the state, placed in front of offices such as that of Senator Linda Stewart and CareerSource Florida locations.
Changes to Student Loan Repayments
Federal student loans have been placed into an automatic administrative forbearance. This means that payments for student loans stopped on March 13, 2020, and will remain stopped until September 30, 2020. During this time, no interest will be accrued on the loan. If you are able to make payments, you are still able to do so if you choose.
The eligible loans are Direct Loans, FFEL Program loans, and Federal Perkins loans. Loans that are owned by commercial lenders or by academic institutions aren’t eligible for the payment freeze. If your loans are through the U.S. Department of Education (ED), then you don’t have to do anything in order to start the period of non-payment. The ED will stop any automatic payments and recalculate all loans to reflect the period of 0% interest.
If your loans are through a commercial lender or an academic institution, you will have to check with your loan provider to determine what the relief options may be available to you.
Extended Tax Return and Payment Deadline
The IRS has extended the deadline for tax return filing and payment to July 15, 2020. Typically, when applying for an extension on filing tax returns, the extension applies only to the filing and not to the payment if taxes are owed, which would accrue interest until paid. With this extension, payment is also extended to July 15, 2020. This extension applies to any taxes typically due on April 15, including both annual and first-quarter taxes.
Changes to Retirement Plan Withdrawals
Normally, if you withdraw money from your retirement account before you reach the age of 59½, you are charged a 10% penalty. However, part of the COVID-19 stimulus package allowed for penalty-free withdrawals up to $100,000 for qualifying individuals. In order to qualify, your retirement account must allow hardship withdrawal and you, your spouse, or a dependent must have contracted the COVID-19 virus or you must have been financially impacted by the pandemic due to:
- Quarantine
- Lay-offs
- Reduced hours
- Furlough
- Being unable to work due to a lack of childcare
The distribution is for three years, which means that you have three years to repay the money withdrawn and to pay the taxes on that money. In addition, the repayments don’t count towards any annual limits on contributions.
Assistance to Small Businesses
Loans to Small Businesses
In order to help sustain the economy and keep small businesses afloat during the pandemic, the CARES Act has made businesses impacted by the virus eligible for certain types of loans with the Small Business Administration (SBA). Some of these loans must be repaid, while others may be forgivable loans or grants.
These loans are designed to work in tandem with each other, so businesses can apply for multiple loans or forms of relief. Each one provides relief for a different function of the business, focusing on revenue, payroll, and debt.
Economic Injury Disaster Loan
The Economic Injury Disaster Loan, or EIDL, is a type of loan through the SBA that is available for small businesses experiencing a loss of revenue due to the coronavirus pandemic. Businesses can apply for up to $2,000,000, which includes up to a $10,000 advance, supposedly to be paid out within three days of application. The advance amount is $1,000 per employee up to $10,000. But be forewarned that as of the posting of this blog many applicants have declared that they are not seeing the immediate advance. The $10,000 portion of the loan does not have to be repaid.
Paycheck Protection Program
The Paycheck Protection Program, or PPP, is an SBA program that helps small businesses pay their employees during the coronavirus pandemic. This loan could be forgiven so long as the money is used to keep employees on payroll for eight weeks after approval, rent, utilities, and mortgage interest. At least 75% of the funds must be used for payroll. This program is available for businesses from April 3, 2020, to June 30, 2020.
Forgiveness of the loan is based on the business maintaining current staff levels and maintaining current salaries within 20% of pre-approval amounts. If employees are laid off or have their salaries reduced by more than 20%, the business will have to pay back the loan, either in part or in full. If the loan must be repaid, the business has six months of deferred payment, two years to loan maturity and a 1% interest rate.
Small Business Debt Relief
The SBA also has a debt relief program to help small businesses. For businesses with current 7(a), 504, or microloans, the SBA will pay the principal, fees, and interest automatically up to six months. The SBA will also make automatic payments in principal, fees, and interest for new loans that are taken out prior to September 27, 2020.
The SBA is also offering deferrals on current disaster relief loans. This means that while payments are stopped until December 31, 2020, interest still accrues and the SBA will not automatically stop payments. If your business has automatic payments set up, it is your responsibility to cancel the payment, which will then need to be reestablished after the deferral period. Businesses able and wanting to make payments can continue to do so.
Tax Credits
In addition to loans, the COVID-19 legislation also provides tax credits to businesses. On top of an extended tax filing and payment deadline, businesses can earn tax credits for payroll and for providing paid sick and family leave to employees.
Employee Retention Credit
Businesses that were forced to close due to the pandemic may be eligible to receive tax credits for keeping their employees on the payroll during this time. To qualify, businesses must be either partially or fully suspended by government order during the quarter. The business must also have gross receipts of 50% of those of the same quarter from 2019.
The amount in tax credit is calculated at 50% of qualifying wages up to a total of $10,000. Qualifying wages are based on the number of total employees. For businesses that employ fewer than 100 people, the credit is based on all employees’ wages. For businesses employing 100 or more people, the credit is based on the wages of only employees that didn’t work during the quarter. Please note you can either receive the PPP or the Tax Credit, but not both.
Paid Leave Tax Credit
Businesses that have fewer than 500 employees may be eligible to receive credit for any paid sick and family leave they offer to employees that need to either care for a relative or to take care of their own health due to COVID-19. Under the Families First Coronavirus Response Act (FFCRA), a separate bill from the CARES Act, businesses can collect tax credits for paid sick and family leave calculated based on their expenses that are allocated to that paid leave and the employer’s share of the Medicare tax on that paid leave.
COVID-19 Economic Relief Changing
It’s important to pay attention to any changes to legislation that may occur. A stimulus package the size of the COVID-19 package would typically take months or even more than a year to draft, review, refine, and enact. This legislation was passed within about a week and a half. This means that changes may be made as the bill is actually enacted in order to respond to needs that may come up.
Before making any financial decisions, keep an eye out for changes that may affect you and speak with your financial advisor.
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