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The CARES Act Quick Summary: Government Stimulus in Response to the COVID-19 Pandemic
The CARES (Coronavirus Aid, Relief, and Economic Security) Act was signed into law Friday March 27, 2020. The CARES Act delineates a series of relief measures to provide $2 trillion of financial stimulus in reaction to the current COVID-19 pandemic and the turmoil it has caused US businesses and the economy. Below is a quick summary of some of the provisions that may affect you. For a more in-depth review of these provisions, check out our full article here.
Impacts to Individuals
- Stimulus checks to US residents: Eligible US residents will receive a tax rebate if their income is below certain levels. No action is needed on the part of taxpayers and payments will be automatic. The amounts are $1,200 for individuals with Adjusted Gross Income (AGI) less than $75,000, $2,400 for married couples with AGI less than $150,000, and $500 per dependent child (under age 17).
- Expansion of Unemployment Insurance: Unemployment insurance issued by states is expanded to include self-employed and independent contractors, and the length of coverage and amount of benefits is increased with federal funding.
- Forbearance of mortgages: for federally financed mortgages, mortgage payments can be suspended for 180 days with no additional penalties or fees being owed and banks cannot foreclose properties until 5/18/2020. Renters also cannot be evicted during this time period.
- Student Loan Payment Deferral: those who have federal student loans can request deferral of payments until 9/30/2020 with no interest or late fees.
- Charitable Deductions: Multiple provisions are included to provide additional tax benefits to those who can give to qualified public charities during 2020 in this crucial time to those in need.
- COVID-19 Related Health Care Costs: All testing and potential vaccines for COVID-19 do not incur any out of pocket costs and are completely covered for those who need them.
Impacts to Retirement Plans
- Retirement Account Withdrawals: The disaster provisions for early withdrawals from 401k, IRA, and other qualified retirement plans is expanded to allow for more flexibility during 2020 for distributions up to $100,000.
- Employer-Sponsored Retirement Account Loans: The amount you can take as a loan from your employer-sponsored retirement account is increased during 2020 to the lesser of $100,000 or 100% of the vested account value. This strategy should be reviewed carefully as it could have adverse effects on your long-term retirement savings but aims to provide additional flexibility for cash flow.
- Required Minimum Distributions: Required minimum distributions (RMDs) are completely waived for 2020. This allows you to avoid liquidating investments at a low point in the markets and could be beneficial to your overall portfolio if your near-term cash flow permits.
Impacts to Businesses
- SBA (Small Business Association) loans: there are two programs made available under the Act to help qualifying small businesses (generally less than 500 employees) that were operational as of 2/15/2020:
- The Paycheck Protection Program (PPP): The program aims to provide relief that allows small businesses to maintain employees and reduce unemployment. 2-year loans are available 4/3/2020 through 6/30/2020 in the amount of up to 2.5 monthly payroll cost with an interest rate of 1%. A portion or all of this loan may be forgiven. Certain requirements and qualifications must be met.
- The Economic Injury Disaster Loan (EIDL) Program: The program aims to keep small business operational that require immediate funding. It provides low-interest-rate emergency loans up to $2 million based on measured economic injury, as well as emergency grants of up to $10,000 received within 3 days of applying that do not need to be paid back.
- The Payroll Credit & Deferral Program: This program provides tax incentives for qualifying businesses to retain employees during 2020. Certain qualifications and requirements must be met. Business of all sizes may participate if they qualify.
Mid-sized and large businesses as well as public companies are also receiving substantial federal stimulus if they meet certain requirements. There are also extensive provisions surrounding healthcare research, funding, and support to hospitals included in the bill.
It’s important to note that the above represents current rulings and common interpretation of the CARES Act, and that certain aspects of the law may change as additional guidance and clarification is still being issued. The CARES Act was rapidly enacted in response to the worsening pandemic and its effects and we will continue to monitor updates as the implementation of the Act continues to unfold.
We hope that this brief summary helps to spread awareness surrounding available relief for those who need it. We encourage you to pass this article along to anyone you know who you think would benefit from this information. If you want to read in more detail about the above provisions, please see our full article here.
There are many nuances as well as additional provisions of the law that are not covered above. We recommend you reach out to your Round Table Wealth Advisor for a more comprehensive look at how the CARES Act can help your unique circumstances and to review the actions that should be taken to receive needed relief.