Our Thoughts

The CARES Act & The Numbers Behind Congress’ Emergency Funding Bill

By: Laurie Belew

While many questions remain about the outcome and long-term impact of the coronavirus pandemic, one thing is certain: Congress has taken swift and sweeping action to protect the nation’s citizens and economy. On Friday, President Trump signed into law a $2 trillion emergency spending law. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is the largest stimulus package in the nation’s history, and, when combined with the earlier efforts of the Federal Reserve to stabilize the financial system, it demonstrates a multi-faceted governmental response to the worldwide health and economic crisis. 

This legislation will undoubtedly be pored over for weeks and months to come, as agencies and institutions get to work on implementation. Below are the major provisions in how the CARES Act provides relief to various groups. 

Individuals – $560 Billion

Provisions in the bill aimed at keeping American individuals and families actively participating in the economy. 

  • Cash Payments for Individuals earning less than $75,000 (or Married Filing Joint couples earning less than $198,000) in the amount of $1,200 and $500 per child. Phase-out limits do apply. These payments are based on 2018/2019 tax filings and social security administration data. If you are expecting a payment, it is crucial to ensure your direct deposit information and/or address on your last tax filing is accurate or update it using IRS Form 8822. 
  • Unemployment assistance has been increased for workers impacted by the pandemic. The extra $600 per week on top of state assistance reflects a 50%-100% increase in benefits and will last for four months, or 13 additional weeks. Benefits have also been extended to the self-employed/freelancers/contracts, who typically would not qualify. 
  • Tax return filing and payment deadlines have been extended to July 15 to give taxpayers more time to meet payment obligations. Be sure to check your state filing requirement, though! 
  • Charitable Contributions are eligible for an “Above-the-Line” deduction of up to $300 applies for taxpayers who claim the standard deduction. Further, the AGI limit on cash contributions has been temporarily increased to 100%, meaning an individual could completely wipe out their 2020 tax liability with charitable donations. The provisions encourage giving directly to 501(c)(3) organizations who will certainly be impacted by the pandemic but do not apply to donor-advised funds. 
  • Federal Student Loan payments have been deferred (interest-free) for six months. Further, employers can provide up to $5,250 in tax-free student loan repayment benefits. 
  • Retirement Distribution Rules will also see significant changes. 
    • First, distributions from retirement accounts for coronavirus-related hardships are allowed up to a combined $100,000 without penalty or mandatory withholding. The distribution can be repaid over three years, and/or individuals can elect to spread the tax over three years (though that may not be the best course of action if 2020 income will be significantly less). Additionally, the maximum employer plan loan increased to $100,000 and 100% of the vested balance. 
    • Required minimum distributions from retirement accounts, including beneficiary accounts, have been waived for 2020. Distributions already taken can be rolled back into accounts within the 60-day window. This rollback provision does not apply to inherited accounts. 
    • Funding deadlines for IRA and Employer Retirement plans have also been impacted. For example, the IRA contribution deadline follows the extended tax filing deadline, and companies have additional time to meet funding obligations for single employee defined benefit pension plans. 

Small Businesses – $377 Billion

Companies with fewer than 500 employees are getting assistance from provisions aimed to prevent layoffs and help them stay open. 

  • The Act includes $350 billion of funding for Small Business Administration loans of up to $10 million per business. Loans used to maintain payroll, pay rent/mortgage expenses, and make debt payments could be forgiven if workers stay employed. Payroll excludes amounts for individuals with compensation over $100,000, and companies must maintain the same number of employees until June 30. The interest on these loans is capped at 4 percent, and payments will be deferred until 6-12 months. If forgiven, the discharged debt is non-taxable. 
  • Grants of up to $10,000 are available to help businesses cover operating costs, and there is relief for up to six months of payments for companies already using SBA loans. 
  • Employers, including large corporations and the self-employed, will be allowed to defer payroll taxes over 2021 and 2022. Businesses who are forced to shut down may receive a credit against payroll taxes. 

Large Corporations – $500 Billion

Money for big corporations will be subject to oversight, public disclosure, and repayment provisions. 

  • Airlines will receive $58 billion to stay open. 
  • Stock buybacks are prohibited for one year after repayment for companies who accept assistance. 
  • All businesses will be eligible for a refundable tax credit if they are closed or distressed, so workers have jobs to return to. The credit covers 50% of payroll on up to $10,000 of compensation, including health benefits. 
  • Net Operating Losses from 2018-2020 can be carried back up to five years, which may allow companies to claim refunds of taxes previously paid. 

State and Local Governments – $339.8 Billion

Funds for state and local governments are aimed to address both the direct and indirect impacts of the virus. 

  • $274 billion for COVID-19 response efforts and $150 billion in direct aid for governments running out of cash due to the number of cases. 
  • $5 billion for Community Development Block Grants $13 billion for K-12 schools 
  • $14 billion for higher education 
  • $5.3 billion for programs for children and families, including childcare centers 

Public Health: $153.5 Billion

The public health system is at risk of being overwhelmed by the influx of new patients; these provisions are aimed to help. 

  • $100 billion allocated to hospitals responding to COVID-19 
  • $1.32 billion for community centers providing healthcare services 
  • $11 billion for diagnostics, treatments, and vaccines 
  • $80 million to the FDA to expedite the approval of new drugs 
  • $4.3 billion to the CDC response efforts 
  • $20 billion for veterans 
  • Authorization of telehealth programs; funding to increase the availability of equipment, ventilators, and masks; healthcare hiring; and vaccine, treatment, and diagnostic development. 

Education: $43.7 Billion

College and graduate students will also receive relief. Among other things, the Act includes temporary deferment of loan and interest payments through September 30 (described above), continued payment of work-study wages and use of unused funds or grants, reduced limitations on grant eligibility for students forced to drop out. 

Safety Nets – $26 Billion

The Act provides a second tranche of funding for food security for Americans, including flexibility for schools to provide student meals; funding for expected increases in food stamp applications; and funding for community food distribution programs, such as food banks. 

Dating back to the 1920s, government reaction to economic downturns have sometimes been criticized for coming too late or providing too little. The significant support this legislation provides to individuals, businesses, and public health efforts indicates the deeper understanding officials now have of worldwide economies. Just as advancements in the healthcare field over the past 100 years have taught us the importance of washing our hands and social distancing, advancements in our understanding of how economies function are evident in size, timeliness, and scope of the CARES Act. 

The advisors at FJY know that all our clients have all been impacted by the Coronavirus pandemic. We are here to help you understand how the CARES legislation applies to your unique situation, especially if you or your business are experiencing financial hardship or uncertainty. Please reach out to your advisor if you would like to discuss it in depth. 

Additional Resources:

What’s Inside the Senate’s 2 Trillion Coronavirus Aid Package

Analyzing the CARES Act: From Rebate Checks to Small Business Relief for the Coronavirus Pandemic

CARES Act to Provide Significant Employee Benefit Plan Relief for Participants and Plan Sponsors