On the 27th of March, 2020, President Trump signed the CARES Act implementing legislature that will provide financial aid for American families and businesses affected by COVID-19. Here is how the act will benefit you:
How Does it Affect The American Public?
- Direct Payments.
- Enhanced Unemployment Insurance.
- Forbearance of Mortgages.
- Delay of Payments on Federally-Funded Student Loans.
- Tax Payments and Filing Extension.
- Early Withdrawal From Retirement Accounts.
How Does It Affect Small Business Owners?
- Forgivable Loans Through The Paycheck Protection Program.
- Relaxed Rules for Net Operating Losses.
- Social Security Payroll Tax Credits And Deferrals.
- Tax Credits For Federally-Mandated COVID-19 Leave Payments.
How Does It Affect Self-Employed Individuals?
What is the CARES Act?
The Coronavirus Aid, Relief and Economic Security (CARES Act) is a $2 trillion coronavirus relief package aimed at providing healthcare resources needed to fight COVID-19 as well as financial relief to businesses and families to prevent a severe economic turndown.
The CARES Act also includes emergency funding for hospitals and providers as well as funds for the stabilization and assistance of distressed sectors.
CARES Act Distribution of Funds:
- $290 billion towards direct payments to eligible American taxpayers.
- $260 billion towards expanding unemployment insurance.
- $510 billion towards lending programs for large businesses.
- $377 billion towards loans and grants for small businesses.
- $150 billion towards state and local governments.
- $127 billion towards hospitals for ventilators and other equipment.
How Does it Affect The American Public?
As part of the CARES Act, a one-time Coronavirus stimulus check will be sent to eligible Americans earning less than $99,000 per year. An amount of $1,200 will be paid to individual taxpayers who earn up to $75,000.
Couples who earn up to $150,000 will receive $2,400 and an additional $500 per child in the household. The amount of money you receive is reduced by $5 for every $100 you earn over $75,000. Therefore, a person earning $99,000 per year will not receive a payment. Earnings, marriage status, and the number of children in your household will be based on last year's tax return.
- Deposits will be paid to all eligible Americans.
- A payment of $1,200 will be made to individuals earning up to $75,000 per year.
- An additional $500 will be paid for each child in the household.
- If you earn more than $99,000 per year, you will not receive a check.
- Earnings will be based on last year's tax returns.
Enhanced Unemployment Insurance:
Title II of the CARES Act enhances unemployment benefits for eligible workers. Under Section 2104, individuals will be provided with expanded unemployment compensation benefits as of April 5, 2020. This includes 26 weeks of UI compensation and an additional $600 per week over and above the amount paid by the state until July 31.
The act also waives the standard one-week waiting period and provides an additional 13 weeks of benefits for individuals who remain unemployed after 26 weeks. Benefits have also been extended to previously ineligible persons such as gig-workers, independent contractors, and self-employed individuals.
- Unemployment benefits extended to 26 weeks.
- An amount of $600 will be paid over and above state benefits.
- One week waiting period will be waived.
- 13 weeks of additional benefits for those who are still unemployed after 26 weeks.
- Benefits extended to gig workers, independent contractors, self-employed individuals.
Forbearance of Mortgages:
Title IV of the CARES Act protects renters and homeowners with the forbearance of mortgages and foreclosure moratorium. The act states that borrowers with single-family federal mortgages will be eligible for mortgage forbearance. Individuals may contact their mortgage provider and request a forbearance of 180 days for reasons relating to COVID-19.
During this time, no penalties, interest, or additional fees may be levied on the borrower. The act also states that a mortgage provider may not initiate a foreclosure or order of sale for 60 days beginning the March 18, 2020. Additionally, the CARES Act protects renters in that no resident in a federally subsidized house or dwelling may be forced to leave through the filling of an eviction notice for a period of 120 days.
- 180-day forbearance on single-family federal mortgages.
- Forbearance may be extended if needed.
- No additional penalties or fees may be levied on the borrower.
- 60-day suspension of evictions and foreclosures.
Delay of Payments on Federally-Funded Student Loans:
The CARES Act assists individuals with federal student loans by temporarily pausing payments. Students with federally-backed student loans will not need to make a payment on their loan for a period of 6 months. During this time, interest will not accrue on the loan.
The CARES Act also suspends collections such as wage garnishment and tax fund reductions. It is important to note that this does not apply to private student loans or Federal Family Education Loans. Those who are able to afford their repayments may do so while the loan interest remains suspended.
- Automatic pause on federally-backed student loans for 6 months.
- No interest will be accrued during this time.
- Pause will not apply to private student loans and FFEL loans.
- Individuals may continue paying without interest accrual.
Tax Payments and Filing Extension:
As part of the CARES Act, the April 15th tax filing deadline for 2019 federal income tax returns has been extended to July 15, 2020. Individuals will not have to file for an extension or submit any additional forms to qualify. All tax payments may also be delayed until the July 15th with no interest or penalties.
The extension does not apply to second-quarter tax payments. If you are due for a refund, you are encouraged to file as soon as your tax return is prepared. This will ensure your refund is processed as soon as possible.
- Tax filing and payment deadline extended to July 15, 2020.
- You will not have to apply for an extension or fill in any forms.
- No interest or penalties will be issued on the extension.
- If you are due for a refund, you should file as soon as possible.
Early Withdrawal From Retirement Accounts:
The CARES Act contains provisions to temporarily loosen the rules on distributions from retirement accounts. The act allows those affected by COVID-19 access of up to $100,000 of their retirement savings without incurring the usual 10% early withdrawal fee.
The act also doubles the amount individuals can take from a 401(k) account for the next six months. This applies to individuals who have lost a job due to COVID-19 or those with have a spouse diagnosed with the virus.
- Access up to $100,000 from your retirement savings without the 10% fee.
- Access to double the amount from 401(k) account for the next 6 months.
- Applies to individuals affected by COVID-19.
How Does It Affect Small Business Owners?
Forgivable Loans Through The Paycheck Protection Program:
The CARES Act has allocated $350 billion to small businesses under the Paycheck Protection Program. The program provides 100% federally guaranteed loans to qualifying small businesses with the aim of helping them keep their employees paid during the COVID-19 pandemic.
The program is administered by the Small Business Administration (SBA) and applications can be made as early as the April 3, 2020. A key feature of the Paycheck Protection Program is that part or all of the loan may be forgiven if the business is able to maintain their payroll during the crises. This also applies if they restore employees to payroll after the crisis.
The program is available to small businesses with 500 or fewer employees. This includes sole proprietors, individual contractors, and those who are self-employed. Loans will be considered if the business was in operation prior to February 15, 2020. Loans will not be turned down if a company has already sought credit elsewhere. No personal guarantee or collateral is required.
Loans will be given for up to 2.5 times the employer's average payroll costs, but will not exceed $10 million. Some or all of the amount may be forgiven including payroll costs, interest on mortgages, rental payments, utilities, wages. The amount of loan forgiveness will be reduced if there is a reduction in the number of paid employees.
- 100% federally guaranteed loans for small businesses.
- Applies to small businesses with 500 or fewer employees.
- Administered by the Small Business Administration.
- Loan amounts may be up to 2.5 times payroll costs not exceeding $10 million.
- All or part of the loan may be forgiven if the employer maintains payroll.
- Loan forgiveness is reduced with any reduction in workforce.
Relaxed Rules for Net Operating Losses:
The CARES Act provides assistance to small businesses by temporarily relaxing the tax rules on Net Operating Losses (NOLs). The Act provides that NOLs incurred in 2018, 2019, and 2020 may be carried back to each of the five years preceding the tax year of the loss.
This will allow corporate taxpayers to claim for a refund on tax returns from prior years. The act also temporarily removes the 80% limitation on NOLs for the 2018 and 2019 tax period.
- Temporarily relaxed rules on Net Operating Losses (NOLs).
- NOL's incurred in 2018, 2019, and 2020 may be carried back five years.
- Temporarily removes limitations on NOL's for 2018 and 2019 tax years.
Social Security Payroll Tax Credits And Deferrals:
Section 2301 of the CARES Act offers small businesses a refundable credit against the employers share (6.2%) of Social Security payroll taxes. This applies to businesses that are forced to fully or partially suspend operations due to COVID-19.
Eligible employers will be able to obtain a refundable credit for 50% of up to $10,000 in qualified wages paid to employees between the March 13 and the December 31, 2020. The act also offers some employers the ability to defer payment of the 6.2% employers share of Social Security tax on wages paid.
Such taxes will be considered paid in full if 50% of the deferred tax amount is paid by December 31, 2021 and the remainder paid by December 31, 2022.
- Tax credit against employers share (6.2%) of Social Security taxes.
- Applies to businesses affected by COVID-19.
- Refundable credit up to 50% of wages paid to employees.
- Eligible employers may defer employer share of Social Security tax.
- 50% of deferred amount is due by the 31st of December, 2021.
- The remainder of the deferred tax amount is due by the 31st of December, 2022.
Tax Credits For Federally-Mandated COVID-19 Leave Payments:
On March 18, 2020, the Families First Coronavirus Response Act (FFCRA) was enacted, providing paid sick leave for employees who are unable to work due to COVID-19.
The CARES Act effectively modifies the FFCRA to extend employer tax credits for paid emergency sick leave and FMLA Leave. Under the terms of the CARES Act, employers who are subject to paid leave requirements are entitled to fully refundable tax credits to cover the cost of paid leave.
For FMLA leave, the tax credit amount is equal to 100% of the family leave wages that the employer is required to pay. This is a dollar-for-dollar credit capped at a maximum of $200 per employee per day.
For paid emergency sick leave, the tax credit amount is capped at $511 per employee per day for reasons of quarantine or self-diagnosis. An amount of $200 per day will be paid if the employee takes leave to care for a child or family member.
- FFCRA modified by the CARES Act.
- Act extends tax payments to FMLA leave and emergency paid sick leave.
- Employers subject to paid leave requirements will receive a 100% tax credit.
- The tax credit amount for FMLA leave is capped at $200 per day per employee.
- The tax credit amount for emergency sick leave is capped at $511 per employee, per day for individuals under quarantine or seeking a diagnosis.
- $200 tax credit per employee, per day for those who are caring for a child or family member.
How Does It Affect Self-Employed Individuals?
Unemployment Benefits for Independent Contractors and Self-Employed Individuals:
Section 2102 of the CARES Act includes supplementary unemployment benefits for individuals through the Pandemic Unemployment Assitance (PUA) program.
According to the terms of the act, unemployment insurance will be made available for individuals who would previously not be eligible for UI benefits under established state or federal programs. This includes gig workers, independent contractors, and those who are self-employed.
Those who qualify for the PUA program will receive all available state benefits as well as the additional $600 federal benefit until the 31st of June 2020. This is provided such individuals are unable to work due to COVID-19.
- Unemployment benefits extended to gig workers, contractors, and self-employed individuals.
- Benefits are provided that the individual is not able to work due to COVID-19.
- Eligible individuals will receive full state benefits plus $600 per week until June 31st.
Deferment Of Self-Employment Tax:
Section 2301 of the CARES Act allows for self-employed individuals affected by COVID-19 to defer payment on part of their income taxes. For self-employed individuals, the deferrable amount is equal to 50% of your self-employment income tax based on 12.4% of your income.
The tax deferral for contractors and self-employed individuals applies to employment taxes from the date of the enactment (March 27, 2020) through to December 31st, 2020. 50% of the deferred amount is due on the 31st of December, 2021 while the balance is due on the 31st of December 2022.
- Payment deferral on self-employment tax.
- The amount is equal to 50% of your self-employment income tax based on 12.4% of your income.
- 50% of the deferred amount is due on the 31st of December 2021.
- The remainder of the deferred amount is due on the 31st of December 2022.
What is the CARES Act?
The Coronavirus Aid, Relief and Economic Security (CARES Act) is legislative relief package aimed at providing financial relief for families and businesses affected by COVID-19. The act also provides healthcare resources and relief to distressed economic sectors.
Who benefits from the CARES Act?
- Small, medium, and large businesses.
- Gig workers, contractors, and self-employed individuals.
- Distressed economic sectors.
How do individuals benefit from the CARES Act?
- Coronavirus stimulus checks.
- Expanded unemployment insurance.
- Forbearance of mortgages.
- Student loan payment deferrals.
- Tax and filing extension.
- Early withdrawal from retirement accounts.
How do small business owners benefit from the CARES Act?
- 100% guaranteed federal loans.
- Forgivable loans.
- Relaxed rules on Net Operating Losses (NOLs).
- Tax credits and payment deferrals.
- Tax credits for mandated paid leave.
How do self-employed individuals benefit from the CARES Act?
- Inclusion of unemployment benefits for gig workers and self-employed individuals.
- Deferment of self-employment income tax payments.