A Guide to the CARES Act

The CARES Act has been all over the news, and with $2 Trillion on the line, I’m sure everyone wants to know what they should know

In response to the nationwide effects of the novel coronavirus, on March 25 the United States Senate passed the Coronavirus Aid, Relief, and Economic Security Act with a vote of 96 to 0. Two days later, March 27, the House of Representatives signed the bill moving it on to the President, who signed it into law the same day. The Act, being referred to as the CARES Act, because the government loves acronyms, will attempt to ameliorate the fiscal hardships being faced by large swaths of the nation as we come to grips with the new reality unfolding before us day by day.

The CARES Act is, in essence, 880 pages explaining how to divvy up $2 Trillion amongst seven different areas currently being affected by the economics crisis that is rapidly unfolding out of the world wide health crisis. These seven areas being addressed are individuals, small businesses, big corporations, hospitals and the public health, state and local governments, education, and a federal safety net. Who gets how much of the $2 Trillion pie is a confusing mess to try to untangle, and there will likely be some road bumps as we as a nation attempt to figure out how to get money into the hands of struggling individuals and businesses alike, while simultaneously attempting to alleviate the health crisis. In the coming sections, I will address each of the seven aforementioned areas receiving a fiscal hand, how much of the $2 Trillion will be allotted to each area. With most people who need to understand what they may be entitled to lacking a legal and financial team to parse the texts themselves, I will spend the most focus addressing the financial potentials for individuals and small businesses, including, hopefully, addressing some of each group’s most likely questions.

Individuals:

Of the $2 Trillion the largest chunk is going to ameliorate the immediate impact to individuals around the country. $560 Billion will be used for two purposes, direct cash payments, and extra unemployment payments. Of that $560 Billion, $300 Billion is earmarked for direct cash payments of $1,200 to every adult with a Social Security number earning less than $75,000 per year. Families earning less than $150,000 will receive $1,200 per spouse, and $500 per child under the age of 18. If you make over $75,000 a year, but under $99,000 (or $198,000 for a couple) you will still receive a check, it just won’t be for the full amount. The checks will be reduced incrementally for salaries over $75,000 before cutting out entirely at $99,000. It is important to note that this is a one-time payment aimed at quickly alleviating the financial burden suddenly on so many people.

I’m sure many are wondering what they have to do to get their $1,200 check. Well, the good news is, for most people, the answer is nothing. If you filed a tax return for 2018 or 2019, then the work is already done. The government has your information, and will use it to calculate your most recent adjusted gross annual income, and, should you qualify per the numbers mentioned earlier, send you the appropriate amount. If you received a refund last time you filed your taxes and that refund was direct deposited into your account (which, according to Nicole Kaeding, the vice president of policy promotion and an economist at the National Taxpayers Union Foundation, is roughly 60% of you) then they have your bank information, and will use it to issue your payment in the form of a direct deposit. If the IRS does not have your bank information, or has incorrect bank information, you will have to provide it, as the IRS will not be sending direct payments in the form of paper checks. According to the IRS “In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online,” so if you fall into this category, keep a watch at irs.gov/coronavirus where the IRS is making regular updates as more information becomes available.

If you do not ordinarily file a tax return, but have a Social Security number, you are still entitled to a payment, it just may require a little bit more work on your part, but still not much. Low-income taxpayers, senior citizens, people drawing Social Security benefits, certain veterans, and certain individuals with disabilities may not be required to file a tax return in normal circumstance. In order to have the correct information to allow these payments to reach this group the IRS is asking people who don’t ordinarily file a return to file what they are calling a “simple tax return.” If you are in this group, keep an eye on irs.gov/coronavirus, where the IRS will be posting the simple tax return when it is available. Anyone who does not ordinarily file a tax return but receives a $1,200 payment after completing the simple tax return needn’t worry about taxes owed, as the IRS ensured “individuals (…) who are otherwise not required to file a tax return will not owe tax.” Right now, the IRS expects to be able to start sending payments within the next three weeks.

Information is being updated on a regular basis, and as the kinks are worked out nearly all information is liable to change. Early reports indicated the IRS would be issuing paper checks, whereas, as mentioned above, this is no longer the case, additionally, NPR reported on March 26 that those drawing Social Security benefits would receive checks based on information provided by the Social Security Administration, yet on March 30 the IRS announced that a simple tax return would need to be completed. Though misinformation is out there, this is often a case of information being up to date when it is released, and later updates superseding those previous releases. Given this constantly adjusting nature, unless you are absolutely certain the IRS has your most recent bank information and can send you a direct deposit, I recommend checking irs.gov/coronavirus regularly. The IRS is going to be issuing these payments, their word is therefore going to be the most accurate at any given time.

For many this $1,200 will be a lifesaver, the difference between paying rent, bills, buying groceries, and, well, not. While everyone in the bracket is entitled to their direct payment, if you haven’t been impacted by the coronavirus, or if you have, but you don’t need the $1,200, and would like to donate it, there are countless charitable organization that could use the money to help those who are feeling the effects severely. If you are looking for a place to contribute The New York Times has several great places to start.

The remaining $260 Billion earmarked for fiscal relief on an individual basis is going to be used to increase unemployment benefits. Please note that $260 Billion is an estimate, and is subject to change based on the number of people filing for unemployment in the coming weeks and months. While unemployment benefits are still being handled on a state basis, and if you need to apply, it will still be through your state, the CARES Act will make getting accepted easier, as it temporarily loosens the qualifications. If you are unemployed, underemployed, or unable to work because of the coronavirus, you are likely to qualify for unemployment benefits. This does not just mean if you are unable to work because you have COVID-19. If you have symptoms and are trying to get diagnosed, a member of your household has been diagnosed and you are quarantined as a result, you are providing care for a family member who has been diagnosed, you have a child or household member for whom you are the primary caregiver, and they cannot attend school or another facility due to closure as a result of the coronavirus, you cannot make it to work due to a quarantine, you have quit your job as a direct result of the coronavirus, or your place of work is closed as a direct result of the coronavirus, you are likely eligible to file for Unemployment. In addition, those who are self-employed, lacking sufficient work history, gig workers, and others who would not ordinarily qualify will be able to apply for benefits through the new Pandemic Unemployment Assistance program, which we will get to in a little bit.

The amount you will receive in each Unemployment check varies depending on your state, and your income prior to being unemployed or underemployed. This amount does not seem to be calculated differently than it would have been in normal circumstances. I know for many unemployment benefits will not do much to help pay bills, rent, mortgages, buy food, and continue to try to live some semblance of a normal life, especially when the maximum weekly payment in many states is under $300 per week, but the CARES Act attempts to help to some degree. First, and most substantially, whatever your ordinary calculated weekly check would be, the federal government is going to be adding $600 per week for up to four months to it. Only eight states have maximum weekly unemployment checks of over $600, and since most people don’t receive the maximum benefits, this will more than double unemployment benefits for most people, and, in the states with the most stringent maximum benefits (I’m looking at you Arizona, Louisiana and Mississippi) it will represent unemployment benefits as high as three and a half times normal amounts. With the national average for weekly Unemployment checks at $340, for most people the additional $600 represents two and three quarters the amount they would ordinarily receive. The CARES Act also extends the period over which you can receive benefits by 13 weeks, from 26 to 39 weeks in most states. If you are already on unemployment and nearing the max, you will get an additional 13 weeks as well.

To apply for Unemployment benefits, visit your state’s labor department or equivalent website. If you are not sure how to do that, google the name of your state followed by “Unemployment” and more often than not the first link is what you are looking for. As stated earlier, though the federal government is contributing the additional $600, everything is being handled through your state’s preexisting system.

If you are self-employed, a freelancer, contractor, gig worker, or otherwise ordinarily would not qualify, you may now qualify under the Pandemic Unemployment Assistance program, which has been set up to cover the period from January 1^st 2020 to December 31^st 2020, with the ability to be extended as needed. The maximum benefits for the PUA program are $190, plus the $600 which applies evenly to everyone receiving benefits. If you believe you are able to receive benefits under the PUA program, you will begin your application process the same as someone filing for standard Unemployment benefits, by visiting your state’s labor department or equivalent website, and begin the standard Unemployment benefits application process, and apply for Pandemic Unemployment Assistance. If you need any additional information, or help finding the appropriate website for applying careeronestop.org has information on a state by state basis.

Though less about provide direct fiscal relief to those in need, the CARES Act includes a few other nice bits worth mentioning that could help ease the burden for many nonetheless. Two of the more substantial pieces are in regards to student loans and insurance coverage. If you have federal student loans, you don’t have to make any payments on them until September 30, 2020 without fear of interest, or garnishment of your wages. Loan payments skipped between now and September 30, 2020 will count toward your required payments for loan forgiveness programs. Before not making payments, it is always a good idea to check in with your loan provider. In addition, employers can provide up to $5,250 in tax free student loan repayment benefits. Any payment made by your employer would not be included as income in your next tax return. If you are worried that your insurance provider may not cover treatments if you get COVID-19, or you want to get a COVID-19 test, but are worried you can’t afford it, good news: due to the CARES Act all private insurance plans now cover COVID-19 treatments and vaccines, and all coronavirus tests are free.

Small Businesses:

The CARES Act provides $377 Billion in aid to small businesses in three distinct ways: $10 Billion in grants, $350 Billion in new loans, to be forgiven if certain circumstances are met, and $17 Billion in relief for existing loans. The $10 Billion in grants is being distributed on a $10,000 per business basis under the Small Business Administration’s Economic Injury Disaster Loans program. The CARES Act makes it easier to apply for an EIDL, and makes it so more businesses can apply, and ensures that EIDLs under $200,000 can be approved without a personal guarantee. The $10 Billion is being used to provide an emergency cash advance when a business applies for an EIDL. Neil Bradley, executive vice president and chief policy officer at the US Chamber of Commerce said business should be able to get the $10,000 cash advance within three days of applying. If you are not approved for an EIDL than the $10,000 becomes a grant, and most likely will not have to be repaid, if you are approved for an EIDL than the $10,000 becomes the first part of that loan. The loans and grants being distributed through the EIDL program are separate from the loans that are going to be issued under the Paycheck Protection Program, which is the program that will allow for loan forgiveness under certain circumstances. If you receive an EIDL before the PPP loans become available, and the EIDL is issued as a result of the coronavirus between January 31st 2020 and the date at which the PPP loans start being issued, then you can refinance the EIDL into the PPP so that you can get the loan forgiven. Any portion of the EIDL taken out for purposes other than the purposes covered by the PPP will remain a loan. You can apply for an EIDL straight through the SBA’s dedicated website.

In an attempt to keep as many workers employed and businesses open as possible the CARES Act allocates $350 Billion to the newly designed Paycheck Protection Program, which will allow SBA certified lending institutions to provide loans of up to $10 Million, or two and a half times the business’ average monthly payroll for the previous year, to eligible businesses. Should certain conditions be met in the eight weeks following issuance of the loan, a portion of the loan up to the full value can be converted into a grant, in which case it would not have to be repaid.

The PPP will offer loans to certain types of businesses, should those businesses be experiencing some form of revenue disruption due to the ongoing health crisis. Businesses that can apply for PPP loans include small businesses with fewer than 500 employees, businesses with fewer than 1,500 employees that meet the SBA’s small business size standards, 501(c)(3) non-profits with fewer than 500 workers, certain 501(c)(19) veteran organizations, self-employed workers, sole proprietors, freelance workers, and gig economy workers. So long as a business falling into one of those categories was operating before February 15, 2020, and had paid employees by that date (the owner can be the only employee), then said business can apply for a PPP loan without a personal guarantee or collateral.

As previously stated, loans under the Paycheck Protection Act can be as large as two and a half times the borrower’s average monthly payroll costs up to $10 million. PPP loans will have an interest rate set at 0.5% and will mature after two years. Under the PPA lenders are to defer fees, principal and interest for at least six months, but no more than a year. According to the SBA all loans, regardless of the lender or borrower, and regardless of the size of the loan, will have the same terms.

If the business has the same number of full time equivalent employees at the end of the eight week period following issuance of the loan as they had, on average, between either (at the discretion of the borrower) February 15, 2019 and June 30, 2019 or January 1, 2020 and February 29, 2020, then the amount of the loan spent on payroll costs (not including costs for any compensation above $100,000 annually), mortgage payments, rent payments, and utility payments can be forgiven in full. Should the average number of employees be lower by the end of the eight week period, then the number of employees at the end of the eight week period will be divided by the average number of employees during either of the two previously mentioned periods (again, at the discretion of the borrower), and that figure will be multiplied by the total expenses outlined above, and that newly calculated amount can be forgiven. Please note, if you have more employees following the eight week period, you will have spent more on payroll expenses and can therefore get those added to what will be forgiven, but they don’t use the same formula I just outlined to allow you to have more forgiven. If the entire loan is used to cover the expenses outlined above, then the entire loan can be forgiven, thereby effectively making it a grant.

Starting on April 3, 2020 small businesses and sole proprietorships can begin applying for PPP loans, and a week later, on April 10, 2020, independent contractors, and self employed individuals can follow suit. The SBA has advised all business that wishes to apply to “apply as quickly as you can because there is a funding cap,” in other words, once the $350 Billion is loaned out, that is it. To apply for a PPP loan, first, fill out the SBA’s PPP Sample Application Form. That form can be submitted to any existing SBA approved private lender, or through federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions that are participating. In the coming days and weeks several banks, including Chase and Wells Fargo, are expected to create dedicated sites for applying for PPP loans, so if your current bank is an SBA approved lender, check with them, as banks that are already SBA approved lenders are likely to be quicker in putting the loan program into effect. In addition to the application above, when applying lenders will likely ask for a good faith certification that the loan is necessary due to reduced revenue as a direct result of the coronavirus and is going to be used to retain workers, keep payroll going, and pay for mortgage, lease, or utility payments, that the borrower does not have a similar loan application pending, and that the borrower has not received a similar loan between February 15, 2020 and December 31, 2020.