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What’s in the Coronavirus Stimulus Package (aka The CARES Act)?  Thumbnail

What’s in the Coronavirus Stimulus Package (aka The CARES Act)?

At long last, the much-anticipated relief stimulus package designed to provide economic assistance to millions of American families impacted by the COVID-19 pandemic has been passed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a truly historic piece of legislation and we want you to know how it impacts you. 

As an aside, I’d love to meet the congressional aide who’s responsible for coming up with the names of these bills to make sure that even their acronyms hint at their purpose. That person deserves a raise! The SECURE Act? The CARES Act?! Amazing. 

Given that the total aid package contains roughly $2 trillion in stimulus and boasted more pages than any one of the Harry Potter books, we’re not going to break down the entire thing in this morsel. It could hardly be called a morsel at that point. Instead, we’re going to focus on the parts that we believe will be most impactful to you: 

  • cash payments to individuals
  • assistance for small businesses
  • retirement account provisions.  

That said, see below for a handy visualization of the entire package. 

Cash Payments to Individuals

The number one question on most people’s minds has to be: “Will the US government be sending me money??” Naturally, the answer to that question depends on your circumstances. 

In general, individuals will receive $1,200 and joint filers will receive $2,400. On top of that, taxpayers will receive $500 for every qualifying child. However, higher-income earners will have those payments reduced by $5 for every $100 over the applicable threshold. See below:

One important question upon seeing these income thresholds is “What tax year will be considered for income?” The answer to that question is…strange. The initial payment disbursements will use 2018/2019 AGI (your most recent return on file), but the actual rebate you qualify for will be based on 2020 income. 

Essentially, congress is going to ‘front’ you an initial payment based on your 2018 or 2019 income. Then, when you file your 2020 taxes, if it turns out you were owed a larger payment, it will be trued up at that time. If it turns out that you received a larger payment than you should have, well lucky you, you don’t have to repay it. 

Finally, two remaining questions about the cash payments deserve to be answered. 

When will I receive this payment? Treasury Secretary Steve Mnuchin said he expects that most people will get their payments within 3 weeks. Other indications from the Treasury Department signal sometime in May. So, the real answer is…we don’t know yet. 

How will they send it to me? For many, it will be direct deposited into the bank account that was authorized to receive a refund for the tax year considered. For others, it will be mailed to the address on file. 

Assistance for Small Businesses

The aid package for small businesses comes mainly in three forms: 

  • Paycheck Protection Program (Forgivable Loans)
  • Employee Retention Credit  
  • Deferred Payroll Taxes

Paycheck Protection Program (Forgivable Loans) 

What is it? 

  • A loan of up to 2.5x the average monthly payroll costs over the previous year, capped at $10 million  
  • Only for companies with fewer than 500 employees

Why is it appealing? 

  • Some portion or even the entire amount of the loan can be completely forgiven. The amount eligible is what you spend during the first 8 weeks after the loan is made on the following expenses: payroll, rent, utilities, and group health insurance costs. 

What else do I need to know? 

  • For loan to be forgiven, the business must maintain the same number of employees. To the extent that requirement is not met, the amount eligible for forgiveness will be reduced.
  • Max rate that can be charged for a loan under the program is 4%
  • Must be applied for by June 30th, 2020

Employee Retention Credit 

What is it? 

  • A payroll tax credit to incentivize businesses from making further layoffs
  • Only for companies not receiving a covered loan already

How do I qualify for the credit?

  • Business operations must have been fully or partially suspended due to COVID-19
  • Gross revenue must be less than 50% of gross revenue in the same quarter last year
  • Once credit is triggered, it remains in place until gross revenue exceeds 80% of revenue in the same quarter of the prior year (cannot go beyond 2020)

How much is the credit worth? 

  • 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee
  • For larger employers with more than 100 employees, only wages paid to employees who are not working will count towards the credit

Deferred Payroll Taxes

What is it? 

  • A deferral of payroll taxes for businesses that don’t have debt forgiven by the CARES Act for loans provided by the Small Business Administration  

How long are they deferred for? 

  • 50% of the taxes that would have been due during this period can be deferred until the end of 2021
  • The other 50% can be deferred until the end of 20202

What if I’m self-employed?

  • This relief applies to the employer portion of your self-employment taxes

Retirement Account Provisions

Finally, there are a few provisions related to retirement accounts that are worth noting:

  • RMDs. Required minimum distributions have been suspended for 2020.
  • Coronavirus-Related Distributions. A new exception to the 10% early withdrawal penalty has been created. Anyone experiencing “adverse financial consequences” due to COVID-19 is eligible. In other words, it seems the IRS is going to be lenient on eligibility. Notable features: 
    • distributions up to $100,000
    • the distribution can be from an IRA or retirement plan
    • must be taken in 2020
    • income (and income tax) is by default spread out over 3 years unless you elect to take it all in 2020
    • distributions can be ‘repaid’ as a qualified rollover contribution over the next 3 years
  • Improvements to loans from employer plans. The maximum loan amount has been increased from $50,000 to $100,000. 100% of the vested loan balance may now be used, up from 50%. And any payments that would be otherwise be owed on plan loans through the end of 2020 may be delayed for up to one year.