On March 27, 2020, the United States government passed the Coronavirus Aid, Relief, and Economic Stimulus Act (CARES Act). The unprecedented legislation is a $2 trillion-dollar economic stabilization and assistance act to help lessen the impact of the Coronavirus pandemic on individuals, employers, and both nonprofit and for-profit business. It is comprehensive and wide reaching, and there is a lot to unpack. I recommend you review the CARES Act with your advisors, lawyers, or CPAs to determine how to maximize these benefits so that your business can come out on the other side of this global pandemic.
A few highlights of the programs that were rolled out, include:
Direct Payments. Individuals will receive payments of $1,200, and married couples will receive payments of $2,400, plus an additional $500 per child. Payments will begin to phase out for individuals with income above $75,000, or $150,000 for married couples (and eliminated for those with incomes of more than $99,000, or $198,000). Income will be based on tax returns filed in 2018 if 2019 returns have not been filed.
Unemployment Benefits Extended. The unemployment program is expanded to apply to independent contractors, gig economy, and the self-employed. It offers an additional $600 per week for four months in addition to what state unemployment agencies will pay.
The Paycheck Protection Program with Loan Forgiveness: Paycheck Protection loans are available to nonprofits and small businesses through SBA lenders. The Paycheck Protection Program applies to employers with 500 employees or fewer, and those that qualify as Small Businesses under the SBA. The loans are intended to cover 2.5x an employer’s average monthly payroll costs (employee compensation, retirement benefits, health insurance coverage, state/local payroll taxes). Individual payroll costs are capped at a rate of pay up to $100,000. The funds can be used to pay for payroll, benefits, mortgage payments, rent, and utilities. Provided that staff is retained, and other conditions are met, the loan would be forgiven with no tax or other penalty to the borrower after June 30, 2020.
The bonus is that self-employed individuals and independent contractors (gig economy) are also protected in this program.
SBA Economic Injury Disaster Loan – The CARES Act clarified the portion of the SBA Disaster Relief Loan program. Congress previously provided $7 billion in funding for SBA loans, and loans can be as large as $2 million with low rates and generous repayment terms. The CARES Act now provides that no personal guarantee is required for these loans up to $200,000.
Employee Retention Credit. The Act provides a payroll tax credit for 50% of employer wages for companies that have been required to fully or partially shut down because of governmental orders, or have experienced more than 50% decline in revenue from 2019. However, Employers cannot double dip: those who have taken advantage of the Payroll Protection Loan cannot also receive this credit.
Payroll Tax Deferral. Once the Cares Act becomes law, payroll taxes through December 31, 2020 may be deferred for two years. Payment of 50% of payroll taxes to December 31, 2021 and the remainder due in December 31, 2022. This tax deferral applies only if the Employer has not already taken the Payroll Protection Loan.
401K Funds. The new CARES Act also allows individuals to withdraw up to $100,000 from their 401(k) retirement accounts without paying an early withdrawal penalty from their 401k funds. The Act also increase the amount of borrowing from the 401(k) account from $50,000 to $100,000.
There are many other provisions of the CARES Act that may serve you, your business, or nonprofit. As the legislation is implemented, we can expect further guidance. I urge all business owners to examine whether this act can assist them or their employees to get through this unprecedented event. Please do not hesitate to contact me to help navigate this or any other issue you may face during these uncertain times.