13 things you need to know about the CARES Act, according to a lawyer

In late March, the federal government passed a $2 trillion relief package in response to the economic fallout of the coronavirus.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act for short) includes payments to individuals and loan programs for small businesses and large corporations in an effort to keep everyone afloat while much of the country is under varying degrees of lockdown. It’s a huge bill with a ton of different parts, so we spoke with a lawyer from James, McElroy & Diehl to help make sense of it.  

On Friday, a $484 billion supplementary relief package was signed into law, to replenish the quickly-depleted funds for small businesses, provide more support to hospitals, and expand testing capacity.

“I was blown away,” Christopher Hood, attorney at James, McElroy & Diehl, said when asked about his initial reaction to the CARES Act.

“To have that kind of legislation passed in what seemed like record time – despite all the different areas of coverage and the great detail to which it goes – that was a pretty magnificent feat.”

The public reaction to the CARES Act has been swift. Immediately, people and businesses had questions about if, when, and how they’d receive money. Within 24 hours of the bill passing, JMD distributed a briefing to business clients so they could quickly understand how the bill affects them. You can check that out here.

On April 9, the Washington Post reported that 70% of small businesses have applied for a CARES Act loan. But the application process isn’t that easy, Hood says.

“Trying to actually go through the application process has been trying – but that’s not unique … all over the country, folks who are submitting applications are running into roadblocks.”

In addition to a general backlog, small businesses may have trouble finding a lender who is willing to work with them, despite the legislation. JMD has helped clients by deciphering the eligibility requirements, preparing applications, and pairing them with lenders they know are participating in the program. 

“Within this giant piece of legislation, there are provisions that are intended to go directly to individual taxpayers,” Hood said. In addition to direct cash payments, the Act affects how and when people pay their taxes. It also provides protection for vulnerable groups, like the unemployed and the underinsured. There are programs to provide relief for those with student loan debt, as well as a federally backed mortgage deferment program. 

Now that coronavirus relief package has been signed into law, the government is preparing to inject another $310 billion into the Paycheck Protection Program. However, small businesses wishing to request assistance through this second round of PPP funding should take immediate action in order to ensure their applications can be processed before the forthcoming additional funds are also depleted.

“I hope that as the days go on, we will see implementation of the oversight that was intended to make sure this money goes to where it’s needed most.”

The CARES Act has a lot of moving parts to it and money going to a lot of different buckets. To help make sense of it, Hood pulled out 13 highlights from the bill: 

(1) Direct cash payments. Individual taxpayers earning an adjusted gross income of less than $75,000 will receive under the Act a one-time payment of up to $1,200 (joint taxpayers earning less than $150,000 will receive $2,400), plus an additional $500 per child (age 16 or younger), based on 2018 or 2019 tax filings.

(2) Unemployment benefits. The Act provides $250 billion for an extended unemployment insurance program that now includes self-employed, independent contractors, and gig economy workers.  The Act expands eligibility for workers who have lost their jobs or been furloughed and offers an additional $600 per week for four months above and beyond existing state benefits. Unemployment insurance benefits are also extended an additional 13 weeks, through Dec. 31, 2020.

(3) Payroll taxes. The Act permits employers to delay the payment of their 6.2% Social Security taxes for 2020, paying one-half by the end of 2021 and the other half until the end of 2022.  This deferment option may be unavailable if the employer has debt forgiven in connection with small business interruption loans.

(4) Retirement funds. The Act waives the traditional 10% premature withdrawal penalty for COVID-19-related withdrawals from retirement plans and IRAs, up to $100,000 and retroactive to Jan. 1. Withdrawals will still be taxed, however, the distributions may be taxed proportionally over three years, or the taxpayer may opt to roll the distributions back into the retirement plan or IRA within three years.  The Act also suspends Required Minimum Distributions from IRAs and 401(k) plans. The Act also increases the amount an individual can borrow from his or her 401(k) plan, from $50,000 (the prior level) to $100,000.

(5) Small business loans. Companies with 500 or fewer employees that maintain employees and compensation may be eligible to receive up to eight weeks of cash-flow assistance in the form of forgivable small business loans under the Act’s Paycheck Protection Plan. Congress originally earmarked $349 billion (and last week added $310 billion in new funds) to prevent layoffs and business closures while most non-essential workers are under stay-at-home orders. Employers using 75% of the loan proceeds to maintain payroll may use the remaining funds to cover the interest on mortgage obligations, rent, and utilities, and funds utilized for such forgivable purposes should be forgiven less any reductions to the number and/or compensation of employees. The forgiveness rules are complicated, and you should talk to a professional before deciding  to borrow under this program.  

The U.S. Treasury and Small Business Administration are continuing to work with approved lenders to finalize policies implementing the loan program, including essential terms like a two year maturation and one percent interest rate.

(6) Large corporations. A U.S. Treasury Department inspector general will oversee up to $500 billion in loans, loan guarantees, and other investments to larger corporations. Unlike the loans to small businesses under the PPP, these loans are not forgivable. Of note, airlines may receive up to $50 billion in relief for passenger air carriers and up to $8 billion for cargo air carriers.

(7) Hospitals and healthcare. The Act provides $140 billion in appropriations to support the U.S. health system, $100 billion of which will go directly to hospitals. The remaining $40 billion is intended to secure personal protective equipment for healthcare workers, testing supplies, increased workforce and training, accelerated Medicare payments, and supporting the Centers for Disease Control and Prevention, among other others.

(8) Mortgage assistance.  Under the Act, Mortgage lenders and servicers for federally-backed loans are permitted to provide their customers the option of deferred payments for up to 180 days in the event of financial hardship resulting from the COVID-19 pandemic.

(9) Student loan payments. The Act permits borrowers to defer payments on principal and interest for federal student loans through Sept. 30, 2020. Employers are also allowed to provide, as a tax-free employee benefit, limited student loan repayment benefits.

(10) Coronavirus testing. All testing and potential vaccines for COVID-19 will be covered at no cost to patients.

(11) State and local government aid. State, local, and tribal governments will receive $150 billion in direct aid. Up to $30 billion is set aside for states and educational institutions; $45 billion is allocated for disaster relief, and $25 billion is earmarked for various transit programs.

(12) Agriculture. The Act increases the U.S. Agriculture Department’s bailout program from $30 billion to $50 billion.

(13) Charitable contributions. Certain charitable contributions up to $300 may be treated as an above-the-line deduction for filers who do not itemize their deductions.  For those who itemize their deductions, the limitation for cash contributions of 60% of adjusted gross income is waived.

Have more questions? James, McElroy & Diehl can help. 

See what they’re all about here and get in touch here. 

(This content was created in partnership with James, McElroy & Diehl, P.A.)

The articles on this website are for informational purposes only and do not constitute legal advice. We hope that you will find the articles informative; however, you should contact an attorney to obtain advice with respect to any specific legal issue or problem, and should not act based upon the information contained in these articles.