Update on Phase Three Stimulus Package (CARES Act)

March 30, 2020 · Written By Ryan Tiesi, CPA, CFA

Our thoughts continue to be with you as more information unfolds during this challenging time. This communication is a follow-up from our March 24 correspondence to you. On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, which serves as phase three of the COVID-19 related stimulus packages. Key aspects of the legislation are as follows:

  • The legislation has an estimated price tag of $2.2 trillion, which is equal to 10% of total annual gross domestic product in the U.S. This is the largest U.S. stimulus package that has ever been signed into law.
  • The legislation provides an estimated $250 billion for expanded unemployment benefits, including $600 per week of federal unemployment benefits in addition to benefits determined by each state for up to four months. Federal unemployment funding is also expanded to cover groups not usually eligible for coverage including self-employed individuals, independent contractors, and those with limited work history.
  • An estimated $300 billion of the package will be used for cash payments to individuals. This provision provides a $1,200 payment to individuals and a $2,400 payment to joint taxpayers. Also, taxpayers with children will receive an additional $500 per child. The rebates begin to phase out for individuals with adjusted gross income (AGI) in excess of $75,000 and joint filers with AGI in excess of $150,000, with full phase-outs at $99,000 for single filers and $198,000 for joint filers. Tax returns from 2019 (or 2018 if the 2019 return has not been filed) will be used to calculate the payment. Payments will be distributed as quickly as possible (likely within the next several weeks) and will be considered refundable tax credits for income tax purposes.
  • The legislation waives the 10% early withdrawal penalty on retirement account distributions up to $100,000 for individuals facing COVID-19 related challenges. Also, 2020 required minimum distribution rules are waived for most retirement plans, including IRA and 401(k) plans, and the loan limit for 401(k) plans has been increased to $100,000. Please consult with your advisor to discuss how these provisions impact your specific financial planning circumstances.
  • $140 billion is allocated to support the U.S. health system, including $100 billion which will be injected directly into hospitals. The remaining funds will be used to provide personal and protective equipment for healthcare workers, testing supplies, workforce training, accelerated Medicare payments, and support for the CDC among other initiatives.
  • $150 billion is earmarked for a COVID-19 relief fund for state and city government expenditures incurred as a result of the COVID-19 public health emergency.
  • $500 billion is set aside for loans, loan guarantees, and investments in businesses and municipalities. The extension of these loans will be overseen by a new inspector general in the Treasury Department and by Congress.
  • $349 billion has been allocated to the Paycheck Protection Program, which is designed to help small businesses impacted by the pandemic (see below for further details).
  • The full text of the legislation can be found in the following link: The CARES Act. We will provide additional correspondence in the upcoming days that will provide further details on the key pieces of this legislation that are expected to have the most significant impact on our clients.

CARES Act Provisions Impacting Small Businesses

  • The Paycheck Protection Program assists small businesses with capital to cover the cost of retaining employees. Through this program, small businesses may take out a loan up to $10 million based on payroll costs which can be used to cover payroll expenses for employees making up to $100,000 per year. Loan forgiveness may be available under this program for firms that use loan proceeds for payroll, rent, utilities, and interest payments on mortgages. Loan forgiveness amounts will be reduced for businesses who terminate employees and/or reduce employee wages below a certain threshold.
  • Emergency Economic Injury Grant provides emergency advances up to $10,000 to small businesses harmed by COVID-19. The advance does not need to be repaid under any circumstances.
  • Economic Injury Disaster Loans are lower interest loans of up to $2 million, with principal and interest deferment at the discretion of the Small Business Administration (SBA).
  • Small Business Debt Relief Program provides immediate relief to small businesses with non-disaster SBA loans. The SBA will cover all loan payments on these SBA loans ― including principal, interest and fees ― for six months.
  • Small Business Tax Provisions
    • Employee Retention Tax Credit is available to small businesses that experienced disruption due to COVID-19 related shutdowns as well as small businesses experiencing a decrease in gross revenue of 50% or more. This is a 50% payroll tax credit on compensation paid to employees up to $10,000 per employee.  This credit will not be available to small businesses who accept loans under the Paycheck Protection Program.
    • Deferral of employer payroll tax payments into 2021 and 2022. This payment deferral program will not be available to businesses that accept loans under the Paycheck Protection Program.
  • The U.S. Senate Committee on Small Business and Entrepreneurship released a small business owner’s guide to the CARES Act which provides specifics on the small business related aspects of the legislation. The guide can be accessed via the following link: The Small Business Owner’s Guide to the CARES Act.

At JFS, we will continue to serve as a trusted advisor to help you navigate this rapidly changing landscape. Our advisors and teams stand ready to assist you with understanding, planning, and executing around the financial and business-related challenges created by the COVID-19 pandemic. We wish you all safety, health, and peace of mind in the weeks and months ahead.