The CARES Act and Other Relief Programs

A few weeks ago, I shared an analogy Steven Furtick gave about what we’re going through. He stated that everyone keeps saying we’re in the same boat, but we aren’t. We’re in the same storm – but some of us on are aboard a war ship while others are on a raft…or less.

Three phases of the Relief Act have been signed into law since March 6^th, the last of which was not the least. Overall, it’s a 2 trillion-dollar bill, which is estimated to cost 961 billion in tax revenue. The goals: kill the virus, keep Americans safe, and keep the lights on. Almost every American is feeling, or will feel, the impact of this virus either health-wise and/or financially. Yet every American is in a different boat.

This is why these three bills are big, vast, and complex to say the least. Our hope is to highlight the most prominent relief areas that could benefit the individuals and families we work with. Keep in mind…these are just a few of the key highlights. There is a lot of detail behind each item, and agencies and banks are still unraveling what was meant by some of these relief packages. So here they are:

Individuals & Families

1. Cash…$1,200 payments issued directly to individuals and $500 per each dependent child under 17. Adjusted Gross Income phase-outs begin at $75,000 for individuals and $150,000 for joint filers. The latest news from Treasury Secretary Mnuchin was this would begin to hit bank accounts within three weeks. Don’t file a tax return? It may not be a problem. Mnuchin stated that all recipients of Social Security checks that don’t file would also receive these payments.
2. Required Minimum Distribution (RMD) Relief…These are waived for 2020 for most retirement plans. Even if you turned 70 ½ last year and waited to take your RMD until April 1^st, it was waived. If you sell investments that are down, it is a guaranteed loss. Now you don’t have to sell if you don’t need or want to sell in order to satisfy RMD requirements.
3. Income…Phase two guaranteed 80 hours of sick leave for full-time employees, and partially paid leave for full-time employees with family members who have fallen ill with COVID-19. It also expanded food assistance programs and unemployment benefits. The Pandemic Assistance Program was also created to help those who are traditionally not eligible for unemployment benefits to access payments of $600 per week for up to 4 months. An example of this would be someone who is self-employed.
4. Access…The 10% early withdrawal penalty for distributions from retirement accounts of up to $100,000 for coronavirus-related purposes has been waived for 2020. There are also increased loan limits and repayment timelines for qualified plans.
5. Tax Extension…2019 returns and tax payments were extended to July 15^th. First quarter tax payments were as well. Remember – cash is king! Additionally, ask your employer about student loan repayment or tuitions costs. They can contribute up to $5,250 to your loan this year and it will be excluded from your taxable income.

Small Businesses*

1. Cash…The biggest and perhaps best benefit to come from the CARE Act. You need to look at this option first and foremost. It may be the most beneficial, but cannot be used in conjunction with some of the other options. But you need to tell your bank you want to apply now! There are limited funds and there is no guarantee that Congress will refill this bucket.

The Paycheck Protection Program (PPP) loan is a new version of the Small Business Administration’s 7(a) loan. Most of the pre-existing pre-qualifiers for SBA loans were waived for this loan as well as the EIDL loan we will talk about later. You can qualify for up to 250% of your average monthly payroll on a 10 year note, at 4%. That is all great – but the best part is the loan forgiveness clause. The sum of many of your business expenses over the first 8 weeks can be forgiven just by retaining your employees. Note – sole proprietors, independent contractors, and 501(c)3s are also eligible.

2. Debt Relief…The SBA will pay principal, interest, and fees on all existing SBA loan products for 6 months!
3. Emergency Funds…The Emergency Injury Disaster Loan (EIDL): within 3 days of this particular SBA loan application, you will have a $10,000 grant. You can apply for up to 2 million dollars to cover many of your business operation needs, but beware that these cannot be the same needs you are applying for with the PPP loan. These loans can have a term up to 30 years with a 3.75% interest rate for small businesses.
4. More Cash?…Do you have a Net Operating Loss for 2018 or 2019? You can now carry this loss back 5 years by amending any returns and get a tax refund. You will be able to do the same thing for 2020 when you file.
5. OR…If you don’t take advantage of the PPP loan, there are 2 other relief plans that may be helpful. The Employee Retention Credit works out to approximately $5,000 per employee at the max level. Second, the employer Social Security tax can be suspended for the remainder of the year. That amount will not be owed until the end of 2021 and 2022, and you will owe 50% of the suspended tax amount each of those years.
6. Credit…The required sick leave provisions issued will be credited back to you. The “how” is a bit complicated, but you will get it if you are a small business.

There is a lot packed into these 3 phases of relief. Some will apply to you and some will not. You may even have to make choices about the best route to take when given these options. We’re here to help. Give us your questions, and we are likely to have an answer or resource for you. And as always, we’re here to help quarterback all of your professionals on your behalf. The government just gave us a basket of lemons with the potential to make some great lemonade!

*The definition of small business was revised for these laws. It’s highly recommended you understand this definition and how it may impact your business or businesses.