Last week, Congress passed the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, legislation designed to provide financial assistance to individuals as well as small businesses that have been impacted during this unprecedented time. The bill is approximately 800 pages—a lot to read through and comprehend. As such, we have outlined a summary of key provisions and how the CARES Act may apply to you or someone you know.
ASSISTANCE FOR INDIVIDUALS AND FAMILIES
A one-time direct payment of $1,200 will be issued within the next few weeks to individuals making up to $75,000 while married couples making up to $150,000 will receive $2,400. There is an additional payment of $500 per dependent child. Above those income levels, the stimulus payment decreases at $99,000 for individuals and at $198,000 for married couples with no children. You do not need to apply as payments will be based on your 2019 incomes taxes, or if you haven’t yet filed this year, on your 2018 taxes. A valid Social Security Number is required in order to be eligible.
Phishing scams are circulating via text, email and phone call regarding these payments (along with many other scams) so be vigilant about not providing personal information, clicking on links and opening attachments. If you receive any phishing communication, report it to the FTC. Last week’s blog talked in more detail about how to identify and report these bogus interactions.
The initiative provides $250 billion in funds for an extended unemployment insurance program while also expanding eligibility to the self-employed, independent contractors and gig workers. The program offers an extra $600 per week for up to four months to those meet eligibility requirements in addition to the amount paid by states programs.
ACCESS TO RETIREMENT FUNDS
Retroactive to January 1, 2020, the 10% penalty for early withdrawal is suspended for amounts up to $100,000 which are accessed specifically for COVID 19 purposes. Withdrawal amounts are still subject to taxation but can be spread over three years.
Additional important retirement changes include:
401(k) Loans: The loan limit has been increased to $100,000 from the original $50,000 amount.
RMDs Halted: For those 72 years of age and above, the Required Minimum Distributions (RMAs) from IRAs and 401(k) plans have been suspended for the time being.
ASSISTANCE FOR SMALL BUSINESSES
The CARES Act sets aside $350 billion to help small businesses keep their workers employed. This part of the initiative, referred to as the Paycheck Protection Program, provides 100% federally guaranteed loans to small businesses that maintain their payroll during the current situation. Most important is that these loans may be forgiven if borrowers pay employees during the current situation or reinstate payroll soon after.
Who is eligible?
A small business is classified as an independent contractor, sole proprietor, those who are self-employed, a business with less than 500 employees or one that meets the SBA size standard. This also includes a locally-owned franchise meeting the employee limit and 501(C)(3) non-profit organizations. The 500-employee maximum includes full-time, part-time, and any other status, including seasonal employees.
What are the requirements?
Lenders will NOT take into consideration whether the business was unable to obtain credit elsewhere and will not require collateral or a personal guarantee. They will request a good faith authorization that the current economic conditions make the loan a necessity to continue operations and that the funds will be used to retain employees, make mortgage, rent and/or utility payments. Applicants must have been operating before February 15, 2020 and have been paying employees or independent contractors. For sole proprietors, the self-employed or independent contractors, other documentation will be required and a list announced by the government shortly.
How much can I borrow?
The loan can be up to 2 ½ times the borrower’s average monthly payroll, up to a maximum of $10 million. There are specific items that are included and excluded in the calculation of payroll costs.
Will my loan be forgiven?
Borrowers are eligible for loan forgiveness, in full or in part, based on the amount spent on specified items during the 8-week timeframe that began on the loan origination date. These items include:
- Payroll costs
- Interest on mortgage obligation
- Additional wages paid to tipped employees
Other guidelines apply to determine the actual amount of the loan that will be forgiven.
For more details on the paycheck Protection Program, the U.S Chamber of Commerce (LINK: ) recently published a Coronavirus Emergency Loans Small Business Guide & Checklist outlining important aspects of the CARES Act as it applies to small business. Forbes also published an article outlining the highlights for individuals and businesses. Additional information on the upwards of 1,800 eligible lenders along with additional loan guidelines will be provided by the government and will be available at the Small Business Administration (SBA) website once available.