After days of tense Congressional debate, several alternative versions, and a contested vote over a previous package, Congress has agreed on and passed an enormous new emergency economic relief bill.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Friday, March 27. The bill includes over two trillion dollars in aid aimed at supporting businesses and individuals across the United States affected by the crisis over COVID-19, the novel coronavirus.
While some money is targeted toward hospitals to support emergency medical management, most of the legislation is focused on the economic repercussions of the crisis.
This is the largest legislative response to the coronavirus so far, and the full range of its impact is still to be seen. If the pandemic continues as expected, however, it is not likely to be the last. You can read the actual text of the CARES Act online.
Individual Relief Payments
One of the biggest headlines in the lead-up to this bill’s release has been the immediate emergency relief payments. The “2020 Recovery Rebate” promises to send a check for $1,200 to nearly every independent adult in a middle or lower income tax bracket.
You should be automatically eligible to receive a payment if the IRS has a 2018 or 2019 tax return or Social Security statement in your name. It also requires that you and your dependents have valid Social Security numbers included on your return.
As long as your income is below the limit, you should receive a check for $1,200 plus $500 for each child younger than 17 included as a dependent on your tax return. For taxpayers who already have a bank account on file with the IRS for previous year’s returns, you’ll be sent a direct deposit for the full amount. For those who don’t have that information on file, you’ll receive a paper check that may take several months to arrive.
For higher-income households, the payment is reduced starting at the threshold of $75,000 adjusted gross income for individuals or $150,000 for a married couple. For every $100 over the threshold, your payment is reduced by $5.
This emergency check will not count as taxable income. It will be processed by the IRS as an advance payment for a tax credit for the 2020 tax year.
Loan Support for Small Businesses
For small businesses, the CARES Act will make $350 billion in loans available to cover payroll costs and keep businesses stable. Any business with fewer than 500 employees can apply anytime before the end of June 2020.
The loans, guaranteed through December 31, 2020, are meant to help businesses continue paying their employees, no matter the conditions.
To calculate the maximum possible loan for your business, add up average payroll costs per month over the last year, multiply it by 2.5, and add any disaster loan you’ve already taken out since the beginning of February. The amount of the loan can be up to that total, except that it cannot exceed $10 million.
Loans taken out during this period will last for up to 10 years, and the interest rate will be no higher than 4 percent. However, you can also apply for tax-free forgiveness on a significant portion of the loan.
Forgiveness is available for anything you spend on business utility payments, payroll costs, rent, and mortgage interest within eight weeks of taking out the loan.
The CARES Act also makes available disaster loans for smaller amounts to support business costs not related to payroll expenses.
Other Provisions of the Law
While those are some of the most immediately impactful and talked-about pieces of this emergency relief package, they only scratch the surface of what is included. Here are a few more of the significant effects the act will have:
- Allows early withdrawals from retirement plans under certain circumstances without penalty
- Increases unemployment benefits for those who lose their jobs
- Encourages charitable contributions by increasing available tax deductions
- Offers tax incentives for businesses continuing to pay employees despite shutdown or significant work reduction
- Makes available other tax breaks and deferments for self-employed taxpayers and employers
The CARES Act represents a significant step taken for the sake of stability for millions of individuals and small businesses. Some of the benefits should be felt quickly, while some will appear on future tax returns.
In an unpredictable time filled with fear and instability for many, these measures aim to be a confident and compassionate response to great public need.
If you’re not sure about how the changes apply specifically to you or your business, now is the time to begin working with an accounting professional. Don’t hesitate to seek out advice from the experts to guide your business through this global crisis.