What You Need To Know About The CARES Act

May 11, 2020

On March 27, 2020, the $2 trillion CARES Act was signed into law as the first in a series of stimulus packages, and more aid is expected. Read on to learn what financial support is available.  

Stimulus Payments

If you filed your 2018 or 2019 taxes, and your adjusted gross income (AGI) meets some requirements, you’ll soon be receiving (or will have received) money via direct deposit or check. The income requirements and relief funds are as follows:

– Individuals with an AGI of $75,000 or less will receive $1,200.
– Heads of household with an AGI $112,500 will receive $1,200.
– Married couples with an AGI that doesn’t exceed $150,000 will receive $2,400.
– Add $500 for each qualifying dependent under age 17.

If You’re Unemployed or Have Lost Wages Due to COVID-19, You’re Likely Eligible for State Unemployment

The Pandemic Unemployment Assistance (PUA) program, part of the CARES Act, expands state unemployment benefits. If you’re self-employed, an independent contractor, a business owner, or a gig worker (for example, if you drive for Uber or are a musician), and you’re unable to work because of the COVID-19 pandemic, you can receive assistance.

What’s important to note is that you don’t have to be out of work entirely to take advantage of this program. If you can demonstrate a loss of income, you’re eligible. The amount you receive will depend on your former salary and your state. The CARES Act provides a temporary emergency increase of $600 per week until July 31, 2020, in addition to what your state offers.

You Might Qualify for a No-Cost, Forgivable, Non-Taxable Small Business Loan

The Paycheck Protection Program (PPP) is an expansion of the SBA 7(a) small business loan program. While it famously ran out of money 13 days after rollout, it will likely continue to be funded.

The PPP provides eligible sole proprietorships, independent contractors, self-employed individuals, and businesses with fewer than 500 employees a no-cost, forgivable, non-taxable loan if certain conditions are met. Otherwise, interest is 1% with a 2-year term. Funds can be used to maintain payroll and cover other obligations (e.g., mortgage expenses, rent, insurance, utilities, and interest on other debt obligations during the covered period.) It is anticipated that 75% of the funds should be used for payroll.

Here’s what you’ll need to submit:

– Independent contractors must submit their 1099-MISC.
– Sole proprietorships must submit the schedules from their tax returns showing income and expenses.
– Small businesses (e.g., S-corps) must submit payroll tax filings.

Here’s what’s important to know:

Loan forgiveness will be equal to the amount the borrower spent on payroll costs (capped at an annualized $100,000 per individual including salaries, wages, and commissions paid), interest on mortgage obligations, rent on leases, and payment of utilities during the 8-week period before the date of loan origination.

The maximum benefit is 2.5 times the average monthly payroll costs incurred during the year prior to the loan date (or since the business was founded).

Loans can be forgiven tax-free if specific criteria are met. If the loan is not forgiven, the interest rate will be 1% with a 2-year term, and an option to defer principal and interest payments up to six months to one year.

You Might Be Eligible for an Economic Injury Disaster Loan

The Economic Injury Disaster Loan (EIDL) is a working capital loan that includes an advance of $1,000 per employee up to $10,000. The advance does not have to be repaid. Sole proprietorships, independent contractors, the self-employed, and businesses with fewer than 500 employees are eligible. You may apply for both the PPP and EIDL for the same reason (COVID-19) as long as the funds are used for different purposes.

EIDL loan amounts and repayment terms are determined on a case-by-case basis, but interest rates are generally 3.75%. Like the PPP, EIDL funds ran out quickly and are expected to be refunded.

You Can Request Forbearance of Federally Backed Mortgages

Borrowers of federally backed mortgages can request loan forbearance of their payments (without penalties, fees, or interest) for up to 360 days (or 30 days for multi-family properties over five units.)

Additionally, it’s recommended that you reach out to your creditors or servicers (student loans, credit cards, car payments, mortgages) and see what forbearance or other relief programs are available. For more information on PPP and EIDL, please refer to the SBA’s Small Business Guidance & Loan Resources site.

We wish you and your loved ones safety, health, and security now and in the months ahead. Please don’t hesitate to reach out if you need us. We’re in this together.

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