The Cares Act: The Largest Stimulus Package in US History

The last few weeks have been surreal and frightening as we’ve watched a pandemic unfold rapidly across the globe.  Life feels upside down.  As we keep our children home from school, telecommute, and hug our families through computer screens, we hope our communal social distancing efforts are flattening the curve.  But it still feels scary to watch the disease spread.  The global economy and financial markets have shuddered in response.

Fortunately, the government has stepped in to provide some economic relief.  The Federal Reserve has acted quickly and forcefully over the last few weeks, providing much-needed liquidity to the financial system.  Now Congress has taken a huge step, too.

On Friday, the President signed the largest economic relief package in U.S. history – three times the size of the 2008 “TARP” package.  The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, is far-reaching in its attempt to rescue individuals, small businesses, borrowers, and certain sectors of the economy including airlines and health care. Here are two specific examples of how the Act will provide financial relief to a wide variety of individuals and businesses:

  • If you earn less than $75,000 as a Single taxpayer or $150,000 as Married Filing Jointly taxpayers, you can receive $1,200 per adult and $500 per qualifying child as a direct payment.
  • If you own a small business or run a nonprofit, you may be able to take a forgivable loan of up to 2.5 times your average monthly payroll costs.  If you use the funds to pay your staff, your rent, your utilities, or the interest on your mortgage, the loan principal is forgiven.

The CARES Act: What’s in the Coronavirus Stimulus Package:

Note: The following information is based on our initial understanding of the bill that was signed into law March 27, 2020. It is therefor subject to amendment.

The $2 trillion relief package known as the CARES Act has massive implications for individuals and businesses.  While not exhaustive, our analysis highlights three main categories of relief included in the legislation:


Immediate Payments to Taxpayers

  • How Much:  $1,200/taxpayer or $2,400/married couple filing jointly plus $500/qualifying child.
  • Who is Eligible:  All taxpayers whose 2019 adjusted gross income is less than $99,000 (Single) or $198,000 (Married Filing Jointly).  Note that payments are phased out for taxpayers making over $75,000 (Single) or $150,000 (Married Filing Jointly).

Other Considerations:  These rebates are not likely to be taxed as income.

Extended 2019 Tax Filings/Payments

  • Who is Eligible:  Businesses and Individuals.
  • New Deadline:  July 15, 2020 to file and pay federal taxes.
  • Estimated Tax Payments:  April and June 2020 quarterly payments are not due until July 15, 2020.
  • State Tax Deadlines: Please check your state’s tax board for their filing deadline.  Most states are now aligned with the federal July 15th deadline.

NoteIf you expect a refund, please file promptly!

Student Loan Relief

  • Payments Suspended:  Federal student loan payments are suspended through September 30, 2020 and shall not accrue interest.

Tax Relief:  Students will not have to pay income tax on employer-made payments for education (which historically were taxed).

Unemployment Benefits

  • Who is Eligible:  Expanded to include self-employed workers, independent contractors, and freelancers (the “gig economy”)?

How Much:  An additional $600/week for 4 months on top of state benefits.  Benefits are extended to 39 weeks.  (Many states, including California, normally limit benefits to 26 weeks.)

Reprieve from Negative Credit Reporting

  • Who is Eligible:  Borrowers who skip or defer a payment during the COVID-19 “covered period.”
    • Note that this does not apply to payments or debts labeled delinquent prior to January 31, 2020.

What Happens:  Borrowers will be reported as “current” on their credit reports so their credit scores are not impacted negatively.

No Foreclosure or Foreclosure-Related Evictions

  • Who is Eligible:  Borrowers with federally-backed mortgages who claim they were “harmed by the coronavirus outbreak.”  This includes “multi-family borrowers” as defined by the Act.

What Happens:  As of March 18, 2020, mortgage servicers cannot initiate foreclosure proceedings or implement foreclosure-related evictions during the “covered period.”  Borrowers get up to 360 days of mortgage forbearance. 

Retirement Plans:  401(k) Early Distributions or Loans

  • Hardship Distributions Doubled:  Hardship distributions from 401(k)s, and certain other retirement plans have doubled to $100,000 (without the 10% penalty that normally applies to early withdrawals before age 59-½).
    • These withdrawals are still taxable, but the income tax can be paid over 3 years.
  • 401(k) Plan Loans:  Loans from 401(k)s (and certain other qualified plans) can be taken up to the lesser of $100,000 or the account balance.  Any new or existing 2020 loan repayment due can be delayed for a year.

Please note that IRAs do not permit loans, but a coronavirus-related IRA distribution may be repaid to the IRA within 60 days of the withdrawal.

Charitable Giving

  • New Charitable Deduction:  For those who do not itemize deductions, there will be an allowable “above the line” deduction for charitable contributions (not to exceed $300).


Forgivable Loan for Up to 2.5 Months of Payroll

  • Who Can Apply:  Small businesses and nonprofits with fewer than 500 employees
    • Hospitality businesses (e.g., restaurants, bars, hotels, and RV parks) can treat each of their locations separately.
    • If you have more than 500 employees, you may still qualify.  Talk to your financial advisor.
  • When You Can Apply:  As soon as banks start processing the loans, which should be soon.  Loans must be taken before June 30, 2020.   Special provisions allow for “express loans” of up to $1MM, fast-tracking approval within 36 hours.
  • How Much You Can Take:  The loan amount is capped at the lesser of 2.5 times your average monthly payroll (based on the 1-year period before the loan date for most borrowers) or $10,000,000.
  • How Loans are Forgiven:  If you use the loan for “eligible expenses” during an 8-week period after your loan’s origination date, the amount up to the loan principal can be forgiven, tax-free.  Eligible expenses include:
    • Payroll costs, including salaries up to $100,000 (annualized) per employee, health insurance premiums, commissions, cash tips, and state and local payroll taxes – but not federal payroll taxes(1)
    • Interest payments on mortgages for real or personal property (but not principal or pre-payments)(2)
    • Rent(2)
    • Utilities(2)
  • Loan Forgiveness Is Reduced If:
    • You reduce your full-time equivalents (FTEs), including cutting hours, during the “covered period.”
    • You reduce the compensation of employees who make less than $100,000/year by more than 25% during the “covered period.”
    • However, you may avoid the reduction in forgiveness if:
      • You made no further cuts by 30 days after the passage of the Act.
      • You rehire and raise wages to prior levels by June 30, 2020.
  • Repaying the Loan
    • Your interest, principal, and fees will be deferred for 6 months to 1 year.
    • The interest rate will be capped at 4%.
    • The maximum loan maturity is 10 years from the date you apply for forgiveness.
    • There are no prepayment penalties.
  • Other Considerations:
    • No collateral or personal guarantees are required.
    • Sole proprietors, independent contractors, and self-employed individuals are all eligible under this program.

If you already have an Economic Injury Disaster Loan (EIDL) through the Small Business Administration for COVID-19, you can refinance it into this program, but you cannot hold both loans for the same expenses.

2020 Payroll Tax Deferral

  • Who is Eligible:  Employers who do not take advantage of the forgivable loan mentioned above.
  • Deferral Dates:  Employers can defer payment of their 2020 payroll taxes and pay:
    • 50% in 2021.
    • 50% in 2022. 

Payroll Tax Credit

  • Who is Eligible:  Employers who do not take advantage of the forgivable loan mentioned above and who either:
    • Are at least partly shut down due to government orders; OR
    • Experience a decline of at least 50% in gross receipts for a 2020 calendar year quarter compared to the same quarter in 2019.
    • Note:  Nonprofits must be experiencing a partial shutdown due to government orders to qualify.
  • Amount of Credit:  Up to 50% of “qualified wages” of each employee
    • Qualified wages are capped at $10,000 per employee.
    • Applies to wages paid between March 12, 2020 and December 31, 2020.
    • Credit is applied against employment taxes.

Note that there are additional provisions in the bill for relief for businesses, including modifications for net operating losses.  Please consult your financial advisor, tax advisor, or attorney for more details.

(1) Does not include qualified sick leave or family leave wages that receive a credit under the Families First Coronavirus Response Act

(2) Mortgages, rental contracts, and utilities contracts must have been established prior to February 15, 2020 to be eligible.