On March 27, President Donald Trump signed into law a $2 trillion stimulus bill, entitled the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), to address the severe economic crisis caused by the COVID-19 (coronavirus) pandemic.  The CARES Act includes unprecedented direct payments to many Americans to assist them during the pandemic, an extraordinary expansion in unemployment benefits for workers rendered jobless due to the pandemic, and $350 billion in small business loans to business detrimentally impacted by the pandemic. This legal alert provides a broad overview of the CARES Act.

Direct Stimulus Payments

  • How much of a stimulus payment will people receive?  Individuals would be due up to $1,200 and couples would receive up to $2,400, plus $500 per child.  However, the payments would start phasing out for individuals with adjusted gross incomes of more than $75,000. The amount would then be reduced by $5 for every additional $100 of adjusted gross income, and those making more than $99,000 would not receive anything.  The income thresholds would be doubled for couples.  Income would generally be based 2019 or 2018 tax returns.  Those who made too much to qualify in those years, but see their income fall in 2020, would receive a tax credit when they file their tax return next year.  Those who make more this year than last year would not have to pay back any stimulus money they receive if they end up exceeding the thresholds.  The payments would not be subject to tax, and those who owe back taxes would still get a check.
  • When will people receive their stimulus payment?  It is not yet known how long it will take the Internal Revenue Service (IRS) to send out all the money, but it would likely take weeks before the first payments start going out.  The bill simply calls for payments to be made “as rapidly as possible.”  Treasury Secretary Steven Mnuchin has stated that the IRS would begin issuing payments within three weeks of the legislation being signed into law. 
  • How will people get their stimulus payment?  The money would likely be deposited directly into people’s bank accounts, as long as they have already authorized the IRS to send their tax refund that way over the past two years.  If not, the IRS will mail the checks. For those that have not filed a 2019 or 2018 tax return, the IRS would rely on information on file at the Social Security Administration, which keeps records on all Americans who have paid payroll taxes.  On its website (https://www.irs.gov/coronavirus), the IRS says no sign-up would be needed to receive the money.  It is likely that the IRS will offer additional guidance in the near future.
  • Do college students get anything?  Not if anyone claims them as a dependent on a tax return. Usually, students under age 24 are dependents in the eyes of the taxing authorities if a parent pays for at least half of their expenses.

Unemployment Benefits

  • How much will unemployed workers get?  Jobless workers will get an extra $600 a week on top of their state benefits for up to four months.  This money will boost regular state unemployment insurance benefits, which range from about $200 to $550 a week, on average, depending on the state. A new pandemic unemployment assistance program will expand eligibility to those who are unemployed, partially unemployed, or unable to work because of the pandemic and do not qualify for traditional benefits. This would include independent contractors, the self-employed, and gig economy workers.
  • When will unemployed workers receive the money?  Since unemployment benefits are administered by states, the timing will vary based on where jobless workers live, but likely several weeks at least. 
  • Will unemployed part-time workers receive money?  Yes. Part-time workers will be eligible for benefits, but the benefit amount and how long benefits will last depends on the state where the part-time workers live.
  • Will the bill not apply to certain workers?   Yes.  Workers who are able to work from home and those receiving paid sick leave or paid family leave would not be covered. New entrants to the work force who cannot find jobs would also be ineligible.

Small Business Loans

  • How much is available?  The biggest provision for small business owners in the economic aid package is roughly $350 billion in new loans, at least a portion of which will be forgiven so long as the business continues to employ and pay its workers.  Business owners need to apply for the loans at a lender approved by the Small Business Administration (SBA). The forgiven amount would be equal to eight weeks’ worth of payroll obligations (e.g., wages and benefits), plus rent or mortgage bills and utilities. Furthermore, the forgiven debt would not be treated as taxable income to the owner.  See the SBA’s website at https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources for more information.
  • How long will it take?  Normally SBA loans can take months.  To get the money out more quickly, the bill calls on the U.S. Department of Treasury and the SBA  to expedite the loan process and approve more institutions to make the loans. The bill will also loosen the rules normally governing SBA loans. For example, borrowers do not need to issue a personal guarantee or provide collateral.  A joint letter from several banking and credit union associations this week urged the SBA to provide them with “clear and consistent” guidelines as soon as possible: https://www.aba.com/advocacy/policy-analysis/sba-administrator-carranza-implementation-of-sba-7a-enhancement-provisions-s-3548-cares-act