On March 27, the House of Representatives passed and President Trump signed a massive $2 trillion emergency spending bill designed to lessen the economic damage caused by the coronavirus pandemic.
The Coronavirus Aid, Relief and Economic Security Act — or the CARES Act — is the third coronavirus-related response bill to emerge from Congress since the crisis began, following legislation that focused on vaccines and emergency response, sick leave for employees and food aid.
The legislation is the largest economic relief bill ever passed in the United States. To put it in perspective, the price tag is half the size of the entire annual federal budget, which is about $4 trillion. Following is a look at a few of the major provisions contained in the coronavirus stimulus bill:
- Direct payments to taxpayers — In an attempt to create a safety net for individuals who have lost their jobs or businesses due to the coronavirus crisis, the federal government will make one-time direct payments to most Americans. Those who qualify will receive up to $1,200 and an additional $500 for each child in their household who is under age 17.
All American adults who have a Social Security number will receive a payment as long as they aren’t a dependent of someone else and their income falls below a certain level. Payments begin phasing out once adjusted gross income exceeds $75,000 for individuals and $150,000 for married couples. Married couples earning $198,000 or more and singles earning $99,000 or more will be ineligible to receive a payment.
If you’ve filed your 2019 tax return, this information will be used to determine your eligibility for a payment — otherwise, 2018 tax return data will be used. The IRS has said it hopes to start making payments via direct deposit by mid-April or sooner. Total cost: $301 billion.
- Extension of unemployment benefits — The duration of jobless benefits will be extended from 26 weeks to 39 weeks in most states. The extension includes a $600 a week increase in benefits for the first four months, or until July 31. Also, unemployment benefits will be extended to contract workers, freelancers, independent contractors and other nontraditional workers who are either fully or partially unemployed due to the coronavirus.
The goal of this provision is to replace these workers’ lost wages as quickly as possible in order to minimize the economic disruption on their families and the overall economy. Laid-off workers will now be paid between $15 and $35 an hour, assuming a 40-hour work week. Total cost: $250 billion.
- Emergency small business loans — Businesses with 500 or fewer workers in a single location (including independent contractors) can apply for federally guaranteed loans through the U.S. Small Business Administration. The portion of these loans that goes to meeting payroll and paying for business rent and utilities will be converted to grants that don’t have to be repaid if the business doesn’t lay off its employees for the duration of the crisis. Loan amounts will be capped at $10 million per business and cover employee wages up to $100,000 per year.
The goal of this provision is to provide much-needed liquidity for small businesses impacted by the crisis so they can continue paying their employees. As Senator Marco Rubio put it, “There is a broad general agreement that small businesses in this country will not be able to survive unless there is extraordinary assistance. The goal is to keep employees connected to their employers.” Total cost: $349 billion.
- Loans to distressed businesses — A special Federal Reserve fund has been created to lend money, make loan guarantees and provide other aid to distressed companies. These include cargo businesses, passenger airlines, hotels and businesses that are considered critical to national security, such as Boeing Co. There’s a possibility that the federal government may take direct equity stakes in these businesses. Total cost: $500 billion.
- Relaxing of retirement account distribution rules and student loan repayments — Individuals and families negatively impacted by the crisis can make hardship withdraws of up to $100,000 from their retirement savings accounts (such as IRAs and 401(k)s) without paying the usual 10% tax penalty. In addition, the legislation doubles the amount that 401(k) participants can borrow from their accounts over the next six months to the lesser of $100,000 or 100% of the account balance.
Also, required minimum distributions (RMDs) from 401(k)s and IRAs for individuals who are 70½ or 72 years of age are no longer required this year. And most people who have federal student loans can suspend monthly payments until September 30 of this year with no interest accruing. Total cost not estimated.
Please contact us if you have more questions about these or any other provisions of the coronavirus stimulus bill and how they might affect your family.