Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act on March 27, 2020. The law offers economic assistance to small businesses with a Paycheck Protection Program, expanded U.S. Small Business Administration (SBA) Economic Injury Disaster Loan program, and updated business tax provisions.
At approximately $2.2 trillion, the CARES Act is the largest rescue package in US history; the small business recovery section alone is double the cost of the Marshall Plan post-WWII.
How Does the CARES Act Work?
The CARES Act is a massive 880-page document, but it affects Ubiquity clients in the following ways:
- For small business owners, there are PPP loans (to cover the cost of retaining employees) and EIDL loans (for a quick infusion of cash to cover short-term expenses), as well as tax changes.
- For retirement savers, there are new 401(k) withdrawal and loan rules, no Required Minimum Distributions (RMD), $1,200 stimulus checks, and tax changes.
We’ll dive into each of these points next…
How Can CARES Help My Business Recover?
The Paycheck Protection Program helps businesses with 500 or fewer employees maintain payroll through June 30, 2020. The PPP might cover certain businesses with up to 1,500 employees, as well as the self-employed, gig economy workers, freelancers, sole proprietors, and independent contractors. Companies must have been operational on February 15 to apply.
Eligible companies can borrow up to 2.5x their average eligible monthly payroll expenses up to $10 million, with less than 4% interest.
- Compensation (salary, wage, commission, tips)
- Benefits (vacation, paid leave, health care benefits/insurance premiums, retirement)
- Allowance for dismissal or separation
- Taxes owed to state or local tax based on employee compensation
If employers agree to pay workers their normal rates for at least eight weeks after the money is borrowed, the loans will be forgiven.
Other qualifying expenses for loan forgiveness include rent, utility payments, and mortgage interest. Online applications may be submitted to participating lenders through the U.S. Department of Treasury website.
The Economic Injury Disaster Loan Program expands a current SBA program to all 50 states, providing up to $2 million in low-interest loans with interest rates ranging from 2.75% (non-profits) to 3.75% (small businesses) and terms up to 30 years. Companies may request a $10,000 advance, which is paid within three days of approval.
Those who receive an EIDL before the Paycheck Protection Program becomes available can refinance their loans through PPP to become eligible for debt forgiveness on some or all of their expenses. Receiving an EIDL does not prevent you from borrowing through the PPP in the future, although you must use the funds for different purposes. Businesses can apply for both the loan and the advance online through the U.S. Small Business Administration.
Business tax changes include:
- Employee Retention Credit — a refundable 50% tax credit up to $10,000 for employers whose operations were fully or partially suspended due to the shutdown order from March 13 to December 31, 2020; and the Deferred
- Payment of Employer Payroll Taxes – deferring payroll and social security tax payments for up to two years, with half by December 31, 2021 and the remainder by December 31, 2022.
In addition to the CARES Act, you may be eligible for programs through your state.
How Does CARES Help Me Personally Weather the Storm?
- New 2020 withdrawal rules and tax changes allow early withdrawal from your retirement accounts, including 401(k)s and IRAs, WITHOUT tax penalties. You can put all the money you take out back in, as funds become available, over the next three years.
- New 401(k) loan rules allow you to take out a 401(k) loan worth 100% of your vested account balance, up to $100,000 (up from the usual 50%/$50,000 limit). Borrowers are generally expected to repay these loans within five years, with interests and fees added. If you already have a loan out due before December 31, 2020, you can benefit from a one-year extension on your repayment period.
- No Required Minimum Distributions (RMD) allow retirees to delay in taking their required minimum distributions for the rest of 2020. The benefit of delaying RMD is that you won’t be forced to sell deflated assets to satisfy your RMD, nor will you receive the 50% penalty for failing to sell as required.
- Recovery Rebate Checks worth up to $1,200 will be sent to most American individuals to bolster their finances during the recession; married couples who file taxes jointly will receive up to $2,400; families also receive $500 per child under age 16 living with them. Visit the IRS “Get My Payment” website to check on the status of your payment.
- Pandemic Unemployment Assistance can pay individuals up to $600 per week from the federal government, on top of whatever unemployment benefits the states pay, through December 31 that could indirectly help revive the economy.
Questions About How CARES Affects Your Retirement?
Whether you’re a small business owner or employee, we invite you to contact a retirement specialist at Ubiquity to discuss how to maximize your savings. If you haven’t started saving yet, we’ll help you find a 401(k) plan option that gives you flexibility during the current pandemic and is suited to your unique situation.