The CARES Act of 2020: A Detailed Breakdown and Explanation

by | Apr 8, 2020

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Life, as Americans know it, has been turned upside down as a result of the COVID-19. It was only a few months ago when the focus was on upcoming elections, the weather and the tween obsession with Tik-Tok. 

Lives have come to a screeching halt with the COVID-19 virus spreading like wildfire through cities, towns, and states. Nearly every state in the United State has shelter in place orders. Schools have shuttered, in many places for the remainder of the school year. 

With people being forced to stay home, the business world is also coming to a standstill. The US stock market has faced a bumpy ride and the economy looks grim, at least temporarily. Millions of Americans are applying for unemployment benefits and the economic security of many feels in jeopardy. 

Some are taking stock, making the best of the situation and enjoying extended family time. Families have reinstated game night, movie watching, baking cookies, and giant puzzle projects. Americans have even rallied around the beleaguered health care community who are on the front lines. 

But for all the togetherness, there is economic uncertainty. Many Americans aren’t working and aren’t getting paychecks. Businesses are closing up shop. 

Congress knew it needed to act and do it quickly to get some relief to the American public. The $2 trillion CARES Act of 2020 was passed by Congress and then signed into law on March 27, 2020.

Read on to learn about how the aid package is hoping to help desperate individuals and businesses get some relief.

CARES Act Benefits Package

The Coronavirus Aid, Relief and Economic Security Act (CARES) follows a previous $8.3 billion bill to support public health and the Families First Coronavirus Response Act.

The CARES Act distributes the $2 trillion into several groups who need aid. These groups include:

  • Individuals
  • Big business
  • Small business
  • State and local governments
  • Public Health
  • Education
  • Safety net

Let’s take a closer look at what the package does.

Individual Benefits

Individuals and families will get the largest slice of the package, roughly $560 billion. Here are some of the benefits. 

Payments Directly to Taxpayers

A big part of the package goes out in direct cash payments to eligible individuals, an estimated $300 billion.

Individuals making $75,000 or less will get $1,200 checks either through direct deposit or mailed checks. Graduated payments will go out for individuals up to $99,000. 

For married couples or joint filers, the numbers double. So, you will get $2,400 for wage earners under $150,000 and graduated payments up to $198,000. 

Families with dependent children up to age 17 will also get $500 for each dependent child. 

The rebate will be based on the prior year’s income tax and 2018 if you haven’t filed for 2019 yet. The check will not count as taxable income.

The Treasury Department will begin distributing funds during the first three weeks of April 2020. Social security recipients will also be sent checks although some are not required to file tax returns with the IRS.

Unemployment Compensation

States are responsible for paying unemployment benefits and the amount varies from state to state. 

The CARES Act does a few things no matter the state you apply for unemployment from. $250 billion in unemployment compensation is part of the Act. That number is expected to rise as the number of claims increases. 

For those who get unemployment insurance benefits, an additional $600 per week will come directly from the federal government, no matter the amount paid at the state level. These additional payments will come for four months. 

Also included is 13 more weeks of unemployment compensation. 

Also, part of the temporary Pandemic Unemployment Assistance program, gig employees, independent contractors, and freelance workers are allowed to apply for unemployment, something normally they could not do because of the nature of their employment classification.

Likewise, full-time employees getting benefits from unemployment insurance are allowed to also seek a side gig without losing their benefits. 

Retirement Funds and 401K Plans

The Act also allows Americans to withdraw up to $100,000 from retirement funds for COVID-19 related purposes. The funds will be taxed, yet the CARES Act waives the early withdrawal penalty. The taxes that are due on the money can be paid out over three years, instead of right away. 

Normally, you can borrow up to $50,000 from your 401K plan. That loan amount has been increased to $100,000, or 100% of the account balance, whichever is lower.

If you are over 72 or older, the required minimum distributions, or RMDs, you might normally have to take from your plan can be suspended. 

2019 Tax Deadline

Normally, Americans are required to file their taxes with the IRS by April 15. The tax deadline has been extended to July 15 without penalty. The IRS is still processing tax returns so once you file your taxes, you can still expect your tax return to arrive.

Student Loans 

An employer could pay up to $5,250 in payments on employees’ student loans. Normally, this would be counted as a type of income.  Anything above that amount will not count as income as part of the Act. 

Health Care

The CARES Act requires that all private health insurance companies cover COVID-19 treatments and testing. Currently, there is no vaccine, however, when one becomes available they must also cover it. 

Workers who need time off under FMLA laws may take emergency paid sick leave for the first ten days of the leave. 

Charitable Donations

Charities will also feel the pinch as Americans do too. They will likely face a decline in donations. To offset this and to encourage Americans who are able can continue donating the bill provides an above-the-line deduction for charitable contributions. The limits normally in place for charitable contributions are adjusted under the Act.

Big Business Benefits

Approximately $500 million is set aside for big business. This is not gifted money but instead loans and loan guarantees to big businesses that must be repaid. The businesses also have some reporting requirements if they take out loans. 

If a company takes a loan from the federal government, they are prohibited from doing a stock buyback during the term of the loan plus one additional year. 

An additional benefit for businesses to encourage them to keep their workers on the payroll is a tax credit. Businesses will get credit covers to 50 percent of payroll on the first $10,000 of compensation. This also includes health benefits for employees. 

Small businesses with less than 100 employees can take the tax credit even if they remain open during the crisis.

Airlines

The travel industry has all but stopped and most airlines don’t have planes in the air. $58 billion is set aside to help airlines stay afloat. The money is set aside for:

  • Employee wages
  • Salaries
  • Benefits

The money is divided between passenger carriers who get $25 billion, cargo carriers get $4 billion and the airline contractors also have $3 billion in aid.

Inspector General

The Act provides oversight and is set up so a special inspector general will be appointed to oversee relief money and distribution.

This person along with a committee will be responsible to oversee all the loan money and disbursements.

Restrictions

The bill prevents President Trump, Vice-President Pence, their cabinet and any member of the Senate or House of Representatives from taking any benefits from this money even if they are associated with big business in some way.

Relief for Small Businesses

One of the hardest-hit groups at this time is small businesses all across this country. The CARES Act sets aside $377 billion in loans and benefits for those businesses with 500 or fewer employees. The goal of small business incentives is to keep the employees on the payroll during closures. 

Emergency Grants

Small businesses need immediate cash to cover current operating expenses. There is $10 billion in funds to help small businesses pay the bills. 

Loans

The Small Business Administration (SBA) is being given $350 billion to offer loans. Businesses can borrow up to $10 million.

Any part of the loan that is used to cover payroll costs, rent, mortgages or for paying existing debt can be forgiven from the loan program. The caveat is that the covered workers need to stay employed through June. This is all in an effort to maintain employee retention with small businesses. 

Payroll Taxes

In an effort to free up cash flow, businesses can use a deferral in paying their payroll taxes. This would allow part of 2020 taxes to be delayed into 2021 and 2022. 

Existing Loans

Many small businesses already have small business loans. In the current economic climate, they are going to struggle to make payments on those existing loans. The bill allows $17 billion to cover six months of payments for existing loans.

State and Local Governments

State and local governments are feeling the heat because of their response efforts to COVID-19. The CARES Act includes $339.8 billion to support state and local governments. 

There is $274 billion directly for their response to COVID-19. It gives them money for their response to the virus and cash to manage the huge number of cases they are handling. 

Other parts other funds are allocated as follows:

  • $5 billion for Community Development Block Grants
  • $13 billion for K-12 schools
  • $14 billion for higher education
  • $5.3 billion for family and children programs

These funds also offer aid to child care centers that need immediate assistance. 

Public Health

It certainly makes sense to have money set aside for public health uses during a public health situation. The bill sets aside $153.5 billion in funds to support public health institutions. After all, they are truly on the front lines helping those affected by COVID-19. 

Hospitals and Health Care Facilities

Hospitals are being overwhelmed with COVID-19 patients. The bill includes $100 billion to support hospitals.

For smaller communities that operate with community health centers, $1.32 billion is available to support their care of around 28 million people.

Drug Access

The CARES Act includes $11 billion for drug access which includes things like diagnostics, treatments, and vaccines. The Food and Drug Administration gets an additional $80 million to prioritize and expedite approval of new drugs

Centers for Disease Control and Prevention

CDC programs and response efforts are getting $4.3 billion.

Veterans’ Health Care

There is $20 billion set aside for veteran care.

Telehealth Services

Because people are sheltering in place, a provision in the bill reauthorizes a telehealth program. This program allows individuals to have doctors appointments virtually with their health care provider. 

Medical Supplies

If you keep up with COVID-19 related news, you’ve heard often about Strategic National Stockpile. In the bill, there is an additional $16 billion so the Strategic National Stockpile can increase the availability of equipment like ventilators and masks. 

Education Relief

The CARES Act has some special relief for college students and college graduates who have student loan debt and expenses. There is an estimated $43.7 billion set aside for educational relief for students and programs. 

Student Loan Relief

Through September 30, all loan and interest payments are deferred from all federally owned student loans. There will be no penalty for the borrower. 

Students seeking loan forgiveness under the Public Service Loan Forgiveness Program are required to make 120 monthly payments before applying. The deferment under the CARES Act will still count and will not delay someone’s ability to apply.

Work-Study Funds 

Many students make money through work-study programs. They now can’t do those jobs because in-person school is suspended. This provision allows schools to take unused work-study money and transfer it to supplemental grants so work-study students continue getting their wages. 

Students Dropping Out

For some college students, the COVID-19 will force them to drop out of college. There are normal lifetime limits placed on subsidized loan and Pell Grant eligibility. The time these students spend away from school will not be allowed to be deducted from their lifetime limits. 

If students have already received grants and aid the semester they drop out, they will not be asked to pay those back. 

Other Programs

Arts programs, universities, and other institutions are among the long list of other groups receiving additional support funds to make ends meet during these unsettling times.

Safety Net

There is an additional $26 billion for food safety programs. This is the second allotment of monies to support these groups. 

Child Nutrition

Schools all around the country are stepping up to keep kids fed even though they are not in school. An additional $8.8 billion is designated to support schools that are working tirelessly to feed students while they are at home. 

Food Stamps

The Supplemental Nutrition Assistance Program gets $15.5 billion. This program is known as SNAP. Because the program is expecting an influx of new applications, the money helps to cover the processing of those applications so people can get food support. 

There is also money for American Indian reservations, Puerto Rico, the Northern Mariana Islands, and American Samoa to get additional funds and access to federal nutrition programs.

Food Banks

Community food banks who will also be feeding many new recipients during these hard times get an additional $450 million to help with food distribution in their communities. 

Understanding What There Is to Know About the CARES Act of 2020

This massive economic relief plan will only scratch the surface of anticipated needs for Americans at this time. The CARES Act of 2020 works to get some relief into the hands of the American people and offer some economic stability for the business world. 

For more information about financial news related to the COVID-19 situation, visit our Financial Resource Center often.

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