ECONOMIC COMMENTARY

Details on the CARES Act, helpful information, and next steps

Individuals, small-and medium-size businesses, and major industries potentially impacted most.

A part of the Washington Policy series

Summary of provisions

The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed effective April 2, 2020 aims to address economic and industry impacts of the COVID-19 pandemic. We outline the key provisions and potential impacts.

Impact to individuals and families

  • $250 billion in direct payments, or recovery rebates, to individuals ($1,200) and families ($ 2,400) with an additional $500 per child under age 17. Individuals with incomes below $75,000 and families with a combined income below $150,000 qualify for a full direct cash payment from the U.S. Treasury. Income eligibility will be based on the most recent tax return filed with the IRS—either 2018 or 2019.
  • Social Security beneficiaries who do not file income tax returns are eligible to receive cash payments.
  • Expect to see checks delivered via direct deposit in early April if you file your taxes electronically and the IRS has your bank information. IRS will mail checks to other taxpayers. The IRS says it may take several weeks to receive checks by mail. More information is available here.
  • RMDs for 2020 have been suspended and it is possible to roll your 2020 RMD back into your IRA within 60 days of withdrawal.

Charitable deduction increases

  • Up to $300 in above-the-line deductions for charitable cash contributions, for taxpayers who take the standard deduction. Deduction does not apply to contributions to a supporting organization or a Donor Advised Fund.
  • Limitation on deduction amount for charitable cash contributions (60% of AGI for individuals who itemize) has been suspended for 2020. Suspension does not apply to contributions to a supporting organization or a Donor Advised Fund.

Unemployment benefits

Increase in federal unemployment benefits of $600 per week for four months. Federal unemployment benefits are delivered through state unemployment programs. Check your state’s unemployment website for eligibility and applications.

Educational loans

  • Allows employers to contribute up to $5,250 toward each worker’s student debt through Dec. 31, on a tax free basis. This provision is optional with employers.
  • The federal government is providing automatic student loan and interest forgiveness beginning March 13 through September 2020. More information is available here. Your loan servicing company should also have information on this program.

Retirement plan distributions and health savings accounts

  • Required minimum distributions from your IRA (including inherited IRAs) and qualified retirement plan are suspended for 2020. If you have received a distribution, it is possible to roll the distribution into an IRA or back into your retirement plan within 60 days to avoid taxation. As a reminder, the 2019 SECURE Act increases the age for RMDs to age 72.
  • Consider whether the time is right to convert a portion of your 401(k) or traditional IRA to a Roth 401(k) or IRA when the value of your accounts are down. Future tax- free withdrawals from Roth accounts may lower your tax bracket which in turn may reduce your Medicare premiums. Roth conversions require upfront planning because you will need funds to pay federal and state (check your state) taxes.
  • The deadline for making 2019 IRA contributions is extended with the tax filing deadline to July 15, 2020. The 2019 SECURE Act permits tax deductible IRA contributions after age 70 ½.
  • Waiver of the 10% penalty for distributions from a 401(k) or IRA up to $100,000 made on or after January 1, 2020, and before December 31, 2020. Distributions related to coronavirus can be repaid to the plan over 3 years to avoid taxation, or if taxable the taxes can be paid over 3 years.
  • Loans from retirement plan can be taken up to your full account balance up to $100,000 maximum. Payments due on existing plan loans through the end of 2020 can be delayed for one year.
  • There is limited relief for funding of single employer pension plans for 2020. It may be possible to freeze funding for the 2020 year by timely execution of plan amendments. It is important to contact your plan actuary for help with plan funding options.
  • The CARES Act allows high-deductible health plans paired with health savings accounts (HSAs) to cover telehealth services before a patient has met the plan deductible. Normal cost-sharing can still be imposed for telehealth visits, such as through co-pays that the plan may require after the deductible is paid. This provision sunsets Dec. 31, 2020.

Mortgage

Provides certain relief for eligible consumers related to their mortgage loans insured or otherwise guaranteed by VA, FHA, USDA, Fannie Mae and Freddie Mac. For information on how this may impact you, see our update here.

Programs to help businesses and industries

$350 billion in aid to small businesses (including 501(c)(3) and 501(c)(19) (non-profit entities and independent contractors,) with 500 or fewer employees. The CARES Act creates/expands several loan/grant programs (described below).

Paycheck Protection Program

  • Permits eligible small businesses to borrow up to 2.5 times their average pre-Covid payroll up to $10M with no collateral or creditworthiness.
  • Loan proceeds can be used for payroll, paid sick or medical leave, rent, mortgages and other debt obligations, and utilities.
  • Loan proceeds can be forgiven if at least 75% is used to cover payroll and related costs within 8 weeks. Not more than 25% of the proceeds can be used for non-payroll purposes to receive loan forgiveness.
  • Businesses must certify the uses of the loan proceeds for loan forgiveness.
  • The SBA website includes a list of current SBA lenders participating in the program. Other lenders will be available to make loans as soon as they are approved and enrolled in the program. To apply, borrowers must complete the application and submit payroll documentation. The SBA expects high subscription rates and will process applications in order of receipt.
  • The application can be found here.

Economic Injury Disaster Loan Program (EIDL)

  • The EIDL program is expanded to provide loans up to $2M and is available to borrowers who do not qualify for a payroll protection program loan
  • Loans over $200,000 may require a personal guarantee for part of the loan and the submission of a credit score.
  • The application is available here.

EIDL fast cash grant

Provides a $10,000 cash advance within three days of filing the application from participating financial institutions. Borrowers may apply for an EIDL fast cash grant in addition to a loan under the payroll protection program here.

Deferred payments on existing SBA Loans

  • Loan payments due on existing SBA loans under the 7(a) programs to qualifying businesses can be suspended for 6 months. Starting no later than 30 days after the date on which the first payment is due, the SBA will pay all principal, interest, and fees on existing SBA loans for 6 months pursuant to 7(a), Community Advantage, 504, and Microloan programs. If the loan is currently in deferment, then the SBA will begin making payments after the deferment period.
  Paycheck Protection Loan Emergency Injury Disaster Loans (EIDL Program)
SBA Application Process Open Yes

View Application Form
Yes

View Application Form

April 10, 2020 for independent contractors and sole proprietors
Eligibility Businesses and non-profits-501(c)(3), 501(c)(19), certain tribal businesses (with 500 or fewer employees), sole proprietors, independent contractors Expand current EIDL loan eligibility which generally tracks paycheck protection program loans
View Application Form
Maximum Amount of Loan/Grant 2.5 times avg. pre-covid monthly payroll up to $10M Up to $2M with a $10,000 cash grant within 3 days of filing the application
Interest Rate & Maturity 1% with 2- year maturity 3.75% for businesses and 2.75% for not for profits, up to 30-year terms
Loan Fees No No
Restrictons on Use of Loan Proceeds Yes, for payroll costs, mortgage, rent, utilities Fixed Debts, payroll and related benefits, accounts payable and other expenses that cannot be paid because of the disaster impact
Loan Forgiveness Available If at least 75% of loan proceeds go to payroll and not more than 25% for other costs No
Loan Collateral & Personal Guarantees Required No No personal guarantee for loans less than $200,000

Large business loans

$450 billion in loans and loan guarantees to larger American businesses, including certain hard-hit industries, states and cities. Loans would be available through participating banks and financial institutions through a program established by the U.S. Treasury Department. Also, certain hard-hit industries like airlines, aerospace, hospitality, and travel will have access to loans from the Department of Treasury’s through economic stabilization fund patterned after the Emergency Economic Stabilization Act of 2007–2008. The Treasury Department is developing guidelines on how impacted companies can access loans and the conditions that apply to the loans.

Tax credits to maintain payroll

Federal payroll tax holiday through 2020 for small businesses that maintain payroll through the Covid-19 crisis. Payroll taxes deferred during 2020 would have to be paid to the federal government over the 2021 and 2022 tax years.

Employee retention tax credit

  • A federal tax credit up to 50% of wages capped at $10,000 per employee is available immediately. This translates into a maximum credit of $5000 credit per employee per quarter beginning with wages paid after March 12, 2020. The tax credit is fully refundable against the company’s share of payroll taxes and can be claimed on the second quarter payroll form. This relief is in addition to the provision that suspends the payment of the employer’s portion of payroll taxes this year. This provision provides instant relief for employers who maintain payrolls.
  • Eligible Employers are those that carry on a trade or business during calendar year 2020, including a tax-exempt organization, that fully or partially suspends operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or experience a significant decline in gross receipts during a quarter.
  • The credit is not available if you apply for a paycheck protection loan.

Action steps

Although the new law is just days old, it makes sense to start the process of determining whether your business qualifies for financial aid. If the answer is yes, determine the amount and purpose of the aid—continue payroll, operations, or both and gather supporting documentation. We anticipate access to financial aid will involve proof of payroll and other key costs of running the business.

If applicable, start the small business loan application process through the Small Business Association website (for businesses with less than 500 employees) and apply for loans that may be provided by your state relief programs as soon as possible. It is important to file your applications early because demand is heavy. For larger businesses determine your loan needs and identify banks planning to participate in the federal loan program through the U.S. Treasury Department. The direct loan program is new, and the Treasury Department is scrambling to establish the program.

Determine whether your 2019 income is above the income threshold for a direct cash payment. If this is the case, you may want to delay filing your 2019 tax return assuming your 2018 income is below the income threshold. Also, filing electronically will expedite your payment because the electronic deposit of the funds by the IRS will reach you quicker than regular mail.

Note that this does not represent a comprehensive, exhaustive list of all CARES Act provisions. As always, your SVB Private representative can address any questions and help you understand the potential CARES Act impact to your financial situation.


SVB Private is pleased to announce a partnership with Doug Fisher, a Washington Policy expert, who will offer a series of insights into a number of reform proposals making their way through Congress. Doug provides strategic insight into the political and policy developments in Washington which impact the wealth management business. Advising wealth management clients on business, tax, and retirement issues, he helps firms and their clients understand the legislative and regulatory landscape and how to maximize business opportunities.

Doug served as tax counsel to the U.S. Senate Finance Committee and led the development of the Roth IRA, Simple retirement plan, the health savings account, and the 529 college savings plan. He co-authored the Small Business Jobs Protection Act, the Balanced Budget Act of 1997 and the Health Insurance Portability and Accountability Act.

After serving on the Senate Finance Committee, Doug led Fidelity Investments’ federal government relations and public policy teams. During that time, he focused on financial services, tax, retirement, and health care policy impacting Fidelity and its clients.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein