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Individuals, small-and medium-size businesses, and major industries potentially impacted most.
The White House made good on its promise to push through a third massive stimulus bill, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) as an economic bridge for families and financial aid for industries. The law is effective when the President signs the legislation. Washington regulators are scrambling to get aid in the hands of individuals and businesses as this is being written.
The legislation provides:
- Direct cash payments to individuals and families.
- Large increase in unemployment benefits.
- Temporary student loan forgiveness.
- Loans, grants and payroll tax relief to small- and medium-sized businesses (including tax-exempt entities and independent contractors).
- Aid to hard-hit industries like airlines and hospitality.
- Cash infusion to hospitals and health care systems.
The size and scope of this relief bill is unprecedented. In total, the three COVID-19 response bills exceed the federal government’s discretionary spending budget in a typical year.
Summary of provisions
Aid 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. Delivery of checks is expected to start in early April according to the U.S. Treasury Department.
- Increase in federal unemployment benefits of $600 per week for four months.
- Federal student loan and interest forgiveness through September 2020.
- Waiver of the 10% penalty for retirement plan distributions up to $100,000 made on or after January 1, 2020, and before December 31, 2020.
Aid to businesses and industries:
- $350 billion in aid to small businesses, including non-profit entities and independent contractors, defined as less than 500 employees. Loan applications can be filed now through the Small Business Administration (SBA) programs with funds delivered through participating banks and financial institutions. Businesses can seek aid in the form of new loans, forbearance on payment on existing SBA loans and small emergency cash payments. Funds can be used for business expenses like payroll, paid sick or medical leave, rent, mortgages, and utilities. Businesses will have to certify uses of the loan proceeds. Loans proceeds used to maintain payroll and benefits at pre-COVID-19 levels could be forgiven. Loans are limited to the lesser of $10 million or a company's average total monthly payroll cost for the previous year multiplied by 2.5. On March 17, 2020, the SBA updated its loan criteria and opened its application process for qualifying businesses. Applications for loans can be made at https://www.sba.gov/funding-programs/disaster-assistance. Also, many states are providing access to low-interest loans to small businesses. Furthermore, a small business that does not otherwise qualify for SBA loans may be able to access emergency funds up to $10,000 through participating financial institutions. And last, loan payments due on existing SBA loans under the 7(a) program to qualifying businesses can be suspended for 6 months.
- Payroll tax holiday trough 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.
- Tax credit for keeping workers on the payroll. The credit is to 50% of wages capped at $10,000 per employee and is fully refundable against the company’s share of payroll taxes. 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.
- $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.
- $150 billion to hospitals and health care systems on the front lines of the COVID-19 response.
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.
Start the small business loan application process through the Small Business Association website (for 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 will 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.
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.