The CARES Act Stimulus Package – What Does it Mean?
On March 27 2020, the President signed legislation that will allocate a significant amount of funding to help support the U.S. economy and workers throughout the COVID-19 pandemic.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a daunting 880-page document, and while it provides aid to both individuals and business owners, many wonder how exactly the CARES Act will affect them.
Small Business Relief
The CARES Act aims to support American small businesses – employing 500 or fewer employees in a number of ways:
The Paycheck Protection Program, will distribute $350 billion to small businesses with 500 or fewer employees. Business can receive loans up to $10 million, based on payroll data between January 1 and February 29. The loans will carry an interest rate up to 4% and provide for an expedited origination process. These are partially forgivable loans if the awarded companies meet certain requirements. If a company can demonstrate that the awarded funds were used for the designated purpose (for instance: sustaining payroll, rent, mortgage payments) and maintains the average size of its full-time workforce based on when the loan was awarded, the principal may be forgiven, and the employer will only be liable to repay the accrued interest on the loan.
These loans will be given out by SBA-approved private lenders and are scheduled to launch on Friday, April 3, 2020. Banks are still getting the program up and running so check with your local bank to see if they have the program in place. Banks that are already approved SBA lenders may be quicker to get the loan program in place.
The CARES Act also lifts some restrictions for other SBA programs, such the Emergency Injury Disaster Loans, and makes it easier and more attractive for lenders to participate. The SBA has streamlined the loan application process for business owners, and applicants are able to apply for a $10,000 advance. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.
If you wish to apply for the advance on your disaster loan, go online and visit www.SBA.gov/Disaster as soon as possible to fill out a new, streamlined application. In order to qualify for the advance, you need to submit this new application even if you previously submitted a disaster loan application.
And finally, the Small Business Debt Relief Program will provide relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law.
Other provisions of the Act include a 50% refundable payroll tax credit on worker wages will further incentivize businesses to retain workers. The Act also loosens operating loss-reduction rules, allowing businesses to offset more. There is also a delay in employer-side payroll taxes for Social Security until 2021 and 2022.
Businesses can find more information, including a Small Business Owner’s Guide to the CARES Act, on the Alameda County Small Business Development Center’s website. Businesses are encouraged to reach out the Alameda County SBC for assistance in applying for loans. You can also click HERE for a full text version of the CARES Act.
Individual Stimulus Checks
For the average American, the stimulus package will provide funds in amounts on a sliding scale based on income. Someone who earns up to $75,000 a year will receive a direct payment of $1,200. Someone who earns more than $75,000 will receive a lesser amount, based on that income. Married couples who file jointly will receive $2,400 with a combined income of $150,000 or less. Parents who qualify according to these parameters will also see payments of $500 for each child under the age of 17. So, a family of four with a combined income of $150,000 or less will in all likelihood receive a payment for $3,400.
Single Americans who earn more than $99,000 will not receive a stimulus payment. Couples who earn more than $198,000 jointly will also not qualify for a payment.
What is the purpose of these disbursements? Because of the global epidemic and economic crisis, this stimulus package aims to try to stabilize the economy and provide a sense of security to its residents. The idea is to put money in people’s pockets to spend now, when spending is needed. It also aims to protect private credit markets to keep money fluid between borrowers and lenders.
The disbursements will be distributed automatically, using the mailing address or direct deposit information from your 2019 tax return. If you had not yet submitted a 2019 return, 2018 returns will be used.
The CARES Act also makes modifications to unemployment packages, as the number of applications is rapidly increasing. The average 26-week benefit period would be extended to 39 weeks, and an additional $600 would be added on top of the typically calculated weekly benefit award. In California, the maximum weekly award is $450. Under the CARES Act, that award would be $1,050. Sole proprietors and self-employed workers are also eligible for expanded unemployment insurance benefits.
This post is intended to serve as a general overview of the Act as it currently stands. Individuals and businesses are encouraged to contact their tax professionals, the Alameda County Small Business Development Center, or the U.S. Senate Committee on Small Business and Entrepreneurship for more detailed information prior to making business or personal decisions.
For a comprehensive list of San Leandro-specific resources and updates, visit San Leandro’s COVID-19 Resources and Guidance for Small Businesses and the City of San Leandro’s COVID-19 Response Page.
And, as always, don’t hesitate to reach out to Economic Development Manager, Katie Bowman, at firstname.lastname@example.org with any questions or concerns.