Robert R. Fragnito | Chief Operating Officer | Financial Advisor | Print Version
After intense bi-partisan negotiations in both houses of Congress, President Donald Trump signed into law the largest stimulus package in the history of the United States on Friday, March 27, 2020. The $2 trillion CARES Act, a fiscal stimulus bill, will provide aid to American families, individuals, and businesses who have been affected by the economic impact of the novel coronavirus (COVID-19).
This is the third stimulus package that has been signed into law in the month of March (see our timeline). As rising unemployment and the near shut-down of the US economy is expected to persist until the end of April, the bill comes at a time where individuals and businesses are uncertain about the fate of the US economy.
Efforts by the Federal Government aim to provide a backstop for the economy as we seem to journey into an unknown future. This article provides a guide and resources on what you need to know about the stimulus package.
Overview of the Package
- $269 billion of cash payments to individuals
- $350 billion of loans to small businesses
- $250 billion of social safety nets (extended unemployment insurance and benefits enhancements)
- $500 billion of a loan facility through the Exchange Stabilization Fund (ESF) to distressed industries
- Approximately $300 billion to $425 billion (or higher) special purpose vehicles, including support for health care, aid to state and local governments, funding for education, and corporate tax changes.
Under the stimulus bill one-time payments in the form of checks or direct deposits will be sent to eligible US citizens and residents. Payments will not be equally distributed across all income levels. In certain cases, higher income earners will receive phased out payments or no payments at all.
For single filers who earn less than $75,000 and families who earn below $150,000 Adjusted Gross Income (AGI) should receive the following payments based on 2019 income levels or 2018 tax returns if they have not filed.
- $1,200 payment to individual taxpayers.
- $2,400 payment for married couples filing jointly
- Additional $500 per qualifying child under the age of 17.
Provisions for very low-income earners, those who receive Social Security benefits, or other circumstances are eligible for payments. For additional details please visit the IRS Coronavirus Tax Relief website here .
Retirement Accounts and Plans
The bill also addresses several options for individuals to take advantage of funds in their retirement accounts. If an individual has been affected by the Coronavirus, the 10% penalty on withdrawals from qualified retirement accounts will be waived for distributions of up to $100,000. Income from these distributions will be taxed over a three-year period if they are not recontributed. In addition, taxpayers can recontribute these funds to their qualified retirement accounts without cap requirements on contributions.
For participants in retirement plans, loan limits on these plans have been increased from the $50,000 cap to $100,000. This temporarily waives the standing rule of loans not exceeding 50% of a 401(k) participant’s vested balance.
Required minimum distributions or RMDs on traditional IRAs, SEP IRAs, and 401(k)s for individuals over the age of 72 have been waived for 2020. This provision does not apply to ROTH IRAs.
Small and Large Businesses
Over $850 billion has been allocated by the CARES Act towards loans for small and large businesses.
Small businesses will have access to $350 billion to prevent layoffs and closures during the outbreak. The “Paycheck Protection Program” provides for 8 weeks of cash-flow assistance through the Small Business Administration (SBA) to small businesses with 500 employees or less. Loans will be caped at $10 million not exceeding 4% interest cost and do not require collateral.
These provisions through the SBA also applies to small employers, self-employed individuals, independent contractors and “gig economy” workers. If the small business maintains its payroll and portions of these loans are used to cover payroll costs, interest on mortgage obligations, rent, and utilities—the SBA will forgive these loans.
Large businesses will have access to $500 billion through the US Department of Treasury. Funds from this allotment will be used for loans, loan guarantees, and other investments, but they may not exceed five-years and cannot be forgiven. These provisions of the package are under the scrutiny of the Treasury’s Inspector General.
Employers can also delay payment of their 2020 payroll taxes until 2021 and 2022 which according to the House Ways and Means Committee will provide over $300 billion of extra cash flow for businesses.
Mortgage and Rent Payments
Borrowers with federally backed mortgage loans can request forbearance on their loans for up to six months. Keep in mind, interest still accrues on the loan, but additional fees like penalties or extra interest cannot be applied on these loans. During this period, borrowers cannot be evicted or foreclosed on.
Protection for renters on a general scale are less clear especially from properties whose mortgages are not backed by the government. The bill offers protection from eviction and fees resulting from late payments, but these are only for federally back properties. Concerning private mortgaged properties, municipalities are offering some protections, but this is not widespread.
Unemployment benefits were greatly expanded under the CARES Act. The Federal Government will be adding $600 per week in addition to state benefits for up to four months for individuals. This extends eligibility by 13 weeks (39 weeks total) and waives the seven-day waiting period for unemployment benefits to kick in.
The bill also broadens unemployment benefits to those who typically don’t qualify for these benefits, namely independent contractors like “gig-economy workers” and self-employed individuals. Workers who were furloughed or haven’t been fully laid-off, or those who were unable to work due to the coronavirus are also eligible for these benefits.
Paid Family Leave and Sick Leave
Legislation on paid family leave and sick leave were addressed for workers in small businesses with 500 employees or less in the Families First Coronavirus Response (“FFCRA”) Act. The Department of Labor (DOL) is responsible for administering and enforcing this law.
According to the DOL website, every dollar of required paid leave in addition to the employer’s health insurance premiums during leave will be 100% covered by a dollar-for-dollar refundable tax credit to the employer. Additional details for these measures can be found in the resource guide under the Department of Labor section.
Another facet of the stimulus effort to combat the coronavirus were student loans. The Department of Education (DOE) issued guidance regarding how student could get relief during the emergency. Borrowers of federally held student loans will have interest rates reduced to 0% and suspend payments for at least 60 days. Students who request forbearance on their loans will automatically receive it, it should be noted that this feature is already available to students.
The fallout from the impact of the coronavirus on the US economy will become more evident in the coming months. The unprecedented efforts by the Federal Government to sustain workers and businesses during this time will hopefully mitigate some of the fear over the future of the economy.
In our view, the three-phase stimulus has addressed many underlying issues facing our economy, but there are still more that require attention. Although we seem to journey into an unknown future, we cannot resign ourselves to the fear of the unknown.
We at MCF are monitoring these economic developments closely and will continue to comment during these volatility times. Our faith in our data driven approach enables us to maintain our faith in financial markets. Continue to check-in with us regularly as we provide insight and guidance for our clients.
Please stay safe and stay strong.
Coronavirus Stimulus Resource Guide
Below you will find a collection of links and articles on various topics concerning the stimulus efforts underway by the Federal Government in addressing and countering the economic impact of the coronavirus.
The House Ways and Means Committee
- Ways and Means Committee COVID-19 Resources
- Coronavirus Bulletin: Resources for Leading During the Crisis (GOP Minority Website)
- CARES Act Summary
Senate Appropriations Committee
Internal Revenue Service (IRS)
Small Business Administration (SBA)
- Coronavirus (COVID-19): Small Business Guidance & Loan Resources
- COVID-19 ECONOMIC INJURY DISASTER LOAN APPLICATION
US Department of Treasury
Department of Labor
- Families First Coronavirus Response Act: Employee Paid Leave Rights
- Families First Coronavirus Response Act: Employer Paid Leave Requirements
Department of Education
- Press Release: Delivering on President Trump's Promise, Secretary DeVos Suspends Federal Student Loan Payments, Waives Interest During National Emergency
- COVID-19 ("Coronavirus") Information and Resources for Schools and School Personnel
SoCal Coronavirus Tracking
- Orange County. LA County. Riverside County. San Bernardino County. San Diego County.
- California Department of Public Health
- Timeline: US Action Countering the Economic Impact of the Coronavirus (Updated Periodically)
- A Quick Intro to Behavioral Finance
- Five Things to Remember with Your 401(k) in Volatile Markets
- What Zero Fed Rates Could Mean for You
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The opinions expressed here reflect the judgement of the author(s) as of this date and are subject to change without notice. Information presented here is for informational purposes only and does not intend to make an offer, solicitation, or recommendation for the sale or purchase of any product, security, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy.
Alayna Treene, AXIOS, “How the coronavirus stimulus bill helps you,” March 26, 2020. Wells Fargo Investment Institute: Global Investment Strategy Team, “A $2 Trillion Stimulus Plan—What Investors Should Know,” March 25, 2020; Paul Christopher, “Q&A: How a New Federal Law Aids the Economy,” March 30, 2020. Kelly Anne Smith, Forbes, “Your Guide To The Federal Stimulus Package,” March 27, 2020.