The CARES Act was signed into law in late March, providing financial assistance for individuals and businesses in these difficult and uncertain times. You may have heard bits and pieces of it mentioned on the news — stimulus checks (which you may or may not be entitled to depending on your household income) and small business loans that can help keep your business afloat. But if you need help, what actions do you need to take to get it?
This is not a complete list of everything under the CARES Act umbrella. If you’re a small business owner who needs help right now, your options really depend on your individual situation.
Provisions for individuals
Recovery rebate
Taxpayers will automatically receive a rebate (either as a direct deposit into your bank account or a paper check mailed to you). The amount you are eligible for depends on a few factors:
- How you file taxes: Individuals and heads of households can get up to $1,200, while married couples who file jointly can get up to $2,400. Parents can also receive $500 per dependent child age 16 or younger.
- Your income: You’ll receive the full amount if your adjusted gross income was $75,000 or less ($112,500 for heads of households, $150,000 if married filing jointly). After that, the rebate amount phases out. Individuals who earned $99,000 or more, heads of households who earned $136,500 or more, or married couples who earned $198,000 or more are not eligible for a rebate.
- Whether or not you filed a 2019 tax return yet: If you haven’t yet filed for 2019 (the deadline to file has been extended to July 15, 2020), your adjusted gross income from your 2018 return will be the number factored into your eligibility. But if you already filed for 2019, that’s the AGI that will come into play. If you qualify in 2018 but won’t in 2019, it may be advantageous to wait to file until the July 15th deadline.
What action do you need to take? None. You’ll either receive the money as a direct deposit into the bank account you provided to the IRS to pay taxes, or you’ll be mailed a check. You can calculate how much you’ll potentially get here.
What happens if you didn’t qualify in 2018 or 2019 but you do in 2020? If you didn’t receive the stimulus check because your income was too high in the previous years, but you do qualify in 2020, this will be added to your 2020 tax calculation. The same thing applies if you grow your family in 2020 and you qualify for an additional $500.
Will I have to repay this in 2020 if I make too much money this year? Once you receive the stimulus check, it won’t be taken back, so this could work to your advantage.
Unemployment Benefits
Not only will unemployment payments increase by $600 per week through July 31, 2020, but people who work part-time, along with self-employed workers, contractors or gig workers, can apply, too. That’s a huge change for the many people who previously didn’t qualify for unemployment. In addition, benefits are extended by 13 weeks in addition to what was given in your specific state.
Remember, unemployment benefits are taxable so you may want to have taxes withheld from your unemployment checks, especially if you think you might be out of work for months on end.
What action do you need to take? File for unemployment directly through your state. Set aside ample time to do this — there’s an unprecedented level of demand right now.
Student Loans
If your student loan is a Direct loan, FFEL loan, or Federal Perkins loan that is owned by the Department of Education, payments are temporarily suspended until September 30, 2020. Interest rates on these loans are set at 0% from March 13th to September 20th of this year. This should go into effect automatically without you needing to do anything. You can go here to check who owns your loans, or you can ask your loan servicer to see if your loan qualifies.
Should I make extra payments while my interest rate is at 0%? You can, but all payments will go to any accrued interest first before the principal, and you likely have other financial priorities right now: paying off credit card debt, building emergency savings, and paying off credit card debt are all better ways to redirect these funds in the short term.
Additionally, if you are repaying your loan through the Public Service Loan Forgiveness program or an Income-Driven Repayment program, you should NOT make any additional payments right now. Why? Because these suspended payments still count as regular payments. You essentially get 6 months worth of $0 payments!
If your employer offers student loan repayment assistance (up to $5,250), this year only, those repayments will not be taxable to you. The details on how the CARES Act is affecting student loans are constantly changing, so you can check out this financial blog post for the most up-to-date information.
Provisions for small businesses
SBA loans
The Small Business Association is offering two types of low-interest loans for small businesses (businesses with less than 500 employees, sole proprietorships, and independent contractors or self-employed workers) that are affected by COVID-19.
- Paycheck Protection Program (PPP): A low-interest loan (currently at 1% but this number keeps changing) that is designed to help you keep your employees on payroll. The loan could be forgiven if you use it to fund payroll costs, mortgage interest, rent, and utilities. Loan payments are deferred for six months. You can find out more about the PPP here. You must apply through a bank so start by reaching out to your current bank where you hold your business accounts.
- Economic Injury Disaster Loans (EIDL): A loan advance of up to $10,000 to help small businesses that are experiencing a temporary loss in revenue. The loan advance doesn’t have to be repaid. You can apply for an EIDL here.
- SBA Debt Relief: If you already have an SBA loan, the loan will automatically go into deferment for six months. That means you won’t be required to make any payments during that time. Talk to your loan officer if you have questions about your specific situation.
- 5-year NOL Carryback: This is one that has received the smallest amount of press, but could be a huge win for business owners that experienced catastrophic losses in 2018, 2019 or 2020. If that is your situation, you can carryback losses for up to 5 years. Here’s an article with more details on this provision. It’s important to work closely with your CPA if you think this may apply to you and your business.
Tax credits
Because small businesses are now required to provide paid leave for employees affected by COVID-19, they are eligible for tax credits to help cover the cost of this benefit. Talk to your accountant about how to claim this credit.
Act now
Any CARES Act provision that requires an application is going to have a lot of demand. People and businesses are struggling to keep their heads above water. Yes, $2.2 trillion has been allocated toward economic relief, and that’s a huge sum of money, but it’s getting divided up considerably.
Only $350 billion is being allocated to small businesses and it is on a first come, first served basis, so act fast. Reach out to your financial planner, CPA, and bank to find out how you can benefit the most regarding your specific business and financial needs during this time.
