Key Provisions in the CARES Act
The new law expands unemployment benefits dramatically, with an additional federal payment boosting normal benefits. Here are the details:
In addition to normal state benefits, an additional $600 per week will be paid to individuals for up to four months. This boost will help individuals earn around the median weekly wage; Senate Minority Leader Chuck Schumer, D-NY, recently said on CNN it will help most individuals get their full salary, or “very very close to it.”
Benefits will last longer too. Regular state unemployment eligibility of 26 weeks has been expanded by an additional 13 weeks, for a total of 39 weeks.
The package expands unemployment insurance to those who don’t typically qualify: Gig economy workers who are classified as independent contractors and self-employed individuals.
Individuals who haven’t been laid off, but can’t work due to a variety of reasons related to COVID-19, would also be eligible for unemployment checks. These reasons would include a case where they were diagnosed with COVID-19, were awaiting a diagnosis, or had a family member diagnosed with the disease; Individuals who were scheduled to start a job and could not because their future workplaces had been shut down due to the COVID-19 pandemic, would also be eligible. Additionally, individuals whose head of household died directly due to COVID-19 will be eligible.
Workers who are furloughed, but haven’t been fully laid off, are eligible.
The 7-day waiting period before an unemployed worker can get benefits, which is a standard feature of most states’ unemployment systems, is being waived to help individuals receive cash as quickly as possible.
If you’re considering filing for unemployment, there are other provisions experts recommend considering first, like exhausting paid sick leave (which could end up paying you more than unemployment insurance). Keep in mind there are already reports of unemployment offices experiencing an overwhelming number of calls, which might stall the process of enrolling and receiving payments.
Paid Family Leave
The new law expands the family leave provided in the Families First Coronavirus Response Act that President Trump signed into law on March 18. That bill covers workers in businesses with fewer than 500 employees. Those covered by the act can get up to 12 weeks of family leave (with the first two weeks unpaid) if they must stay home with children whose schools and day care centers have closed because of the pandemic.
The expansion allows individuals who were laid off on or after March 1, but then rehired before the end of 2020, access to this family leave. (To be eligible for this leave, they need to have worked in that job 30-60 days before the initial layoff).
The benefit paid to individuals eligible for this family leave is two-thirds of pay, with a maximum of $200 per day, or an aggregate $10,000 per worker. In other words, it can be a maximum of $1,000 per week. (Employers cut the family leave checks and then get reimbursed by the federal government through the IRS.)
Paid Sick Leave
Employees (both part-time and full time) will get 80 hours of paid sick leave at full pay, capped at $511 per day, or an aggregate $5,110 per worker, with part-timers receiving a proportionate number of hours. Individuals who are unable to work or telework because they are under medical quarantine or treatment for COVID-19, suspect they have the illness or are ordered to quarantine at home are eligible for the pay.
Additionally, individuals who are staying home to care for someone else who has COVID-19 or is suspected of having it, or who have a child whose school or day care is closed because of coronavirus, are eligible for two-thirds of pay capped at $200 per day, or an aggregate $2,000 per worker.
Mortgage and Renter Relief
Borrowers with federally backed mortgage loans—loans under Fannie Mae and Freddie Mac—who are experiencing financial hardship due to COVID-19 can request forbearance on their payments for up to six months. Borrowers must submit a request to their servicer and affirm that they’re experiencing a financial hardship during the crisis. Additionally, no foreclosures or evictions from properties with federally backed mortgages can occur during this period.
During the mortgage forbearance period, interest will still accrue. However, additional fees, penalties or extra interest cannot be added to mortgages.
Renters have some eviction protection, but only if they live in a multifamily building or single family home that has a federally backed mortgage. Landlords cannot evict tenants of these buildings or charge any late fees, penalties or other charges for late rent payments.
Student Loan Relief
The Department of Education implemented student loan relief measures last week. The stimulus package expands those measures, giving protection to borrowers pursuing loan forgiveness programs and those who have defaulted loans.
Interest will not accrue on federal student loans from April through September 30 and no payments must be made.
Even though payments are suspended during this time period, the Department of Education will treat it as if the borrower made a payment toward public service loan forgiveness or other forgiveness programs.
Borrowers who are in loan rehabilitation programs will also have the suspension period count toward rehabilitation. These programs are for borrowers working to pull their loans out of default.
Credit reports and scores will not be impacted during the suspension of payments period.
Wage garnishment and tax refund seizures will be halted during the forbearance period.
Additionally, the Department of Education announced on Wednesday it will be refunding approximately $1.8 billion in offsets to more than 830,000 borrowers. The announcement also requires private collections agencies to stop pursuing defaulted borrowers through such methods as phone calls, collection letters and billing statements.
Retirement Plan Changes
Normally, individuals who withdraw funds early from retirement accounts early (typically before age 59 1/2) must pay a 10% penalty as well as ordinary income taxes. The stimulus relief package, however, provides that “coronavirus-related” distributions of up to $100,000 will be allowed, without the early withdrawal penalty being applied. The sum withdrawn may be re-contributed to a retirement account within three years, without being subject to the usual annual contribution caps. If it’s not repaid, the withdrawal will be taxed at ordinary income tax rates over a three-year period.
In addition, the limit for retirement plan loans has been temporarily raised from the normal $50,000 to $100,000, while the current rule that loans may not exceed half of a 401(k) participant’s vested account balance has been waived.
Payroll Costs Paycheck Protection Program Can Be Used to Cover
In total, there is about $350 billion set aside for the PPP. There are some crucial stipulations and limitations on what you can use PPP funds for and who’s eligible. Here are some of the payroll expenses you can utilize PPP loan funds for:
Salary or wages, payments of cash tips
Vacation, parental, family, medical and sick leave
Health and retirement benefits
State and local taxes
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One of the key stipulations is that eligible payroll costs do not include annual compensation in excess of $100,000 for individual employees. The total loan amount also has some limitations. The loan amount is the lesser of the total average monthly payroll costs for the preceding 12 months, which would be March 2019 to February 2020, multiplied by 2.5, or $10 million, which is the maximum amount for these loans.
Another important aspect is that you’ll need to have good faith certification. What this means is that you will need to certify the loan will be used to support ongoing operations and the funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments.
Paycheck Protection Program Loan Forgiveness
The full amount of the PPP loan can be forgiven based on abiding by some parameters. One of the overriding stipulations is that the program wants to see you have the same or more employees during the period as you did last year. Cutting your workforce has consequences. For instance, the loan forgiveness amount can also be lowered if you reduce the pay of any employee by more than 25% as of the last calendar quarter. The good news is that, if you re-hire workers that you laid off before June 30, 2020 due to the impact of COVID-19 crisis, you may not be penalized for having a reduced payroll earlier during the relevant period. If you wish to apply for loan forgiveness, you need to submit documentation to your lender, and you’ll receive a decision within 60 days.
The PPP is working on an expedited rate when compared to the usual time to takes to apply and receive funds. In fact, SBA-preferred lenders will begin taking applications this week. The whole idea is to get money into the hands of businesses quickly that are struggling. What’s more, the program plans to disperse the funds within a three-week period.
As of this date, the final rules have yet to be written or are still under interpretation and subject to change.