Understanding the Coronavirus Aid, Relief and Economic Security Act

This article originally appeared at usaa.com/community 

I've read these words in a lot of different places: These are unprecedented times. I can't argue.

We are all living in them and looking forward to the time when we will be able to look back and reflect on how we came together to win this fight. Overcoming the novel coronavirus pandemic requires that we all do our part.

As individuals, it could be as simple as following social distancing guidance, not panicking and being good neighbors and friends. For our government, that means enacting monetary and fiscal moves to keep the economy on the rails until we get to a better place.

The recently passed $2 trillion CARES (Coronavirus Aid, Relief and Economic Security) Act is the biggest fiscal move yet and delivers a wide range of relief. The law is laid out in approximately 250 pages of text. Here, I'll use about two pages to highlight some of the major provisions for individuals and small businesses.

Benefits for Individuals

Direct cash payments. If you're eligible, the "recovery rebate" checks should be in your hands soon. At $1,200 per person and $500 per eligible child (under age 17), these payments will provide individuals and families with a small measure of relief. Beware of scams suggesting the need to apply for these rebates; no application is necessary.

Expanded unemployment benefits. By both expanding eligibility rules -- for example, including self-employed and independent contractors, and expanding benefits by up to $600/week for four months, as well as extending the overall length of benefit eligibility (13 additional weeks) -- these provisions will help the millions who have lost their jobs. While the federal government will fund these enhancements, the programs will continue to be run by your state unemployment agencies. So, seek assistance and clarification through those offices, and be patient.

Student loan provisions. Federal student loan payments are suspended. This applies only to direct loans and FFEL loans held by the Department of Education. Interest will not accrue and, for credit scoring purposes, will be reported as current. Learn more at studentaid.gov.

Eviction moratorium and mortgage forbearance. Properties lived in or owned with federally backed mortgages (VA, Fannie Mae, Freddie Mac, etc.) will be subject to a 120-day eviction moratorium for non-payment (ends July 24, 2020) and forbearance (for the property owner) of the mortgage payment. Only scheduled interest will accrue while the payment is not made. This forbearance provision is for 180 days. Again, the loan will be considered current for credit reporting purposes. If you're not sure whether your loan qualifies, contact your mortgage servicer.

Easier access to retirement funds, such as 401(k)s. First, the law doubles what you can take as a loan from your employer plan. Previous rules allowed for loans of the lesser of 50% or $50,000, and that has been doubled to 100%, or $100,000, of your vested balance. Next, the law allows you to make up to $100,000 for coronavirus-related distributions without an early withdrawal penalty. You'll still have to pay ordinary income tax but will be able to spread the payment out over three years. To qualify for the distribution, individuals need to fall into one of two main categories: You, your spouse or a dependent is diagnosed with COVID-19, or you experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care or closures related to the coronavirus pandemic.

Eliminates 2020 RMDs. If you normally must take a Required Minimum Distribution (RMD), you don't have to this year. That's a good thing, as you don't want to be forced to unnecessarily sell what could be a hard-hit portfolio. Also, those who turned age 70½ last year (2019) and who had planned to take their first RMD by April 1, 2020, are eligible for this waiver.

Benefits for Small Business

Expanding Small Business Administration programs (visit www.sba.gov to learn more)

Access to SBA. The law creates access to SBA programs for newer businesses and lightens eligibility requirements. Sole proprietor, self-employed, gig economy workers may now be eligible. The idea: Help small businesses keep the lights on and employees working during this difficult time.

Forgivable SBA loans. A new SBA Paycheck Protection Program rolled out as part of the law will offer loans of up to 2.5 times average monthly payroll. The portion of the loan used for payroll, rent, mortgage interest and utilities will be forgivable, and loan payments will be deferred for six months.

Economic Injury Disaster Loans & Grants. Normally a part of natural disaster relief, this program is being used to deliver working capital to small businesses, including a new $10,000 advance that will provide immediate (within 3 days) relief for suffering businesses and does not have to be repaid. Visit the SBA website for a streamlined application. The application is made directly to the SBA, not your local bank, and the application form is now available at: https://covid19relief.sba.gov/#/ .

Small Business Debt Relief. The SBA will pay the principal and interest of new 7(a) loans issued prior to Sept. 27, 2020, and current 7(a) loans for six months.

Employee retention credits. Employers will receive tax credits for their portion (6.2%) of the payroll tax they pay. This is capped at 50% in the first $10,000 of eligible wages.

That's a very brief summary of some of the many provisions of the new law. For more information on the host of small business-targeted programs, visit the SBA website and www.treasury.gov/cares.

Given the magnitude of the situation, it's safe to say that more relief will follow. Stay well.

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