Pandemic Lifelines
Pandemic lifelines have arrived from Congress. The crushing financial impact from coronavirus prompted the government to provide $2.2 trillion dollars in the third phase of its response to the escalating crisis, called the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”. Lawmakers provided individuals, small businesses, corporations, and municipalities with much-needed money to cope with the economic fallout from the pandemic.
These measures, along with the Federal Reserve’s emergency actions that are keeping the money flowing throughout the financial system, are not going to prevent a recession. They are meant to cushion the financial blow for the millions impacted by the virus’ spread. This past week, we got the first hard evidence that the nation has essentially shut down. New claims for unemployment insurance soared to 3.28 million, now the highest level on record (the previous record was 695,000 in October 1982). Claims were FIVE times the peak week of 2009 (660,000). The Congressional vote has come in the nick of time for these folks, here’s what the lifeline includes:
Individuals: The government will provide direct payments of $1,200 per adult ($2,400 MFJ) who have income (wages, Social Security, and/or pension) up to $75,000 ($150K MFJ). The amount will phase out for those with incomes up to $99,000 ($198K MFJ) plus $500 per child. Income eligibility for will be based on taxpayers’ 2019 or 2018 tax returns. These payments will not be taxable to recipients, but could be adjusted if you rely on 2018 returns and later find out that your income was beyond the threshold in 2019.
Additionally, the government will enhance unemployment benefits, which are administered by individual states. Benefits are generally a percentage of income over the past year, up to a certain maximum of lost income (about 40-45 percent on average), and most states pay benefits for 26 weeks. The government will provide out of work Americans with an additional $600 per week on top of what state unemployment programs pay, and will extend payments for four months.
Importantly, the emergency lifeline will expand unemployment eligibility to include self-employed independent contractors, freelancers, gig workers, temporary and part-time workers, estimated to be 57 million of the U.S. workforce, or more than a third of the working population who collect $1 trillion in income. These folks have been traditionally been shut out of the benefits and protections that employees or even other small businesses are able to access.
Small Businesses: The government will provide 30 million small businesses (those who have fewer than 500 employees) that employ 60 million workers with a pool of loans, including: $350B in the form of federally-guaranteed loans that would be forgiven over time (if businesses keep workers on payroll during the crisis) and $17 billion for the Small Business Administration (SBA) to cover 6 months of payments for small businesses with existing loans.
These loans will be made by banks and financial institutions to qualifying small businesses and would be guaranteed by SBA. No one loan can be over $10 million and firms will need to certify employee retention and allowable uses of the loan include employee salaries, paid sick or medical leave, insurance premiums, mortgage payments, and any other debt obligations.
Large Corporations: The legislation will provide $450 billion in loans or in loan guarantees to eligible American businesses, states and municipalities. Banks and financial services companies will become agents of the U.S. Treasury to make the loans to qualified businesses. There will also be $58B in loan guarantees to U.S. passenger and cargo airlines, a portion of which could convert to a grant, and $17B for businesses important to maintaining national security.
Companies participating in these programs will be restricted in their ability to engage in buybacks for the term of the government assistance plus 1 year, must comply with limits on executive compensation, and loans cannot be forgiven. They will also have to maintain employment levels as of March 15, 2020 while loans remains outstanding. There will be a new Inspector General and bipartisan oversight board to review all loans made, adding a layer of government oversight and accountability.
Additionally, the plan calls for $240 billion for hospitals and health care service support, a $150 billion Coronavirus Relief fund for state, tribal, and local municipalities, $10B in transportation aid to U.S. airports and $20B to other transportation infrastructure (rail/bus/car).
OTHER STUFF IN THE BILL: Please be sure to check with the various institutions involved with all of these measures, there will be important steps to follow and red tape to complete!
Retirement Plans: For calendar year 2020, no taxpayer will have to take a Required Minimum Distribution (RMD) from IRAs or any employer plans (401(k), 403(b), 457, TSP). The bill also waives the 10 percent penalty on early retirement plan withdrawals, as long as you can prove that you need the money because of the pandemic. You will still owe taxes on the withdrawal amount, but you can spread the tax bill over three years from the distribution date. Finally, the maximum retirement plan loan amount will increase from $50,000 to $100,000.
Student Loans: Early in the crisis, the Department of Education said that it would waive interest on federal student loans for two months. The new law will automatically suspend payments on student loans until September 30. Please note: Perkins, state and private loans are NOT included in this bill.
If you need help navigating the financial part of this national emergency, download the Jill on Money podcast, where I am providing daily updates on the situation. As always, you can send e-mails to me here.