Good Money: What to know about the CARES Act
By: Cassie Rotman, CFP®, MBA at Northwestern Mutual
In case you haven't heard (totally fair, we turn off the news sometimes when it all gets to be too much), the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in late March, many Americans were eager to see how they could benefit from the new stimulus package.
The law is packed with relief measures. But figuring out how to apply for funds — or even knowing if you qualify — has been trickier to navigate. There's no shame in this game, especially if you've hit some financial strain or job loss. YOU ARE NOT ALONE!
Below, we answer some FAQs about the coronavirus stimulus package and how you may be able to take advantage of it.
1. HOW DO I KNOW IF I QUALIFY FOR A STIMULUS CHECK?
Not everyone will get a stimulus payment or get the full amount ($1,200 per individual or $2,400 per couple, plus $500 for each child 16 and younger you claim as a dependent). Whether you qualify to receive money depends on the adjusted gross income (AGI) that was reported on your most recent tax return (2018 or 2019, whichever you filed last). If you make more than the below income thresholds, your stimulus payment will phase out by $5 for every $100 over the threshold. If you have no qualifying dependent children, the AGI starting and endpoints for phase outs are:
$75,000 for single filers. You phase out completely once you reach $99,000.
$112,500 for single heads of household. You phase out once you reach $136,500.
$150,000 for married couples filing jointly. You phase out once you reach $198,000.
If you have children, the AGI starting points are the same, but the amount where you would phase out would be higher the more children you have. For example, if you’re a married couple filing jointly with one qualifying child, you could potentially get up to $2,900 as your stimulus payment. Based on the calculation, you would phase out completely once your AGI reaches $208,000.
2. HOW DO I GET MY STIMULUS CHECK?
Assuming you qualify based on your AGI, you don’t have to do anything if you filed either a 2018 or 2019 tax return. The government will either send a check in the mail to you using the address the IRS has on file, or they will send you the money via direct deposit, assuming you’ve set that up with the IRS. (If you’ve moved since you filed your last return, mail in one of these change of address forms to the IRS.)
3. WHAT IF YOU HAVEN'T FILED A 2018 OR 2019 TAX RETURN?
Then you should file a return as soon as possible (even though the 2019 tax filing date was pushed out to July 15) — otherwise the IRS won’t know to send you a stimulus payment. If you don’t normally file taxes because you aren’t required to, IRS.gov has created an online tool where you can submit your information to receive your payment. Turbo Tax also launched a stimulus registration site where non-filers can fill out a simple tax return that will register your information with the IRS and let you sign up for direct deposit.
If you don’t normally file a return and receive Social Security, there are some special rules that apply to you (see question four below).
4. WHEN WILL I GET MY STIMULUS CHECK?
The earliest estimates are mid-April, but that was assuming you had direct deposit — it could take many more months if you still get a check through the mail. If you don’t have direct deposit set up, the IRS launched a new portal so that you can securely provide your bank information to the agency, as well as track the status of your payment. You can also check back for new information on its coronavirus tax relief page.
5. DO I STILL GET A STIMULUS CHECK IF I COLLECT SOCIAL SECURITY?
If you collect Social Security benefits, you could still get a stimulus payment, assuming your benefits plus your other income qualify you based on your AGI. If you’re a Social Security recipient who doesn’t typically have to file a tax return, the IRS will use the information in your benefits statement instead, so there’s no need to file even a simple tax return. The caveat: You won’t get the extra $500 for any dependents. Also, if you are claimed as a dependent on someone else’s tax returns, you won’t be eligible for a stimulus payment.
6. HOW DO I KNOW IF I QUALIFY FOR A PAYCHECK PROTECTION PROGRAM SMALL BUSINESS LOAN?
The CARES Act created and expanded government-backed loan programs to help small businesses, and one of the most important ones is the Paycheck Protection Program (PPP). It allows small businesses (generally up to 500 employees) that have been impacted by the coronavirus to apply for a PPP loan. Some or all of the loan can be forgiven depending on how many employees you keep on payroll for at least eight weeks after the loan’s origination. Independent contractors, sole proprietors and self-employed individuals can also apply.
Although the borrowing cap for a PPP loan is $10 million, how much you can get depends on a calculation based on your payroll costs. Read more about the Paycheck Protection Program here.
Originally, you had until June 30, 2020 to apply, but funds were on a first-come, first-served basis. The number of applications was so high that the PPP ran out of funding by mid-April. Congress and the White House struck a deal to add another $310 billion to the PPP as part of a larger additional relief package, and it is expected to be signed into law this week.
7. HOW DO I APPLY FOR A PAYCHECK PROTECTION PROGRAM LOAN?
PPP loans are supplied by lenders across the country, but they are administered through the Small Business Administration. The SBA stopped accepting applications when the original PPP funds ran out, but should begin accepting applications again after the new law is passed. You can find the official application here.
You don’t actually apply to the SBA; you submit the application through a local lender. The SBA has a network of about 1,800 lenders that you can find here. In addition to loans under the Paycheck Protection Program, the SBA also has other temporary relief programs to address the coronavirus that you can learn more about here.
Note that individual lenders can require you to fill out their own forms when you apply. Also, be aware that there has been confusion about how the program works, resulting in delays when processing loan requests.
8. HOW IS UNEMPLOYMENT DIFFERENT UNDER THE CARES ACT?
Workers who haven’t traditionally qualified for unemployment benefits may now be eligible through the end of 2020. This includes freelancers, independent contractors and gig-economy workers, like ride-share drivers, for instance. The CARES Act gives states the option to expand their unemployment insurance programs with federal funding. But to qualify for those expanded benefits, you would have to certify that the coronavirus has made you lose work, has reduced your hours or is preventing you from working because you’re providing care for others impacted by COVID-19.
The new federal program also potentially gives people an additional $600 per week for up to four months, in addition to any amount you collect from the state. You may also be able to collect an additional 13 weeks of benefits. You can find out more about the new unemployment rules here.
9. HOW DO I APPLY FOR UNEMPLOYMENT BENEFITS IF I’M NEWLY ELIGIBLE?
You still need to apply for unemployment benefits the same way, through the local unemployment office within your state’s department of labor. Even though the federal government is helping foot the bill for the new aid, states need to agree to provide it and are the gatekeepers who can accept or reject your filing. Each state also has its own rules and guidelines for how much aid you can get and for how long — or even whether you qualify for unemployment benefits to begin with. You can find contact information for your local unemployment office here.
10. DO I HAVE TO KEEP PAYING STUDENT LOANS UNDER THE CARES ACT?
The CARES Act automatically suspends most federal student loan payments and interest from March 13 through September 30, 2020. You don’t have to do anything; you’ll automatically be placed in so-called administrative forbearance. You can continue to pay if you like, but you won’t be penalized for not making payments during this time.
Also, if you were working toward Public Service Loan Forgiveness (PSLF), you’ll remain on track for forgiveness, assuming you’re still working full-time for an eligible employer — each suspended payment will still count toward the 120 monthly payments you have to make to qualify for PSLF.
The loans that qualify are those that are federally held, meaning that they are owned by the Department of Education. If you’re unsure if your federal loan qualifies, contact your loan servicer directly to double check. If you don’t remember who your servicer is, log onto the Federal Student Aid site or call 1-800-4-FED-AID. Also, be sure to check back to the Federal Student Aid’s official coronavirus page for updates.
HOW TO TAKE ACTION:
What Paperwork Do You Need to Get Coronavirus Loans and Aid?
If you’re preparing to apply for unemployment benefits or need a loan for your business, you’re probably already stressed as it is. It’s understandable that you’re not looking forward to navigating a potentially complex application process in order to get the aid you need.
We want to help make the steps ahead for you a little smoother, even in a small way, by outlining the key documents that will likely be required when you apply for economic assistance. With so many people filing for loans and unemployment insurance right now, hold times are long and systems are slow, so being prepared beforehand can help you get what you need when the “on-hold” music stops.
Here are some of the key documents to have ready if you’re applying for unemployment benefits or a loan for your business.
If you're filing for unemployment insurance...
If you’re in a category that wouldn’t have qualified for benefits before the CARES Act, you’ll need to check with your state unemployment agency to determine which benefits are available to you. The application process will also vary from state to state.
However, broadly speaking, it’s recommended you have the following at the ready:
Your Social Security number
Names of all employers since 2018 as they appear on your paystub
Wage documentation, including your most recent tax return
State driver license or identification card
Alien registration card
You may need to provide additional documentation if you are a small business owner, military (Form DD-214) or federal civilian employee (SF-50 or SF-8).
If you're filing for a PPP Loan...
The Paycheck Protection Program (PPP), a provision of the CARES Act legislation recently signed into law, offers businesses forgivable loans of up to $10 million for businesses that hold on to most of their employees. The program’s aim is to replace a portion of revenues lost during mandated closures. To have the loan forgiven, employers must keep their workers employed and paid. The program was launched on April 3, and independent contractors could begin applying April 10. Please note, PPP funds had run out on April 16. However, legislators are in talks to replenish those funds, so you'll want to be ready if that happens.
Here’s a quick, broad checklist of documents to prepare if you’re thinking of applying:
Ownership information (name, title, ownership percentage, EIN/SSN and address)
Payroll costs in 2019
If the business wasn’t in existence between 2/15/2019 and 6/30/2019, you’ll need payroll documentation for 1/1/2020 to 2/29/2020.
You can compile payroll information from a variety of sources: 2019 income tax returns, 2019 Forms 941, 2019 Form W-3 and/or payroll reports from payroll processors.
If you're filing for an economic injury disaster loan...
The Small Business Administration’s Economic Injury Disaster Loan program provides small businesses (fewer than 500 employees) with working capital loans of up to $2 million to help support their businesses after a declared disaster. In response to the coronavirus pandemic, small business owners in the U.S. are now eligible for an EIDL loan advance of up to $10,000.
Here’s what you’ll need if you’re applying for such a loan:
Business owner information
Gross revenues for period between Feb. 1, 2019 and Jan. 31, 2020
Cost of goods sold for the same period
If you have rental properties, lost rent due to the disaster
Compensation from other sources received as a result of the disaster
Number of employees as of Jan. 31, 2020
These are stressful times, but just remember there is assistance available. For a deeper dive into your finances and your options going forward, reach out to an advisor, accountant or tax professional with expertise in finance and regulations.
For additional information, please visit Cassie Rotman’s website
Reach out to Cassie with questions. We can vouch, she's amazing!
Cassie Rotman | Power 10 Advisory Partners | Northwestern Mutual