The President signed the CARES Act into law on Friday March 27, 2020 after the Senate version was passed by the House of Representatives. The more than two trillion-dollar (that’s 2 followed by twelve zeros) economic relief package is designed to mitigate the economic impact of job loss and loss of economic activity on the overall economy. It’s designed to be a stimulus–designed to put cash into the hands of as many people as possible, shore up businesses, and combat the effects of the pandemic.

The Act touches many areas of the economy and the law overall. Some news outlets have been following the bill, and have made graphics, and done summaries. We’ve actually read the law—which you can also read here. The Congressional Budget Office has not scored the Act, but we know it is expensive, and it is going to take a long time to spend this amount of money through the various programs it touches.

Since it’s a stimulus made to be spent and used, there’s a natural question: how do we make the most of this? I’ll offer some suggestions and some (hopefully) practical advice and ideas so our clients can get ahead of the dollars hitting the streets. This is not going to be a summary—I’m focusing on small parts of this program that will benefit you and your sooner rather than later: (1) direct payments, (2) Unemployment, (3) Small Business Relief, and (4) COVID-19 testing.

Use of retirement funds, suspension of RMDs, charitable contributions to Non-Profits, net loss operating rules, changes to Excess Loss Limitations rules for pass-through entities, and state and local government units in later posts.

A. How do you get paid?

  1. Testing and Vaccines for COVID-19

All testing and potential vaccines for COVID-19 will be covered at no cost to patients. So if there is testing availability, get tested, especially if you’re in a high-risk group without worry about how you are going to pay for it.

2. Direct Payments.

Calculate your rebate for free here. If you are a qualifying, taxpaying family married filing jointly, with adjusted gross income below the threshold and two qualifying dependents, you can expect a rebate of $3,400.00.

Direct payments: Americans WHO FILE FEDERAL INCOME TAX RETURNS with earned income, social security recipients, and pensioners all have “qualifying income” to receive the cash payments in the form of a direct tax credit. The will receive a one-time direct deposit of up to $1,200, and married couples will receive $2,400, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples.

There is no application process; the direct payments are in the nature of a tax rebate under the Internal Revenue Code. If the IRS already has your banking information from your 2019 Income Tax Return, you will receive the funds electronically. If not, you should expect a paper check that does not come as fast as an electronic payment.

If the IRS does not have your banking information, but the Social Security Administration does, you can likewise expect an electronic deposit.

Most individuals and families who have filed a 2019 income tax return will receive these payments by April 21st.

If you have not yet filed a 2019 Federal Income Tax Return, your eligibility will be calculated based on your 2018 federal income tax return, but could be delayed.

If you have not filed an income tax return for 2018 or 2019, you should do so immediately to receive the payment. This credit expires on December 31, 2020, and will not be extended. Sec. 2101(g)(3). It is uncertain if late filers will be entitled to the credit. The deadline for filing a federal income tax return for 2019 is July 15, 2020.

If you are subject to a federal recoupment, offset, owe an existing tax liability, or if you owe a child support obligation, you will likely NOT receive this credit, until the liability is satisfied.

3. Unemployment

The Act provides $250 billion for an extended unemployment insurance program and expands eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. It also extends unemployment insurance benefits through December 31, 2020 for eligible workers.

The Act now APPLIES to the self-employed, independent contractors, and gig economy workers.

Unless you are a federal employee, you need to apply for unemployment benefits through your state unemployment insurance agency. In Michigan, the Unemployment Insurance Agency has established rules for application dates. You can view those here.

Remember that false claims of unemployment that result in a determination of intentional misrepresentation or fraud carry heavy penalties, including: (a) being required to repay UIA four (4) times the amount of unemployment benefits you wrongly received, (b) retroactive interest calculations, and (c) non-dischargeability in bankruptcy. So make sure to have your layoff or firing date in-hand when you apply online.

If you’ve already applied for unemployment benefits, you do not need to re-apply to receive the benefit of the stimulus.

4. Small Business Owners

$350 billion is being dedicated to preventing layoffs and business closures while workers have to stay home during the outbreak. Companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to eight (8) weeks of cash-flow assistance.

Economic Injury Disaster Loans (EIDL). New EIDL business applicants in every state and territory are now eligible to apply for Economic Injury Disaster loans. Loans are up to $2M, The term is 30 years, Interest Rates are 3.75% for small business and (2.75% for non-profits), The first month’s payments are deferred a full year from the date of the promissory note.

If employers maintain payroll, the portion of loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.

EIDLS can be approved by the SBA based solely on an applicant’s credit score (not repayment ability and no tax return is required). A prior bankruptcy doesn’t disqualify you.

EIDLS smaller than $200,000 can be approved without a personal guarantee. They are also not requiring real estate as collateral and will take a general security interest in business property.

Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss.

It expands access to sole proprietors or independent contractors, as well as tribal businesses, cooperatives, and ESOPs with fewer than 500 employees and all non-profits including 501(c)(6)s.

Keep your books really, really well during this period of time because of the forgiveability of portions of the loans to be used for specific purposes.

The $10,000 emergency cash grants are valuable. Applicants can get the emergency cash even if they don’t qualify for additional funds.

Your existing SBA loan. There is immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months.

Payroll taxes: The measure allows employers to delay the payment of their portion of 2020 payroll taxes until 2021 and 2022.

Apply for Small Business Emergency Relief here.

B. What do you do with the money?

  1. Business relief.

If you’re applying for an EIDL, it makes sense to use the proceeds to pay to maintain payroll, cover payroll costs, pay interest on mortgage obligations, and pay rent and utilities. Those items may be eligible for loan forgiveness. Another good idea would be to pay off higher-rate inventory loans, credit cards, and operating capital loans, if possible, in order to reduce monthly cash flow obligations to those loans.

2. Individual stimulus.

Pay debt? Save? Invest? Buy consumer goods? Do much-needed service and maintenance? Donate to a charity? Any of these things are good choices, but depend on your individual financial considerations. If you are in debt at high interest rates, then the best move is to mitigate interest hemorrhaging. If you need the tax deduction, then use case to make charitable donations. You could use the money for longer-term benefits, like buying investments for the future, or using the money to cover the costs of refinancing mortgage obligations to lower the amount of interest you pay over time. We can recommend a financial advisor to help you navigate the ins and outs of getting the biggest bang for your buck.