The CARES Act Overview

This overview of the $2.2 trillion CARES Act of March 27, 2020 is for informational purposes only and should not be construed as financial advice. Discover customer service agents do not have additional information about the CARES Act and cannot answer related questions. For more info: Link to IRS Cares Act information pagehttps://irs.gov/coronavirus.

Because millions have lost income due to the COVID-19 emergency, the CARES Act provides Americans with a $1,200 (or $2,400 for married taxpayers filing jointly) payment for taxpayers with adjusted gross incomes up to $75,000 (or $150,000 for married taxpayers filing jointly). For taxpayers who have children, they will receive an additional $500 per child. These payments are available for those with no income, those who are receiving up to $75,000, and those whose income comes from non-taxable means-tested programs like SSI.

For most taxpayers, they do not have to take any action to receive the payment. The Internal Revenue Service will use information from taxpayers' 2019 or 2018 tax returns to determine eligibility. For taxpayers whose income exceeds the $75,000 threshold, they will still be eligible for the payment, but their payment will be reduced by $5 for each $100 in income that exceeds the phase-out threshold. Those single filers with incomes exceeding $99,000, head of household filers with one child with incomes exceeding $146,500, and joint filers with no children with incomes exceeding $198,000 are not eligible for the payments.

Information on the program can be obtained from the following resource:

Link to IRS Stimulus information pagehttps://www.irs.gov/coronavirus/economic-impact-payments
Internal Revenue Service

The CARES Act expands unemployment benefits by increasing the amount of benefits paid, extending the number of weeks of jobless benefits that workers can receive, and making more workers eligible for benefits. Individuals who are self-employed, freelancers, gig workers, independent contractors, part-time workers, and those with limited work history are typically not eligible for unemployment benefits. But the CARES Act enables these workers to receive benefits if they are unable to work due to the COVID-19 emergency. Eligible employees will receive an extra $600 per week in unemployment benefits in addition to benefits they are entitled to under existing state programs. These supplemental payments will cover the next four months with an expiration date of July 31, 2020. For individuals who remain unemployed after exhausting their state unemployment benefits, the CARES Act provides benefits to eligible workers for an additional 13 weeks through the state programs.

Information from the Department of Labor can be obtained from the following resource:

Link to Department of Labor CARES Act information pagehttps://www.dol.gov/coronavirus
Department of Labor

Homeowners who have federally backed mortgage loans and are suffering financial hardship due to the COVID-19 emergency can request a forbearance of up 360 days. Federally backed mortgage loans means any loan that is secured by a first or subordinate lien on residential real property (including individual condominium and cooperative units) occupied by one to four families and is:

  • insured by the Federal Housing Administration or the National Housing Act;
  • guaranteed under the Housing and Community Development Act, the Department of Veterans Affairs, or the Department of Agriculture;
  • made by the Department of Agriculture; or
  • purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.

If borrowers affirm they are suffering a COVID-19-related hardship, the CARES Act requires servicers of federally-backed mortgages to grant forbearance for up to 180 days, which can be extended for an additional 180 days if the hardship continues. During the forbearance, no fees, penalties, or interest may accrue beyond the amounts scheduled or calculated as if the borrower made all contractually required payments on time and in full under the terms of the mortgage. If you are suffering a hardship due to COVID-19, contact your mortgage servicer to see if you are eligible.

Servicers of federally backed mortgage loans also are prohibited from initiating any judicial or non-judicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or foreclosure sale for at least 60 days beginning on March 18, 2020.

Information from the Consumer Financial Protection Bureau can be obtained from the following resource:

Link to Consumer Financial Protection Bureau CARES Act information pagehttps://www.consumerfinance.gov/coronavirus/ Consumer Financial Protection Bureau

Because consumers may work with lenders to defer loan payments or agree to other accommodations during the COVID-19 emergency, the CARES Act addresses concern about potential impact on consumers' credit reports in some circumstances. If a creditor agrees to defer payments, forbear on any delinquent account, or provide any other relief during the emergency, the creditor must report the account as current to the credit reporting agencies as long as the consumer makes required payments under the program. If the account was delinquent before the accommodation, the creditor must continue to report the account as delinquent during the program unless the consumer brings the account current during the program. In that case, the creditor must report the account as current.

The credit report protection applies from January 31, 2020 and will end on the later of 120 days after enactment of the CARES Act or 120 days after the date the national emergency declaration related to COVID-19 is lifted.

Information from the Consumer Financial Protection Bureau can be obtained from the following resource under "Protecting Your Credit":

Link to Consumer Financial Protection Bureau CARES Act information pagehttps://www.consumerfinance.gov/coronavirus/
Consumer Financial Protection Bureau

The CARES Act lifts early withdrawal penalties for COVID-19-related distributions from qualified retirement plans. A COVID-19-related distribution is one made by individuals who have tested positive for COVID-19, have a spouse or dependent diagnosed with COVID-19, or have experienced adverse financial consequences related to being quarantined, work closures, and other COVID-19-related circumstances. The 10% penalty for early withdrawals (i.e., before the participant reaches age 59 1/2) from tax-favored retirement plans is waived for COVID-19-related distributions in 2020 up to $100,000. If the distribution is taxable, the distribution can be included in income over three years beginning in 2020. Individuals may recontribute the amounts withdrawn to the retirement plan within three years without regard to that year's cap on contributions. The CARES Act includes other measures to provide flexibility for loans from qualified retirement plans. Required minimum distributions for individual account plans (but not defined benefit plans) are waived for 2020.

To encourage Americans to support charitable organizations, the CARES Act creates an above-the line deduction for charitable contributions up to $300, whether they itemize their deductions or not. Another provision suspends the 50% limit of adjusted gross income for cash contributions in calendar year 2020.

The CARES Act directs the Department of Education to automatically suspend payments on Direct Loans and the Federal Family Education Loans held by the federal government through September 30, 2020. During the suspension period, no interest will accrue on the covered loans, the suspended payments will count as "qualifying payments" for borrowers working toward forgiveness under Public Service Loan Forgiveness or income-driven repayment. The suspended payments also will count as qualifying payments for borrowers rehabilitating defaulted loans. The Department of Education must report suspended payments to the credit reporting agencies as if the borrower made the monthly payments. During the suspension period, the CARES Act requires the Department of Education to stop all involuntary collections of defaulted student loans, including wage garnishments, Social Security garnishments, and tax refund offsets.

Note that the suspension of payments does not apply to older Federal Family Education Loans held by commercial lenders and campus-based Perkins loans. Private education loans also are not covered.

Information from the U.S. Department of Education and Consumer Financial Protection Bureau can be obtained from the following resources:

Link to U.S. Department of Education CARES Act information pagehttps://studentaid.gov/announcements-events/coronavirus
U.S. Department of Education

Link to Consumer Financial Protection Bureau CARES Act information pagehttps://www.consumerfinance.gov/coronavirus/
Consumer Financial Protection Bureau

The CARES Act provided $350 billion through the paycheck protection program designed to help small businesses maintain employees and to provide funds to keep their operations running. Due to high demand for the loans, the original $350 billion was quickly depleted. The federal government provided an additional $310 billion in funding, but it is unclear how long this additional funding will last. Loan recipients can use the loans for payroll support, paid sick or medical leave, insurance premiums, and mortgage, rent and utility payments. This initiative temporarily expands the U.S. Small Business Administration's (SBA) 7(a) loan-guarantee program and will provide 2.5 times the borrower's average monthly payroll costs, up to $10 million in loans. The following types of organizations are eligible:

  • Small businesses with 500 or fewer employees;
  • Small businesses that otherwise meet the SBA's applicable size standards;
  • 501(c)(3) nonprofits with 500 or fewer employees;
  • 501(c)(19) veteran's organizations that meet the SBA's applicable size standards;
  • Tribal business concerns that meet the SBA's applicable size standards;
  • Individuals operating as sole proprietors, independent contractors, or otherwise self-employed.

The paycheck protection program will be administered through SBA 7(a) approved lenders. During the application process, eligible borrowers must certify that the loan is necessary to help sustain operations during the economic downturn caused by the COVID-19 emergency and that they will use the funds to retain workers and fund payroll, lease, and utility payments. The maximum interest rate on the loans is 4%, and loans provided will be deferred for at least six months and up to a year. The SBA is releasing guidance about loan details and the deferment process.

Small businesses that receive payroll protection program loans will be eligible for loan forgiveness equal to the sum of the following expenditures paid during the eight-week period after the date of the origination of the loan:

  • Payroll costs;
  • Interest payment on any mortgage incurred prior to February 15, 2020;
  • Payment of rent on any lease in force prior to February 15, 2020; and
  • Payment on any utility for which service began before February 15, 2020.

The amount forgiven cannot exceed the amount of the loan. Loans that are forgiven will not be included as taxable income for the borrower.

UPDATE: Visit the SBA website for more details about the status of funding for the program.

Information on the program can be obtained from the following resources:

Link to Small Business Administration Coronavirus relief information pagehttps://www.sba.gov/funding-programs/loans/coronavirus-relief-options
Small Business Administration

Link to Department of the Treasury Assistance information pagehttps://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
Department of the Treasury

In addition to small business interruption loans, the CARES Act provides expanded access to Economic Injury Disaster Loans for struggling small businesses through the SBA. Currently, eligible small businesses in all U.S. states and territories can apply for the disaster assistance of up to $2 million in loans to cover fixed debts, payroll, accounts payable, and other expenses. Eligible small businesses include businesses with 500 or few employees, agricultural cooperatives, and private nonprofit organizations that meet the SBA's industry-specific size. Individuals operating as sole proprietors and independent contractors are also eligible. The interest rate on loans for small businesses is 3.75% and 2.75% for non-profits.

Eligible small businesses experiencing a temporary loss of revenue and in need of immediate access to funds can apply for an advance of up to $10,000, which will not have to be repaid. If approved, the funds will be dispersed within three days of loan approval.

UPDATE: High demand for economic injury disaster loans related to COVID-19 exhausted the amount funded for the program. The federal government has provided additional funding, but it is unclear how long the additional funding will last. Visit the SBA website for more details.

Information on the program can be obtained from the following resources:

Link to Small Business Administration CARES Act information pagehttps://www.sba.gov/disaster-assistance/coronavirus-covid-19
Small Business Administration

Businesses that were forced to fully or partially close due to the COVID-19 emergency may be eligible for a refundable payroll tax credit for 50% of wages paid to employees. The credit is available to employers whose operations were ordered to fully or partially close due to COVID-19 or its gross receipts declined by more than 50% when compared to the same quarter last year. The credit is based on qualified wages paid to employees. For businesses with more than 100 full-time employees, qualified wages are wages paid to employees when they are not working due to COVID-19-related shutdowns. For businesses with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the business is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Information from the Consumer Financial Protection Bureau can be obtained from the following resource:

Link to Internal Revenue Service CARES Act information pagehttps://www.irs.gov/coronavirus/new-employer-tax-credits
Internal Revenue Service

Businesses and self-employed individuals can choose to defer payment of the employer share of the Social Security tax that they would otherwise be responsible for paying. Businesses typically must pay a 6.2% Social Security tax on employee wages. If businesses choose to defer payment, they must pay the employment tax over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

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