The CARES Act: Easing the Pain of COVID-19

On March 29, President Trump announced a 30-day extension of mitigation efforts to slow the spread of COVID-19. We New Yorkers have a hard time sitting still during the best of times, and this missive may make some of us feel like climbing the walls. We can always fill the time by reading all 880 pages of the $2 trillion Coronaviris Aid, Relief, and Economic Security Act, known as the CARES Act, signed into law by the President on March 27. For those not so inclined, we offer a Cliff Notes version. Kudos to both sides of the congressional aisle for coming together so quickly to pass the much-needed legislation, as the COVID-19 emergency spurred them to set aside partisanship sniping to focus on helping those who need it most.

The CARES Act gives individuals and families relief through direct payments of $1,200 to all those who earn up to $75,000, (based on their 2019 or 2019 income tax return) plus an additional $500 per child under age 17. Those whose earnings exceed $75,000 also will receive benefits, but they taper off and are capped at $99,000 in annual income. (The formula is a loss of $5 for every $100 over the $75,000 threshold.) Workers who have lost their jobs are eligible for extended state unemployment benefits for 39 weeks, plus $600 per week of Federal Pandemic Unemployment Compensation for an additional four months, and members of the gig economy are eligible to receive benefits as well.

Businesses can avail themselves of loans, in a $550 billion provision from the U.S. Treasury Department, and a separate $350 billion provision grants low-interest loans (referred to as “paycheck protection loans” to businesses with fewer than 500 employees that avoid laying off their employees. These loans have a maximum maturity of 10 years, are not subject to the usual Small Business Act fees, and do not require a personal guarantee by the owner. Larger corporations will benefit from a $500 billion relief fund, with $425 billion of that directed to distressed companies and $75 billion for the travel and leisure industry and other industries that have been particularly hard hit.

Taxpayers younger than 59 ½ who incur expenses associated with coronavirus are allowed to take a distribution from their retirement accounts, free from the 10% penalty usually assessed for early withdrawals. This provision covers those who are diagnosed with the virus, a spouse who is diagnosed with it, or anyone who experiences adverse financial consequences from it (laid off, reduced hours, lacking child care, etc.) Also, the amount individuals may borrow from retirement plans is increased from $50,000 to $100,000 for the six-month period after the CARES Act becomes law (ending September 30, 2020). Finally, those who are 70 ½ and thus are subject to the required minimum distribution (RMD) requirement from retirement plans have the RMD requirement waived for 2020. This benefits retirees whose portfolios were slashed by nearly 30% in value as the stock market plummeted—the RMD amount is based on the value as of December 31 in the prior year—as forcing them to take distributions would further deplete their retirement portfolios.

Even the well-heeled will benefit. Many taxpayers saw charitable deductions eliminated in the Tax Cuts and Jobs Act of 2017 (TCJA), as their standard deduction was increased to $12,000 ($24,000 for a married couple filing jointly). For those taxpayers who do not itemize deductions, the CARES Act allows an “above the line” $300 cash contribution to qualifying charities, which will reduce their adjusted gross income (AGI). Taxpayers who do itemize deductions are entitled to a charitable deduction of up to 100% of their AGI in 2020.

Student loans are paused and interest is waived for six months under the CARES Act, ending on September 20, 2020. Note this provision applies only to student loans owned by the U.S. Department of Education.

Hospitals will receive a boost in funding to the tune of $150 billion, as will state and local governments, who face plummeting tax revenues that are now woefully inadequate to pay for the services they deliver. Another $25 billion will pay for public transportation systems, such as New York City’s Metropolitan Transit Authority, which will receive $3.8 billion out of a total $4.35 billion for New York.

These are merely the highlights of the CARES Act. Plenty of pork is included, too, meaning funding the CARES Act in its entirety involves creative methods to finance it. The Federal Reserve is buying long-term investment grade bonds of private companies (something never done before), leading many prudent financial types to raise legitimate concerns about our country’s skyrocketing deficit. But nearly all agree that a global pandemic that has brought the most robust economy in 50 years to its knees in just 30 days requires extraordinary measures. We are fortunate that our economy was in solid shape as the crisis was thrust upon us. Practicing mitigation to stem the spread of COVID-19 is what we all must do. And our government, through the bipartisan CARES Act, has stepped up to ease the pain.