COVID Relief – Current Status

In March of 2020 President Trump signed a piece of legislation known as the CARES Act. The CARES Act provided stimulus checks to individuals and families, PPP loans to small businesses, expanded unemployment benefits, relaxed treatment of business loss deductibility, retirement plan access for families in need of liquidity, among many other things. The stimulus checks totaled $2,400 for a married couple plus $500 per child under 17. The PPP forgivable loans were set up to provide a business with funding for 10 weeks of payroll and the program was initially set to expire June 30th. The unemployment benefits were expanded for a 39-week period. Needless to say, at the time of the CARES Act, everyone (including Congress) thought the COVID-19 pandemic would be over by the summer of 2020.

As the summer approached it was clear the pandemic would impact Americans longer than Congress anticipated. I wrote a blog on May 19th entitled The Halftime Show detailing what I assumed to be a rough midway point in the pandemic and current negotiations in Congress. At the time the House Democrats passed a $2 trillion package that was blocked because Republicans who preferred a smaller bill less than $1 trillion in size. The impasse was too great, and the negotiations did not make meaningful progress until the week before Christmas. The fact that Congress negotiated from May until December to get further COVID relief signifies not only the importance of this legislation but the serious continued concern for the US economy.

Congress passed a $900 billion COVID-19 relief package by overwhelming majority late in the night on Monday December 21st which was signed by President Trump the night of December 27th. This $900 billion of relief is a part of a larger spending bill totaling over $2 trillion to keep the government funded through September of 2021 and the total bill is $5,593 pages in length. President Trump took great issue with the bill calling it a “disgrace”. Let’s first look at what is in the bill that Trump signed into law and then we will glance at the recommendations the President made to Congress and their current status.

Stimulus Checks – Round 2

The direct payments to Americans was a very successful provision under the CARES Act. The IRS had a few hiccups but all things considered was able to direct deposit these payments rather quickly into the accounts of those who qualified based on their 2019 tax return. This round of payments is very similar only smaller. The relief bill calls for $600 payments per individual and per dependent child under the age of 17. These payments are really a 2020 tax credit that is being advanced by the IRS based on your 2019 tax return data. The direct payment will be based on your 2019 adjusted gross income (AGI) just as the first round was with the payment phasing out for individuals over $75,000 and married couples over $150,000. In order for your child to qualify for the advance payment, they must be listed on page 1 in the dependents section with the Child Tax Credit box checked.

If your child was born in 2020 or your 2020 income results in you qualifying for a larger credit than 2019 allowed for, this credit will appear on your 2020 income tax return. If the reverse is true and 2020 would result in a lower credit, the advance payment will not have to be reduced or paid back. In other words, it is a win-win for the taxpayer.

President Trump’s most vocal issue with this relief bill was that the direct payments are only $600 and called for Congress to make the payments $2,000 per person. Democrats have passed a short bill to increase these payments to $2,000 per adult and $600 per dependent regardless of whether they are under the age of 17. The next step is for the Senate to take a vote on this bill.

PPP Loans – Round 2

The Paycheck Protection Program (PPP) is a new Small Business Administration (SBA) forgivable loan program that was created under the CARES Act. This program has numerous warts and scars but did provide small businesses needed liquidity to keep employees on payroll and out of the unemployment system. This bill will make several changes to the program but the three largest include: allowing businesses to deduct expenses paid with the forgiven loan, simplifying the forgiveness process for loans under $150,000, and opening up the program for “second draw loans”. While all three of these provisions (and the others not listed here) are important, the one grabbing most attention is the ability to receive a second forgivable loan.

The second draw loans are for businesses who have received and spent a PPP loan and are still in need of capital. To qualify, businesses must have a drop in gross receipts of at least 25% for any quarter in 2020 compared to that same quarter in 2019. The second loan will be the same as the first providing 2.5x 2019 average monthly payroll costs with an exception for Accommodation and Food Service providers who are eligible for 3.5x 2019 average monthly payroll. This program is a complex maize of three pieces of legislation and a dizzying number of SBA regulations but complexity or not this program provides needed funds to struggling small businesses.

Employee Retention Credit

The Employee Retention Credit was created under the CARES Act as an alternative benefit to the PPP. Up to now, this credit has been largely irrelovant since those who received a PPP loan were not eligible. This bill retroactively allows businesses to receive a PPP loan and qualify for this credit. Simultaneously, the bill changes the credit for 2021 expenses through June 30th, 2021. The credit for businesses with less than 100 employees was at most effectively $5,000 per employee if the business met the drop in gross receipts test. This complex payroll tax credit will see a spike in popularity and media coverage now that businesses who received a PPP loan can retroactively qualify for 2020.

Unemployment Benefits

The expanded unemployment benefits in the CARES Act included supplementing regular state benefits by $600 per week and allowing self-employed individuals who find themselves out of work to qualify. This bill extends these expired benefits by 11 weeks and replaces the $600 increase with a $300 increase this time around.

Miscellaneous Changes

As you can imagine, a 5,593-page bill includes many other provisions. A number of the non-personal finance related provisions were reasons for President Trump’s frustrations. Below is the President’s statement on the day he signed the bill into law detailing the changes he requests of Congress.

However, the most impactful personal finance related provisions not yet discussed are listed below.

Businesses will now be allowed a full 100% deduction for business meals in 2021 and 2022. This is an increase from the 50% deductibility of business meals in recent history. This provision hopes to increase restaurant activity as they struggle to rebound from this pandemic.

The federal student aid process will be remodeled beginning 2023 starting with an overhaul of the FAFSA application form in the name of simplification.

Flexible Spending Accounts (FSAs) are use it or lose it accounts where employees can direct some of their paycheck pre-tax to fund these accounts to either pay dependent care expenses or healthcare costs. If these funds are not appropriately expended by year end, they are largely forfeited, however this bill would allow unused balances in 2020 and 2021 to carry over to the following year without being forfeited.

In total, this 5,593-page piece of legislation represents $900 billion of COVID relief from Congress. Many businesses and families are in week-by-week survival mode and keeping up to date with relief developments is crucial to their ability to survive. As developments occur on President Trump’s recommended changes, check back for updates or reach out with any questions you may have.