A Primer on the 2020 CARES Act Legislation

Although current COVID-19 restrictions are in flux, many people will face long-lasting ramifications from the prolonged Illinois shutdown. Whether through a loss of employment, reduction of hours, or closing businesses, every Illinoisan has been affected in some way.

Recognizing the hardships every citizen will face, the government has passed the Coronavirus Aid, Relief, and Economic Security Act, commonly known as the CARES Act, to help struggling individuals and businesses affected by COVID-19 during a time of financial hardship.

Can I get help from the CARES Act?

The CARES Act provides a great variety of benefits to help you or your business meet your monthly expenses, and provide additional cash flow, so long as you meet the following criteria:

• You have been diagnosed with COVID-19;
• Your spouse, or dependent, has been diagnosed with COVID-19;
• You have experienced financial consequences from being quarantined, furloughed, or laid off due to COVID-19; or
• Your business was required to close or reduce its hours of operation due to COVID-19 (e.g., curbside pick-up only, delivery only, etc.).

How does the CARES Act help me?

As the Act was created and approved relatively quickly (effectively drafted and made law in a month’s time), there are many unanswered questions on how the CARES Act can help. But here are some common ways the CARES Act can help you or your business:

1.) Waives penalties for withdrawals from your retirement accounts. The CARES act waives the 10% penalty for early withdrawals from your retirement accounts, such as an IRA or 401(k), up to an aggregate of $100,000.00, as long as you withdraw the funds by December 31, 2020. Although the penalty is waived, you must still report your withdrawal as taxable income over the next three (3) taxable years. If you repay your retirement fund by 2023, you can recoup all the taxes you paid on the retirement withdrawal (as long as you don’t mind filing amended tax returns).

2.) More flexible Health Savings Accounts and Flexible Spending Accounts. The CARES Act waives the requirement of meeting your deductible in high-deductible health plans paired with HSAs, through December 31, 2021. Further, HSAs and FSAs can be used to purchase over-the-counter healthcare products, such as medicine and surgical masks without a prescription, and even certain feminine hygiene products, which are permanent changes retroactive to January 1, 2020. If you purchased any of these before the stay-at-home order, you could recover those expenses back to January 1 of this year.

3.) Removes cost-sharing of a COVID-19 test. Prior to the Act, you likely had to pay for a COVID-19 test, including blood testing, an office visit, urgent care center, or emergency room charges. Now, so long as there remains a federal public health emergency, all other costs from medical visits that result in a COVID-19 test are eliminated. Although the test and its related expenses are covered, the CARES Act does not remove the cost of treatment.

4.) Expands unemployment benefits. If you have lost your job, and qualify to receive unemployment benefits, the CARES act benefits you in two ways. First, you can receive an extra $600.00 weekly unemployment benefit, in addition to the weekly base benefit under Illinois law. Second, if you’ve exhausted your state benefits you can receive, you can receive an additional 13 weeks of unemployment up to a maximum of 39 weeks of total unemployment benefits.

5.) Independent contractor and other’s unemployment benefits. Historically, Independent Contractors, individuals who are self-employed or have a limited work history, and those in the “gig” economy have been left out to dry when it comes to unemployment insurance. Now, under the CARES Act, these individuals can receive benefits identical to those who usually qualify for unemployment insurance, for the same 39 weeks. However, like most other benefits provided by the CARES Act, you must have been affected by COVID-19 to receive these benefits.

6.) Increased loan amount from 401(k)s. Prior to the CARES Act, individuals taking loans from their 401(k) retirement accounts were limited to $50,000.00 or 50% of the value, whichever was less. Now, the CARES Act has modified these limitations, increasing the allowable 401(k) loan amount to $100,000.00 or 100% of the total value of the retirement account. However, be cautious as to whether you seek to take advantage of this benefit, as your individual plan, not the CARES Act, will set the terms of the loan, such as monthly repayment amounts and interest rates.

7.) Paycheck protection program loans for small businesses (which can be forgiven). From now until June 30, 2020, the CARES Act will provide 100% federally guaranteed loans from SBA 7(a) lenders to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, for up to 8 weeks of payroll, so long as 75% of the loan is used for payroll expenses during the eight week period, and the remaining 25% is spent on rent, utilities and/or mortgage interest costs. The loan has a repayment period of 10 years at a fixed 4% interest rate for any amounts not forgiven.

8.) Small business employee payroll tax credits. The Cares Act creates multiple tax benefits for business owners in an effort to reduce the impact on the economy COVID-19 has made. One of these benefits comes in the form of a refundable payroll tax credit for 50% of the wages paid by employers to certain employees during the COVID-19 Crisis. This credit is available to employers, and non-profits, whose operations have been fully or partially suspended because of a government order limiting commerce, travel or group meetings, or who have had a greater than 50% reduction in the first quarter receipts. The cost of wages of furloughed, or reduced-hour employees, are eligible for this credit. For employers with 100 or fewer full-time employees, all employee’s wages are eligible for the credit, whether or not the employee was furloughed. One important caveat to this tax credit is that the employer must not receive assistance from the Paycheck Protection Program, mentioned above.

9.) Delay of payroll taxes. Employers will be able to defer the payment of the employer’s portion of FICA taxes for the remainder of the 2020 tax year, with all deferred amounts to be paid in equal installments by December 2021, and December 2022. However, this deferral is only allowed to employers who do not receive assistance from the Paycheck Protection program.

10.) Net operating loss provision changes to increase cash-flow. Prior to the CARES Act, the Tax Cuts and Jobs Act removed the ability for businesses to use carrybacks of net operating losses and limited the amount of taxable income the business could offset using current net operating losses. Now, employers can use net operating losses from tax years as early as 2013 to offset taxable income in the 2018-2020 tax years, using amended tax returns if necessary. Additionally, employers can use their net operating losses to deduct 100% of their taxable income in a given year rather than carrying-forward any NOLs. Owners of pass-through entities can also use net operating losses to offset their non-business income, such as capital gains, for the years 2018, ‘19, and ‘20.

As policymakers consider the next relief legislation, consider all the pros and cons of the different resources available in the CARES Act. Whether you are a business or an individual, the CARES Act provides options to lessen the financial impact of the COVID-19 pandemic.