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The CARES Act: COVID-19 assistance is on the way

March 27, 2020 Article 6 min read
The highly anticipated $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act is bringing relief to every sector of the U.S. economy. Here’s how it supports you and your business.
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The $2.2 trillion CARES Act is the largest emergency aid package in U.S. history providing grants, loans, and other economic benefits to individuals, private business, and nonprofit organizations. This overview explains how the money will be allocated and how key provisions of the act benefit you and your business.

Allocation of the aid package

  • Small business loans: The Act makes $349 billion available for loans to small businesses for business expenses such as payroll, rent, and utilities, with related provisions to convert the loan into a grant if certain conditions are met.
  • Loans and loan guarantees for businesses/state & municipal governments: $500 billion is available for loans, loan guarantees, and other aid to businesses, states, and municipalities. The Act includes the option of the government taking direct equity stakes in distressed companies. Allocations include: $29 billion to airlines, $17 billion for businesses deemed critical to national security, and the remaining money will go to cover losses in lending facilities that have been established or expanded by the federal reserve.
  • Tax benefits: $221 billion is available in the form of tax benefits for businesses. Benefits include deferral of payroll taxes (including amounts that finance Medicare and Social Security) for the rest of the year. It also temporarily allows businesses to claim deductions using today’s losses against past profits to claim quick refunds to provide much-needed cash.
  • Airline grants: $32 billion in grants to cover lost wages at passenger and cargo air carriers and their contractors.
  • Extended unemployment insurance benefits: $250 billion is available to ensure unemployment insurance is available to more categories of workers and, if necessary, extend benefits from the typical 26-week period to 39 weeks. The assistance also provides an extra $600 a week for four months.
  • Direct aid to states: $150 billion is earmarked for direct aid to states that will be distributed based on population. Additionally, municipalities can apply to receive aid directly, which will reduce the amount available to the rest of the state.
  • Supplemental spending: $340 billion is available in supplemental spending. This includes $117 billion for hospitals and veterans’ care, and $25 billion for public transit to make up for revenue lost because of dwindling ridership.
  • Household relief: $301 billion is earmarked for direct payments to households.

Tax-related benefits

The CARES Act provides significant tax relief and incentives for both individuals and businesses. Most of the relief is aimed at increasing liquidity in the economy through relaxation of limitations on business deductions and the deferral of taxes, as well as recovery rebates for individuals.

Small business payroll protection

A central provision of the Act is the “Paycheck Protection Program,” which provides forgivable SBA loans to businesses with 500 or fewer employees (generally). Coverage includes sole proprietors and other self-employed individuals.

Impact to individuals

Cash and retirement plans

The Act provides cash payments to individuals up to $1,200 for single tax filers and $2,400 for joint filers with amounts increasing $500 per child. Payments are subject to exclusions. Individuals who have no income or those whose income comes from entirely non-taxable means-tested benefit programs are also eligible to receive the payments.

The Act also provides a waiver of early withdrawal penalties (withdrawals up to $100,000) for coronavirus-related withdrawals from qualified retirement plans. All income attributable to those distributions would be subject to tax over three years, and the taxpayer can recontribute those funds within the three-year period without regard to the annual contribution cap.

Tax-favored withdrawals from retirement plans are covered under section 2202 of the CARES Act.

Provision summary:

  • The 10% excise tax on premature retirement plan distributions shall not apply to any coronavirus-related distribution.
  • The amount of the distribution cannot exceed $100,000.
  • The amount distributed can be repaid at any time during the three-year period after which the distribution is made; if amounts are not paid back, the inclusion of the distribution in income is spread over a three-year period.
  • Distributions are limited to defined contribution plans and Individual Retirement Accounts.
  • All affected individuals should discuss the impact of tax-favored withdrawals with their investment and tax advisors.

Section 2203 of the Act also provides a temporary waiver of required minimum distributions for certain favored withdrawals from some retirement plans under section 2203.

Provision summary:

  • Required minimum distribution cessation is limited to defined contribution plans and Individual Retirement Accounts.
  • Special rules apply for required minimum distributions with required beginning dates in 2020.

Comment: Plan amendments and actual written waivers may be required.

  • Affected parties should discuss the impact of waived minimum distributions with their third-party administrators, IRA custodians, investment advisors, ERISA counsel, and tax advisor.

Student loan repayment contributions

Tax benefits for student loan repayment contributions are also available under section 2206 of the Act.

Provision summary:

  • Employer loan repayment amount cannot exceed $5,250.
  • The tax-free aspect of the payment must be coordinated with section 127 of the Internal Revenue Code to prevent any potential “double dipping.”

Comment: This rare provision is only effective for the calendar year 2020.

  • Employers that desire to pay down student loan debt for employees should discuss the impact and next steps with their ERISA counsel and tax advisor.

Business-related benefits

Delayed contributions available to single-employer defined benefit pension plans

The CARES Act provides for delayed contributions to single-employer defined benefit pension plans under section 3608.

Provision summary:

  • Required quarterly and final prior plan year true-up contributions can be delayed to the end of the 2020 calendar year.

Comment: Further guidance is required for employers with plan years other than calendar year. Additionally, the delay of pension contributions increases PBGC variable rate premiums.

  • 2020 benefit restrictions can be based on the prior year funded status. 
  • All affected plan sponsors should discuss the impact of delayed contributions with their actuary and tax advisor.

Nonprofit retirement plans

Section 3609 of the Act also enables more nonprofit employers with defined benefit pension plans to use the ERISA exemptions provided to cooperative and small employer charity pension plans.

Provision summary:

  • This provision expands the definition of “Cooperative and small employer charity pension plans” (CSEC plans) that are exempt from the pension plan rules under ERISA and the Internal Revenue Code to include 501(c)(3) employers that conduct “… medical research directly or indirectly through grant making, and whose primary exempt purpose is to provide services with respect to mothers and children.’’ This section applies to plan years beginning after Dec. 31, 2018.

Comment: The Act changes the pattern of required funding and may or may not change the benefits that could be paid out if the plan terminated while underfunded. Plan sponsors electing this provision would likely forego PBGC insurance coverage.

  • Affected plan sponsors should discuss the impact of this exemption with their ERISA counsel, actuary, tax advisor, and auditor.


The Act establishes the temporary Pandemic Unemployment Assistance Program through Dec. 31, 2020, to provide payment to those not traditionally eligible for unemployment benefits, including the self-employed, “gig” workers, independent contractors, and others.

It also provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months, and an additional 13 weeks of unemployment benefits through Dec. 31, 2020 to help those who remain unemployed after weeks of state unemployment benefits are no longer available.

For advice or assistance implementing CARES Act relief, contact our COVID-19 task force to schedule a complimentary consultation with our experts.

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