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

March 27, 2020 / 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.

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

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:

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:

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

Student loan repayment contributions

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

Provision summary:

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

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:

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.

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:

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.

Unemployment

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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