CARES Act: Support for Low Income Households

The Coronavirus economic crisis is putting already financially distressed households in much greater distress. It als presents an enormous challenge for nonprofits and government agencies that must immediately transition from financial guidance to what is essentially complex disaster relief services at huge scale - while also having shut down their workplaces. 

The only way to do this is with technology and coordination at scale. FinTech Commons is quickly building out an emergency technology infrastructure to help financial empowerment organizations and agencies. It will include a national online forum for counselors to ask questions and get answers, a blog/news center and an online information and resource center and more. 

As a start, we are providing a summary of the Aid, Relief, and Economic Security Act (CARES Act) below focused on the economic needs of lower and moderate income/wealth households (LMI) that are under tremendous duress because of the economic collapse associated with Covid-19.   Stay well.

CARES Act Summary for LMI Households

I. Cash Payments to Households

II. Expanded Unemployment Benefits

III. Small Business Assistance 

III. Loans, Mortgages & Credit

I. Cash Payments to Households

Payments are Income Tax Rebates

This is relevant to LMI households because the IRS estimates that over a million LMI households do not file a tax return - even though they would likely be entitled to a refund or credit. It's important to understand that these payments are federal tax rebates and will be paid based on filed taxed returns only.

• Rebates are technically tax credits that are based on the Adjusted Gross Income amount in the 2019 tax return, if filed, or 2018 if not. If a return hasn’t been filed in 2018 or 2019, no payment will be issued.

• No minimum income or tax payments are required to receive the rebate payment so all households need to consider filing a return if they haven’t.

• No payments will be made to individuals (including children) without a valid social security number on file at the IRS.

Amount of Payment/Rebate

• $1,200 to individual filers.

• $2,400 to married couples filing jointly.

• plus, $500 for each child in the household.

• No minimum income is necessary to receive the credit.  

• The payment is reduced by 5% of each dollar of income (AGI) over $75,000 (individuals) $112,500  (heads of households), $150,000 (joint filers) 

• Filers with more than $99,000, $146,500 and $198,000 receive no payment.

When and How Payments Are to Be Paid

No application is required and payments will be made automatically by the IRS based on the information in your tax return. The Treasury has said the payments will be made within three weeks - but that will likely be direct deposits to household bank accounts when the IRS has a record of the account. Other payments are to be made by check or debit card issuance and will likely take longer.

II. Expanded Unemployment Benefits

For Gig Workers Not Normally Covered by Unemployment

• Creates unemployment assistance through December 31, 2020, for individuals not traditionally eligible for unemployment.

• Includes self-employed, independent contractors, those seeking part-time employment and others.

• Must apply by standard procedure with state and certify you are unable to work for reasons related to the impacts of COVID-19

• Unable to work includes reasons related to the individual, the individual's family (home care for kids) , the individual's place of work, movement restrictions and more.

Expands Unemployment Benefits in General

• Provides an additional $600 per week of unemployment insurance or  for up to four months.

• Funding to reimburse states choosing to pay benefits immediately instead of normal one week wait.

• Expands time period of assistance for up to 39 weeks.

• Provides funding for support of programs where employers reduce employees’ hours instead of laying them off, employees receive a pro-rated
  unemployment benefit.

III. Small Business Assistance 

Small Business Administration Forgivable Loan Program

• To be made by banks, credit unions

• Authorization level of $349 billion

• Eligibility includes business with not more than 500 employees , 501(c)(3) nonprofits and others. 

• Loan amount tied to payroll costs up to $10 million.

• Allowable uses of the loan include employee salaries,
  paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.

• Waives both borrower and lender fees.

• Waives collateral and personal guarantee requirements.

• Eligible for loan forgiveness equal to the amount spent by borrower during an 8-week period after loan origination date

• Eligible spending includes payroll costs, rent and utilities.

Employee Retention Credit for Employers: 

• A payroll tax credit for 50 percent of wages paid through 2020. 

• Business is eligible if fully or partially suspended due to a COVID-19-related shut-down order, or gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. 

• If 100 or fewer full-time employees, all employee wages qualify for the credit, whether the business is open or subject to a shut-down order for the first $10,000 of compensation paid to an employee. 

FICA Payment Postponement:

• Self-employed individuals may delay payment of their share of FICA payroll taxes  with 50% of such taxes due by December 31, 2021, and the other 50% due by December 31, 2022.

The Families First Act (signed into law on March 19, 2020)

• Requires employers with less than 500 employees to provide 80 hours of paid sick leave to full-time employees to cover time that an employee is away from work due to the Coid-19 including caring for their child due to school closures or unavailability of a child care provider 

•  Provides a refundable tax credit to employers to cover the cost.

For Nonprofits

• Provides funding to states to reimburse nonprofits and government agencies for half the costs they incur to pay unemployment benefits through 2020.

Employer Repayment of Employee Student Loans.

• An employer can make a payment of up to $5,250 on an employee’s student loan debt. The payment is deductible by the employer and tax-free to the employee

III. Loans, Mortgages & Credit

Below are a few items to be aware of but this is an area where there will be substantial developments in coming weeks as Fannie Mae, bank regulators and banks, credit unions and others attempt to deal with the economic crisis sensibly.

• For households with mortgage loans that are insured by FHA, VA, USDA, Fannie Mae and Freddie Mac - Mortgage lenders are prohibited from beginning foreclosure for 180 days,plus an additional 180 days at the request of the borrower. Penalties and delinquency related fees may not be charged to the consumer if forbearance is requested. Borrowers may extend their forbearance for up to an additional four months if they can demonstrate a COVID-19 related hardship.

• For renters in multi-family units with loans from Fannie Mae (most of them), landlords cannot file evictions for 120 days or assess any late payment fees or charges on renters during the period.

• The FDIC will now guarantee accounts at FDIC-insured institutions at 100 percent

• Debt Restructurings: Banks to renegotiate loan terms with coronavirus-impacted borrowers without having to increase capital.

• Credit reporting: Lenders who offer special accommodations to borrowers may not report the account as delinquent to credit reporting agencies for at least 120 days from January 31, 2020 or 120 days after the end of the emergency declaration.