All You Need to Know About the COVID-19 Stimulus Plan

After days of negotiations, the Senate and White House signed a historic $2 trillion stimulus plan to help mitigate the economic fallout of COVID-19.

Here’s all you need to know about The Coronavirus Aid, Relief and Economic Security Act (CARES).

Stimulus checks

One of the most crucial elements of the bill is the plan to distribute stimulus checks to Americans in the middle class and lower-income levels. Officials hoped to deposit the one-time payments as soon as early April, though you likely won’t see the funds until a few weeks later.

Aid amounts will be based on household income reported in 2018 taxes (or 2019 taxes if they’ve already been filed) and will average $1,200 for each adult earning up to $75K a year and married couples earning up to $150K a year. Each household will also receive an additional $500 for every child under the age of 17.

Increased unemployment benefits 

The enhanced unemployment insurance includes four months of unemployment pay for laid-off workers; expanded coverage for employees who were furloughed; inclusion of workers who generally do not qualify for unemployment, like gig workers and freelancers; and increased unemployment benefits for all eligible workers by $600 a week for four months.

Funding for the health care system

The stimulus plan will pump $150 billion in the country’s overtaxed health care system to help it meet the overwhelming demands of the pandemic. Of this funding, $130 billion will go directly to hospitals struggling to deal with a shortage of masks, ventilators, beds and protective gear; and $1 billion will go to the Indian Health Service. The rest of the money will be used to fund research and treatment and to help the Strategic National Stockpile raise medical supplies and equipment.

Small business bailouts

The stimulus plan will offer $350 billion worth of funds to small businesses to help them remain solvent during the pandemic. These funds take the form of loans, some of which may ultimately be forgiven.

Retirement Plans

The act calls for waiving the 10% early withdrawal penalty for distributions up to $100,000 for purposes relating to COVID-19, retroactive to Jan. 1. Withdrawals still will be taxed; however, taxes are spread over three years, or taxpayers have the three years to roll it back over.

In addition, the loan limit for 401(k) loans has increased from $50,000 to $100,000 and required minimum distributions (RMDs) from IRAs and 401(k) plans (at age 72) are suspended.

Student Loans 

Federal student loan borrowers will be allowed to pause payments on their loans. Loans will be put into forbearance for at least 60 days starting March 13, 2020. No payments should be due until after Sept. 30, 2020.

Federal student loan interest rates will automatically be set to 0% for a minimum period of 60 days until Sept. 30, 2020. If borrowers continue making payments, the full amount will be applied to the principal.

Borrowers do not need to take action to suspend loan payments. In addition, collection efforts, including the garnishment of wages and the seizure of tax refunds, will be suspended on federal student loans that are in default.

Mortgages

Some homeowners could be able to pause payments for at least six months with the possibility of an additional six months of forbearance, according to the act. Homeowners become eligible if they have one of the following types of mortgage loans:  

  • An FHA Loan.

  • A VA Loan.

  • A USDA Loan.

  • A 184/184A Mortgage.

  • Any mortgage backed by Fannie Mae.

  • Any mortgage backed by Freddie Mac.

  • Missed payments would be required to be paid back; however, homeowners can work with their lenders at the end of the forbearance period to come up with a manageable payment plan. A moratorium on foreclosures for borrowers with any of the above types of government-backed loans began March 18.

Additional provisions and addenda

There are several other components of the CARES Act, including the following:

  • Distribution of $150 billion directly to state and local governments to enable them to address their spending shortages and fund their increased labor.

  • Establishment of a Treasury Department special inspector general for pandemic recovery and a Pandemic Response Accountability Committee to oversee loans to businesses.

  • Prohibition for all businesses controlled by the president, vice president, members of Congress and heads of executive departments from participating in the loan or investment programs.

  • Provisions to ban stock buybacks during the period of government assistance.

  • Establishment of worker protections for businesses receiving federal loans.

  • Prohibition keeping airlines from using federal loans for CEO bonuses.

Eddie Pradel