This stimulus glossary was created to help you navigate all the language being tossed around.
Demystifying the Coronavirus Stimulus Relief Terminology – what the heck does all of this mean anyway?
Many Americans are pulling their hair out right now trying to understand what they should do in order to get the help they need during the Coronavirus pandemic. It doesn’t help that the terminology is new for many of us, and it can make it difficult to keep everything straight. Below, I’ve broken down the terminology you need to know as it relates to the Stimulus Bill.
For FAQs related to the Stimulus, please see our Q&A HERE.
CARES Act – This is the Federal Coronavirus Relief Bill, aka the “Stimulus Bill” that was passed with bipartisan support on March 27, 2020. The bill is the largest economic relief bill in U.S. history and allocates over $2 TRILLION in federal funds to help individuals and businesses impacted by the pandemic and related economic downturn. The CARES Act is over 800 pages long and has a wide-ranging impact.
Stimulus Payments – The majority of Americans are eligible to receive a Stimulus payment through the CARES Act. These payments are for $1,200 per adult and $500 per child under 17. Payments are based on Adjusted Gross Income (AGI) per your 2018 or 2019 tax return (whichever is most recent at the time of the payment). AGI can be found on your tax return on line 7. Payments begin to phase out at AGI over $75k for single, $150k for married filing jointly, and $112,500 for head of household. They are completely phased out by $99k for single, $136,500 for head of household, and $198k for married filing jointly. In most cases, Stimulus Payments will be sent via direct deposit if the IRS has your banking information on file. For those without banking information, checks may be issued to the last address on file. Payments will start being issued by April 17th, according to the Treasury Secretary.
Update – Currently it is unclear what will happen for those who don’t have current banking information on file with the IRS, or whether there will be a process to allow people to update this banking information. However, if for any reason you DON’T receive a stimulus check and do qualify for one, you would be able to take the amount as a credit against your income taxes due on your 2020 tax return.
EIDL Loan – This is an Economic Injury Disaster Loan that is applied for directly with the Small Business Administration (SBA) via an application on their website. It is an SBA type 7(b) loan. Typically, these loans are given for natural disasters and the like (tornados, flooding, etc). After the U.S. declared a national disaster due to the Coronavirus pandemic, EIDL loans became eligible to most small business owners in the U.S. as well as self-employed and independent contractors. These loans carry a 3.75% interest rate for for-profit businesses, and 2.75% for non-profit businesses, with a term of up to 30 years. Importantly, the CARES Act added a provision intended to help get business owners money fast. This provision stated that within 3 days of application for an EIDL loan, the applicant was eligible to receive up to $10k that would be a grant (sometimes referred to as the “EIDL grant,” “EIDL advance” or “$10k grant“). This amount would NOT have to be repaid, even in the event that the applicant was subsequently denied an EIDL loan. A streamlined EIDL application was released on the SBA’s website on March 29th that included the request for an advance. For further information on this loan and the PPP loan (discussed below), as well as the application for the EIDL loan, see HERE.
Update: As of April 5th, we are not aware of any verified cases of people receiving advance funds from EIDL. Further, it’s been reported that these advances will not all be for the full $10k, but instead may be lesser amounts, potentially dictated by the number of employees a business has. It’s yet to be seen how long advances will take to get to applicants.
PPP Loan (Paycheck Protection Program) – This loan is an SBA type 7(a) loan that was established by the CARES Act primarily to help small businesses keep employees on payroll and reduce unemployment claims. This loan applies to both small businesses with under 500 employees, as well as self-employed and independent contractors (i.e. you do NOT need to have employees in order to apply for this loan). The amount of this loan is calculated as 2.5x average monthly payroll, and has the potential to be entirely FORGIVEN (i.e. would NOT have to be paid back). If obtained, this loan is to be used over an 8 week period (the forgiveness period), and must be spent on payroll, rent, mortgage interest (business, not personal), utilities, and interest on other debt obligations incurred prior to Feb 15th. At least 75% of the loan needs to be spent on payroll over that 8 week period for it to be forgivable. So in essence, it is really a loan for 2 months of payroll, plus an additional 25% to help with rent, utilities etc. Further, the business has requirements not to reduce headcount or significantly reduce average wages during the forgiveness period in order to qualify for forgiveness. Business owners will have to track what they spent the money on over the 8 week forgiveness period very closely. Any amount not forgiven must be paid back over a 2 year period at 1% interest. For further information on this loan and the EIDL loan (discussed above) see HERE.
Update – There is still a lot of questions around how this will work in practice, specifically for those that are self-employed and do not pay themselves via payroll. It is expected that the amount of “payroll” costs will be calculated based on the net earnings of the business (i.e. the net profit calculated on your tax return Schedule C). Further, as of April 5th, many banks were not yet accepting applicants under this program. It is expected that more banks will be offering this program in the coming days.
Unemployment Insurance (UI) – Unemployment is typically something available to employees of a business who are laid off. It is administered by the state. Policies vary by state, but in general, most states give 40-50% of prior wages in UI benefits, for a period of up to 26 weeks. Typically self-employed people or independent contractors are not eligible for UI because they don’t pay into the program. The CARES Act greatly expanded UI, including who it covers (self-employed are now covered), how much you can get (up to an extra $600 a week is now available through the end of July), and how long it lasts (an extra 13 weeks on top of your typical state standard). The extension to self-employed individuals is called Pandemic Unemployment Assistance (PUA).
Update: As of April 5th, many states have not updated their websites and processes to be able to take applications for self-employed people under PUA. They are slowly but surely rolling this out, so check back to your state’s website for details often. If you have previously been denied under typical UI coverage, you may still be able to apply for PUA through your state. Call volume to the state unemployment offices is quite high, so if you decide to call, be ready to wait.
Employee Retention Credit – Under the CARES Act, you can obtain an Employee Retention Credit for payroll taxes due under certain circumstances. The Employee Retention Credit is a refundable tax credit is 50% of up to $10,000 in wages per employee paid by an eligible employer whose business has been financially impacted by COVID-19. The credit is available to all employers regardless of size, including tax-exempt organizations. These are NOT available to businesses that take one of the SBA loans available (EIDL or PPP).
In order to qualify, one of the following must be true:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019.
For further information on this credit, including how to claim it, see HERE.
For FAQs related to the Stimulus, please see our Q&A HERE.
For current information on these and other Federal Relief Efforts, see my blog that is being updated regularly HERE.
For more information about Jamie Trull and Balance CFO, check out my website HERE.
For more information and a community where you can ask questions and connect with others, please join the Facebook community Financial Literacy for Women Business Owners.