In March 2020, U.S. lawmakers agreed on the passage of a $2 trillion stimulus bill called the CARES (Coronavirus Aid, Relief, and Economic Security) Act to blunt the impact of an economic downturn set in motion by the global coronavirus pandemic. On March 27, 2020, President Trump signed the bill into law. With most forecasters predicting that the U.S. economy is either already in a recession or heading into one, policymakers crafted legislation that dedicates historic government funding to support large and small businesses, industries, individuals and families, gig workers and independent contractors, and hospitals.

Key Takeaways

  • $367 billion loan and grant program for small businesses
  • Expansion of unemployment benefits to include people furloughed, gig workers, and freelancers, with benefits increased by $600 per week for a period of four months
  • Direct payments to families of $1,200 per adult and $500 per child for households making up to $75,000
  • Over $130 billion to hospitals, health care systems, and providers
  • $500 billion fund for loans to corporate America (which Democrats called a slush fund when the Treasury was solely in charge) overseen by an inspector general and a congressional panel, with every loan document made public
  • Cash grants of $25 billion for airlines (in addition to loans), $4 billion for air cargo carriers, $3 billion for airline contractors (caterers, etc.) for payroll support
  • Ban on stock buybacks for large companies receiving government loans during the term of their assistance plus one year
  • $150 billion to state and local governments

At over $2 trillion, this is the largest rescue package in U.S. history. The 2009 Recovery Act was $831 billion. This law is expected to have a major impact on the U.S. economy and the effort to combat the coronavirus.

Eligibility for some of the loans and small business assistance are still up to the discretion of the Treasury or Small Business Administration, but they do come with some strict conditions, and Congress is appointing an inspector general and an oversight board to supervise and oversee their administration. The law allocates $150 billion to states and localities battling the pandemic and $130 billion more for the health care system.

On Nov. 19, 2020, Treasury Secretary Steven Mnuchin said he would not authorize the Federal Reserve to extend several of its emergency lending programs past Dec 31, 2020. The following programs are affected:

  • Primary Market Corporate Credit Facility (PMCCF)
  • Secondary Market Corporate Credit Facility (SMCCF)
  • Municipal Liquidity Facility (MLF)
  • Main Street Lending Program (MSLP)
  • Term Asset-Backed Securities Loan Facility (TALF)

Paycheck Protection Program

The law appropriates $349 billion to be used to support small businesses to maintain their payroll and some overhead expenses through the period of emergency. The stated goal is to keep workers paid and employed during the period of the emergency.

The Paycheck Protection Program (PPP) applies to any business, nonprofit organization, veterans organization, or tribal business that is under 500 employees, or under the Small Business Administration standard (if greater than 500 employees), or under 500 employees per physical location for all food service and accommodation businesses, is eligible. They can receive a Small Business Interruption loan up to 2.5 times their average monthly payroll, up to a maximum of $10 million.

The loans may be used to cover payroll, benefits, and salaries, as well as interest payments, rent, and utilities. Fees are waived, and collateral and personal guarantees are not required. Payments are deferred for a minimum of six months, up to one year, and there are no prepayment penalties.

The principal of the loan can be forgiven up to the total cost of payroll, mortgage interest payments, rent, utility payments, and any additional wages paid to tipped employees made during the eight-week period after origination. However, this amount can be reduced by the proportion of any reduction in the average number of employees during that period.

In addition, $10 billion in emergency grants are authorized for small businesses, private nonprofits, sole proprietorship, agricultural co-ops, and employee-owned firms, which can be converted into advances on forgivable loans as outlined above. There’s also another $17 billion to pay the principal, interest, and fees on existing federally guaranteed small business loans for a period of six months. One billion dollars is allocated to administration, training, consulting, and education related to these loan programs.

The existing Economic Injury Disaster Loans (EIDL) also got beefed up. It now provides $10,000 in emergency relief for small businesses impacted by COVID-19. These loans do not have to be repaid, making them effectively a grant.

Economic Injury Disaster Loans

Under the expansion of this existing EIDL program, small businesses effected by COVID-19 can apply for an Economic Injury Disaster Loan Emergency Advance of $10,000 that does not have to be repaid. For EIDL loans you can borrow up to $200,000 without a personal guarantee.

Pandemic Unemployment Insurance

The stimulus plan extends both the eligibility and the benefit amounts for unemployment related to the current emergency.

Eligibility for unemployment benefits is extended to those who would otherwise not qualify if their loss of work is related to the COVID-19 pandemic. This includes contractors and the self-employed, those whose existing benefit has been exhausted, those only seeking part-time employment, those with insufficient employment history, or anyone who would otherwise not qualify. However, it specifically excepts those who have the ability to continue their job working remotely online or are already paid sick leave or other leave benefits due to the work interruption.


The plan dramatically expands eligibility for unemployment benefits just as new unemployment claims are skyrocketing. Nearly everyone but remote online workers and those already on paid leave will be eligible.

The plan extends the duration of regular unemployment benefits from the normal 26 weeks to as long as 39 weeks for affected workers. It extends payment of benefits also to the first week of unemployment, where not prohibited by state laws. It also funds a new Federal Pandemic Unemployment Compensation benefit of $600 per week on top of the regular unemployment benefit through the end of July 2020.

The CARES Act also established the Pandemic Emergency Unemployment Compensation (PEUC) program, which allows workers who have exhausted their unemployment compensation benefits to receive 13 more weeks of benefits, if they are able to work. Also, the Pandemic Unemployment Assistance (PUA) extends benefits to self-employed, freelancers, and independent contractors.

For workers who remain employed but with reduced hours, the stimulus plan funds 100% of state short-term compensation benefits and provides incentives for states that do not have such benefits to implement them.

Tax Changes and Credits

For Taxpayers

The coronavirus stimulus plan creates a tax rebate of $1,200 per taxpayer plus $500 per child. The amount of the rebate is gradually reduced for incomes above $75,000 per year for individuals, $112,500 for heads of households, and $150,000 for joint filers. It directs the Treasury to send these payments as soon as possible.

The CARES Act also allows taxpayers to take an above-the-line deduction from adjusted gross income of up to $300 for charitable contributions and relaxes other limits on charitable contributions.


Taxpayer rebates gradually phase out as income rises, dropping to zero above $99,000 per year for single filers and $198,000 for joint filers.

Borrowing From Retirement Plans

The plan, including recent guidance from the IRS, allows people to take special disbursements and loans from tax-advantaged retirement funds of up to $100,000 without facing a tax penalty. It waives the required minimum distribution (RMD) rules for 401(k) plans and individual retirement accounts (IRAs) and the 10% penalty on early withdrawals up to $100,000 from 401(k)s. Account holders would be able to repay the distributions over the next three years and be allowed to make extra contributions for this purpose.

These measures apply to anyone directly affected by the disease itself or who faces economic hardship as a result of the pandemic. Recent IRS guidance expands the list of eligible participants who can makes these withdrawals to include any who had a job offer rescinded or delayed and to the spouses of those individuals, even they are still working.

For Businesses

For businesses, it creates a new Employee Retention Credit against employment taxes to encourage them to retain and pay their employees during any quarter when business operation is partially or fully suspended due to the coronavirus. This credit does not apply to businesses that receive Small Business Interruption loans.

Employer payroll taxes will be deferred for 2020. Fifty percent of payroll tax payments for 2020 will be due in 2021, with the other 50% due in 2022. Business operating losses for this year can be carried back for up to five years. Excise taxes on alcohol used to produce hand sanitizer will be suspended for 2020.

Health Care

The stimulus plan addresses both direct health care needs during the emergency and financing for treatment and prevention.

The plan boosts payments to health care providers and suppliers by $100 billion through various programs including Medicare reimbursements, grants, and other direct federal payments. It also directs $27 billion in spending on tests, vaccine development, and medical treatment devices, including $16 billion in purchases for the Strategic National Stockpile. It also directs the federal government and industry to cooperate to maintain stockpiles and supply chains for critical medical supplies, such as protective equipment and medications to treat the coronavirus.

The stimulus plan relaxes numerous laws, Medicare payment rules, and drug approval requirements to allow more flexibility to respond to the emergency, and it introduces a few new rules. It requires health insurers to cover tests for the virus as well as treatments and vaccines that will be developed. It protects health care providers from liability when they volunteer to fight the epidemic across state lines and increases funding for health care workforce training, education, and modernization programs. It relaxes numerous laws, Medicare payment rules, and drug approval requirements to allow more flexibility to respond to the emergency.

Economic Stabilization

In order to provide liquidity to the hardest hit businesses and industries, the coronavirus stimulus plan allocates $500 billion for loans and guarantees. This includes $25 billion for passenger airlines, $4 billion for air cargo carriers, and $17 billion for businesses deemed critical to national security, all to be administered by the Secretary of the Treasury. The remaining $454 billion is allocated toward programs and lending facilities operated by the Federal Reserve to support other businesses, states, and municipalities.


The vast majority of this funding will be administered through Federal Reserve emergency lending facilities that the Fed has rolled out in recent weeks or will announce soon. Financial institutions, public entities, and businesses of all kinds may be eligible.

However, any loans made by the Treasury under this plan come with conditions. Stock buybacks, dividend payments, and labor force cuts of more than 10% are banned. All loans issued by the Treasury are to include equity or senior debt from the borrowers. Unlike the Small Business Interruption loans, these Economic Stabilization loans will not be forgivable.

Compensation for employees earning over $425,000 annually will be capped at current levels and severance packages capped at two years’ compensation. Compensation for employees earning over $3 million annually will be capped at $3 million plus one half of any amount over $3 million in their 2019 compensation.

Any companies owned or controlled by the president, vice president, or members of Congress are ineligible for these loans.

Airlines receiving loans must maintain service to existing destinations and routes. Air travel excise and fuel taxes will be suspended for all of 2020. In addition to the loan program, $32 billion is earmarked for payroll assistance for airlines and contractors.

Loans to midsize businesses (500 to 1,000 employees) include conditions that they do not outsource or offshore jobs, do not break union contracts, and remain neutral toward union organizing.

The plan also authorizes the Treasury to reactivate use of the Exchange Stabilization Fund to provide emergency liquidity to money market mutual funds and relaxes certain capital requirements for banks and credit unions.

This part of the plan also includes some protections for consumers and some borrowers. These include forbearances and a moratorium on foreclosures for all federally backed home mortgages. There is also a moratorium on evictions for rental properties with federally backed mortgages or that participate in various federal housing subsidy programs.

State and Local Government Relief Fund

State and local governments will receive up to $150 billion in assistance through the new Coronavirus Relief Fund. Three billion dollars is reserved for federally administered territories and $8 billion for tribal governments. Payments to states and local governments are to be divided proportionally according to population. These are large, open-ended block grants that are directed to be used for costs associated with controlling the epidemic and mitigating the economic damage.

Earmarked Spending

As can be expected amidst this flood of new federal spending numerous industries, agencies, and special interest groups are being lined up to receive a piece of the funding pie. The Act also includes legal changes that are designed to benefit specific industries or businesses in key congressmembers' districts that may not immediately seem connected to the Covid-19 crisis. These include:

  • $25 million for operations and maintenance at the the Kennedy Center for the Performing Arts
  • $75 million in new grants to be administered by the National Endowment for the Arts
  • $88 million for the Peace Corps
  • $677 million in new foreign and diplomatic aid
  • $350 million for migration and refugee assistance
  • Relaxed regulatory approval rules for sunscreen ingredients
  • A new tax benefit to allow employers to pay off $5,250 on each employee's student loans
  • Funding for free video conferencing visits and calls for prison inmates.
  • The eliminations of Congressional spending caps on federally funded harbor dredging.