In March 2020, U.S. lawmakers agreed to pass 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 at the time predicting that the U.S. economy was either already in a recession or heading into one, policymakers crafted legislation that dedicated historic government funding to support large and small businesses, industries, individuals, families, gig workers, independent contractors, and hospitals.
- A $367 billion loan and grant program for small businesses
- An expansion of unemployment benefits to include furloughed workers, 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, healthcare systems, and providers
- $500 billion funds for loans to corporations (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, and $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
- Forbearance and the moratorium on foreclosures for all federally backed home mortgages have been extended into 2021, but the expiration date depends on the mortgage program.
At over $2 trillion, this has been the largest rescue package in U.S. history. The 2009 Recovery Act was $831 billion, the Consolidated Appropriations Act (CAA) was $910 billion, and the recently passed American Rescue Plan Act (ARPA) comes closest at $1.9 trillion.
Eligibility for some of the loans and small business assistance was still up to the discretion of the Treasury or Small Business Administration, but they came with some strict conditions, and Congress appointed an inspector general and an oversight board to supervise and oversee their administration. The law allocated $150 billion to states and localities battling the pandemic and $130 billion more for the healthcare 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 were 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 appropriated $349 billion to support small businesses' efforts to maintain their payroll and some overhead expenses through the period of emergency. The stated goal was to keep workers paid and employed during the period of the emergency.
The Paycheck Protection Program (PPP) applied to any business, nonprofit organization, veterans organization, or tribal business that had under 500 employees; under the Small Business Administration standard (if greater than 500 employees) or under 500 employees per physical location for all foodservice and accommodation businesses. Eligible businesses could receive a Small Business Interruption Loan up to 2.5 times their average monthly payroll, up to a maximum of $10 million.
The loans were allowed to cover payroll, benefits, and salaries, as well as interest payments, rent, and utilities. Fees were waived, and collateral and personal guarantees were not required. Payments were deferred for a minimum of six months up to one year, and there were no prepayment penalties.
The principal of the loan could 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, under PPP, this amount would be reduced by the proportion of any reduction in the average number of employees during that period.
In addition, $10 billion in emergency grants were authorized for small businesses, private nonprofits, sole proprietorships, agricultural co-ops, and employee-owned firms and could be converted into advances on forgivable loans as outlined above. There was 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 was allocated to administration, training, consulting, and education related to these loan programs.
Economic Injury Disaster Loans
Under the expansion of this existing Economic Injury Disaster Loan Emergency Advance program (EIDL), small businesses affected by COVID-19 were able to apply for an EIDL of $10,000 that did not have to be repaid. For EIDL loans, those eligible were able to borrow up to $200,000 without a personal guarantee.
Pandemic Unemployment Insurance
The stimulus plan extended both the eligibility and the benefit amounts for unemployment related to the emergency.
Eligibility for unemployment benefits was extended to those who would otherwise not qualify if their loss of work was related to the COVID-19 pandemic. This included contractors and the self-employed, those whose existing benefit had been exhausted, those who were only seeking part-time employment, those with insufficient employment history, or anyone who would otherwise not qualify. However, it specifically excluded those who had the ability to continue their jobs working remotely online, or were already being paid sick leave or other leave benefits due to the work interruption.
The plan dramatically expanded eligibility for unemployment benefits just as new unemployment claims were skyrocketing. Nearly everyone but remote online workers and those already on paid leave were eligible.
The plan extended the duration of regular unemployment benefits for affected workers from the norm of 26 weeks to as long as 39 weeks. It also extended payment of benefits to the first week of unemployment where not prohibited by state laws. In addition, it funded a new Federal Pandemic Unemployment Compensation benefit of $600 per week on top of the regular unemployment benefit that continued through the end of July 2020.
However, in late December of 2020, the FPUC was modified and extended as part of the Continued Assistance Act. The FPUC was modified to provide an additional $300 per week in benefits. The funds are available for any weeks of unemployment beginning after Dec. 26, 2020, and ending on or before March 14, 2021.
The CARES Act also established the Pandemic Emergency Unemployment Compensation (PEUC) program, which allowed workers who had exhausted their unemployment compensation benefits to receive 13 more weeks of benefits, if they were able to work. Also, the Pandemic Unemployment Assistance (PUA) extended benefits to self-employed individuals, freelancers, and independent contractors.
For workers who remained employed but with reduced hours, the stimulus plan funded 100% of state short-term compensation benefits, and provided incentives for states that did not have such benefits to implement them.
Please note the benefits under the PEUC program that expired on Dec. 31, 2020, were extended to March 14, 2021, as a result of the Continued Assistance for Unemployed Workers Act of 2020 (or the Continued Assistance Act). The act was passed by the U.S. Congress and signed into law by President Trump on Dec. 27, 2020, as part of the Consolidated Appropriations Act (CAA), 2021. Also, individuals can collect unemployment benefits for an additional 24 weeks (versus the original 13 weeks under the CARES Act).
Tax Changes and Credits
The coronavirus stimulus plan created a tax rebate of $1,200 per taxpayer plus $500 per child. The amount of the rebate was set up to be gradually reduced for incomes above $75,000 per year for individuals, $112,500 for heads of households, and $150,000 for joint filers. It directed the Treasury to send these payments as soon as possible.
The CARES Act also allowed taxpayers to take an above-the-line deduction from adjusted gross income of up to $300 for charitable contributions and relaxed other limits on charitable contributions.
Taxpayer rebates gradually phased out as income rose, dropping to zero above $99,000 per year for single filers and $198,000 for joint filers.
Borrowing From Retirement Plans
The plan, which included guidance from the IRS, allowed people to take special disbursements and loans from tax-advantaged retirement funds of up to $100,000 without facing a tax penalty. It waived the required minimum distribution (RMD) rules for 401(k) plans and individual retirement accounts (IRAs) and the 10% penalty on early 401(k) withdrawals up to $100,000. 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 applied to anyone directly affected by the disease itself or who faced economic hardship as a result of the pandemic. IRS guidance also expanded the list of eligible participants who were able to make these withdrawals to include anyone who had a job offer rescinded or delayed as well as the spouses of those individuals, even if they were still working.
For businesses, it created a new Employee Retention Credit (ERC) against employment taxes, which was intended to encourage them to retain and pay their employees during any quarter when business operation was partially or fully suspended due to the coronavirus. This credit did not apply to businesses that received Small Business Interruption loans.
Employer payroll taxes were 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 2020 can be carried back for up to five years. Excise taxes on alcohol used to produce hand sanitizer were suspended for 2020.
The stimulus plan addressed both direct healthcare needs during the emergency and financing for treatment and prevention.
The plan boosted payments to healthcare providers and suppliers by $100 billion through various programs, which included Medicare reimbursements, grants, and other direct federal payments. It also directed $27 billion in spending on tests, vaccine development, and medical treatment devices, including $16 billion in purchases for the Strategic National Stockpile. It also directed 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 relaxed numerous laws, Medicare payment rules, and drug approval requirements to allow more flexibility to respond to the emergency, and it introduced a few new rules. It required health insurers to cover tests for the virus as well as treatments and vaccines that were in development. It protected healthcare providers from liability when they volunteered to fight the pandemic across state lines and increased funding for healthcare workforce training, education, and modernization programs.
In order to provide liquidity to the hardest-hit businesses and industries, the coronavirus stimulus plan allocated $500 billion for loans and guarantees. This included $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 was allocated toward programs and lending facilities operated by the Federal Reserve to support other businesses, states, and municipalities.
The vast majority of the funding was administered through Federal Reserve emergency lending facilities that the Fed had rolled out. Financial institutions, public entities, and businesses of all kinds were eligible.
However, any loans made by the Treasury under this plan came with conditions. Stock buybacks, dividend payments, and labor force cuts of more than 10% were banned. All loans issued by the Treasury were to include equity or senior debt from the borrowers. Unlike the Small Business Interruption loans, these Economic Stabilization loans were not forgivable.
Compensation for employees earning over $425,000 annually was capped at current levels and severance packages were capped at two years’ compensation. Compensation for employees earning over $3 million annually was capped at $3 million-plus one-half of any amount over $3 million of their 2019 compensation.
Any companies owned or controlled by the president, vice president, or members of Congress were ineligible for these loans.
Airlines receiving loans were required to maintain service to existing destinations and routes. Air travel excise and fuel taxes were suspended for all of 2020. In addition to the loan program, $32 billion was earmarked for payroll assistance for airlines and contractors.
Loans to midsize businesses (500–1,000 employees) included conditions that they were not to outsource or offshore jobs or break union contracts and were required to remain neutral toward union organizing.
The plan also authorized the Treasury to reactivate the use of the Exchange Stabilization Fund to provide emergency liquidity to money market mutual funds and relaxed certain capital requirements for banks and credit unions.
The CARES Act also offers some protections for consumers and borrowers, which includes a forbearance and a moratorium on foreclosures for all federally backed home mortgages. There was also a moratorium on evictions for rental properties with federally backed mortgages or that participated in various federal housing subsidy programs.
The moratoriums were set to expire in early 2021 but were extended for single-family-owned homes and real estate-owned (REO) properties, which are bank-owned properties seized due to nonpayment. In other words, the mortgage eviction and foreclosure moratorium dates have been extended. However, the extension date varies, depending on the government agency or enterprise that guarantees the mortgage loan.
Below are the extension dates for each type of mortgage:
June 30, 2021
The U.S. Department of Agriculture (USDA) began its Single-Family Housing Direct and Guaranteed Loan Programs (SFHDLP and SFHGLP). The Department of Veterans Affairs also extended its existing moratorium on evictions and foreclosures for VA loans until June 30, 2021.
On this date, the U.S. Department of Housing and Urban Development (HUD) was insured by the Federal Housing Administration (FHA), or guaranteed by the Office of Native American Programs' Section 184 and 184A loan guarantee programs.
HUD, the VA, and the USDA also extended the date for which borrowers can request forbearance. The mortgage payment forbearance enrollment window will continue until June 30, 2021.
March 31, 2021
Please check with your lender or mortgage service provider—the mortgage company that receives the monthly payments—to determine whether your mortgage loan is part of one of the aforementioned government programs.
State and Local Government Relief Fund
State and local governments received up to $150 billion in assistance through the new Coronavirus Relief Fund. Three billion dollars was reserved for federally administered territories and $8 billion was reserved for tribal governments. Payments to states and local governments were divided proportionally according to population. These were large, open-ended block grants that were directed toward costs associated with controlling the pandemic and mitigating its economic damage.
As can be expected with this type of extreme federal spending, numerous industries, agencies, and special interest groups were lining up to receive a piece of the funding pie. The CARES Act also included legal changes designed to benefit specific industries or businesses in key congressional districts that did not immediately seem connected to the COVID-19 crisis at the time. These included:
- $25 million for operations and maintenance at the Kennedy Center for the Performing Arts
- $75 million in new grants that were 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 that allowed employers to pay off $5,250 on each employee's student loans
- Funding for free videoconferencing visits and calls for prison inmates
- The eliminations of congressional spending caps on federally funded harbor dredging
Comparison to the Consolidated Appropriations Act and American Rescue Plan
The CARES Act was the first of three major pieces of COVID-19 relief legislation. The Consolidated Appropriations Act (CAA) followed the CARES Act and the American Rescue Plan Act (ARPA) came last. The table below compares base funding in several key areas for each law.
|CARES Act vs. CAA vs. ARPA|
|Signed into law||March 27, 2021 President Donald Trump||Dec. 27, 2020 President Donald Trump||March 11, 2021 President Joe Biden|
|Direct payment/EIP||$293 billion ($1,200)||$166 billion ($600)||$402 billion ($1,400)|
|Unemployment||$268 billion ($600)||$120 billion ($300)||$206 billion ($300)|
|Small business||$377 billion||$325 billion||$54 billion|
|Community development||$5 billion||$12 billion||$362 billion|
|Transportation||$71 billion||$45 billion||$43.2 billion|
|Vaccine develop/distribute||$28 billion||$69 billion||$93 billion|
|Schools||$31 billion||$82 billion||$176 billion|
|Rent assistance||$17 billion||$25 billion||$21.6 billion|
|Nutrition and agriculture||$25 billion||$26 billion||$22.7 billion|
|U.S. Postal Service||$10 billion (loan)||$10 billion (loan forgiveness)||$570 million (paid leave)|
|Child care||$5 billion||$10 billion||$40 billion|
|Broadband||$25 billion||$7 billion||$7 billion plus|
|Coronavirus Relief Fund||$150 billion||Extended to 12/31/21|
|Employee Retention Credit||$55 billion||Extended to 6/30/21||Extended to 12/31/21|
|Lookback for EITC/CTC||Created||Expanded|
|Total appropriations||$2.2 trillion||$910 billion||$1.9 trillion|
Congress. "H.R.748 - CARES Act." Accessed Jan. 26, 2021.
U.S. Department of Labor. "U.S. Department of Labor Announces New CARES Act Guidance on Unemployment Insurance for States in Response to COVID-19 Crisis." Accessed Feb. 17, 2021.
U.S. Department of Labor. "U.S. DEPARTMENT OF LABOR ISSUES GUIDANCE ON FEDERAL PANDEMIC UNEMPLOYMENT COMPENSATION AND MIXED EARNER UNEMPLOYMENT COMPENSATION." Accessed Feb. 17, 2021.
U.S. Department of Labor. "New COVID-19 Unemployment Benefits: Answering Common Questions." Accessed Feb. 17, 2021.
Internal Revenue Service. "Relief for taxpayers affected by COVID-19 who take distributions or loans from retirement plans." Accessed Jan. 26, 2021.
Internal Revenue Service. "Relief for taxpayers affected by COVID-19 who take distributions or loans from retirement plans." Accessed Jan. 26, 2021.
Whitehouse.gov. "Fact Sheet: Biden Administration Announces Extension of COVID-19 Forbearance and Foreclosure Protections for Homeowners." Accessed Feb. 17, 2021.
HUD.gov. "HUD Announces Extensions and Expansions of COVID-19 Homeowner Relief and Home Retention Measures." Accessed Feb. 17, 2021.
Federal Housing Finance Agency. "FHFA Extends Foreclosure and REO Eviction Moratoriums." Accessed Feb. 17, 2021.