On Friday March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. The CARES Act is an 880 page economic stimulus package worth approximately $2 trillion that includes a relief intended to aid individuals, businesses, and governmental entities during the COVID-19 pandemic its associated economic consequences. This article highlights several provisions that impact individuals and public sector entities.
Enhanced Unemployment Compensation Benefits
The CARES Act includes a number of provisions that enhance the unemployment compensation benefits available to individuals affected by the COVID-19 pandemic. At its core, the CARES Act provides States the opportunity to enter into agreements whereby the Federal Government will reimburse the States for enhanced unemployment compensation benefits. These agreements will provide unemployed individuals an additional 13 weeks of unemployment compensation, giving individuals a total of 39 weeks of unemployment compensation. Further, through July 31, 2020, individuals will be able to receive an additional $600 per week on top of their normally calculated unemployment benefits. These enhanced benefits will be funded by the Federal government.
In addition, the CARES Act provides States the opportunity to enter into agreements with the Federal government to receive funding for “short-time compensation” programs. A “short-time compensation” program is a form of unemployment compensation benefits for those employees whose hours have been reduced in lieu of being laid off. Under these agreements, the Federal government would provide funding for 50% of the costs that a State incurs in providing these short-time compensation programs.
Finally, for governmental entities or other employers that pay for unemployment compensation benefits on a claims basis, not an insurance basis, the CARES Act will provide funding to reimburse 50% of the costs paid for all unemployment compensation benefits paid through December 31, 2020.
Rehired Employees and the Families First Coronavirus Response Act
In a previous article, we outlined the Emergency Paid Sick Leave and the enhanced Family and Medical Leave benefits arising out of the recently passed Families First Coronavirus Response Act (FFRCA). The CARES Act provides that a rehired employee qualifies for Emergency Paid Sick Leave and enhanced Family and Medical Leave benefits under the FFRCA if the employee:
1) Was laid off by that employer on or after March 1, 2020;
2) Had worked for that employer for at least 30 of the last 60 calendar days prior to layoff; and
3) Was rehired by that employer.
Importantly, the CARES Act does not set a date by which employees must be rehired to qualify for the leave benefits under the FFCRA. Therefore, until the FFCRA leave benefits sunset on December 31, 2020, a rehired employee will be eligible for FFCRA leave benefits, no matter when they are rehired, so long as the conditions of their leave qualify for the FFCRA.
Individual Rebates
Perhaps the signature component of the CARES Act is the individual rebate worth up to $1,200 per individual. The CARES Act provides individuals earning less than $75,000 with direct payments of $1,200 and married couples earning less than $150,000 with direct payments of $2,400. The CARES Act also includes an additional $500 for each child. These payments are phased out and eventually not available to individuals earning $99,000 and couples earning $198,000. To calculate respective income levels, the Internal Revenue Service (IRS) will utilize 2019 tax returns, if filed, or 2018 tax returns, if the 2019 tax returns have not yet been filed. The CARES Act also instructs the IRS to coordinate with the Social Security Administration to institute a campaign for public awareness regarding the availability of these rebates. The CARES Act states that these payments shall be made “as rapidly as possible” but does not provide a specific timetable for the issuance of these payments. U.S. Treasury Secretary Steven Mnuchin has set a goal to begin sending out payments the week of April 6. For example, during the financial crisis of 2008, it took the Federal government 8 weeks to similar payments to individuals.[1]
Retirement Fund Distributions
In the wake of financial emergencies that may arise during the COVID-19 pandemic, the CARES Act allows an individual to take up to $100,000 in total distributions from their retirement accounts (401(k), 403(b), IRA, etc.) without the typical 10% early withdrawal tax penalty. These distributions must be “coronavirus-related” to waive the 10% penalty. Coronavirus-related distributions are those that are taken by an individual:
1) Diagnosed with COVID-19;
2) With a spouse or dependent diagnosed with COVID-19; or
3) Whose work has been reduced or eliminated due to the COVID-19 pandemic.
Department of Education Funding and Waivers
The CARES Act will provide $30 billion to the U.S. Department of Education for an Education Stabilization Fund, which will be allocated to elementary and secondary schools via grants to support their ability to “provide educational services to their students and to support the on-going functionally” of the school and other costs associated with the COVID-19 pandemic. How schools will become eligible for any such grants or the allocation procedures are still unknown at this stage.
In addition, the CARES Act permits the U.S. Secretary of Education to waive certain testing and accountability requirements of the Every Student Succeeds Act (ESSA). However, prior to the passage of the CARES Act, the U.S. Secretary of Education had already waived these testing and accountability requirements for Wisconsin school districts in response to the COVID-19 pandemic.
Conclusions
The COVID-19 pandemic has produced volumes of new legislation that employers and individuals need to process in a compressed timeframe. The CARES Act is the newest piece of legislation that will provide individuals and employers with economic assistance during this time of turmoil; but it is likely not the final piece of legislation that will be proposed and/or enacted in during the COVID-19 pandemic. We will continue to provide updated information as we learn more about what the State and Federal governments are offering in these unprecedented times.
[1] Calculate how much you’ll get from the $1,200 (or more) coronavirus checks, The Washington Post, March 27, 2020 (available at https://www.washingtonpost.com/graphics/business/coronavirus-stimulus-check-calculator/).