Today the emergency relief bill, now known as The CARES ( Coronavirus Aid, Relief, and Economic Security) Act, was passed to help bolster the U.S. economy as the country battles the coronavirus. The new law covers a broad cross-section of the economy—including the freelance sector. Of particular note, the relief package gives jobless workers bigger unemployment checks over a longer period of time, including freelancers and the self-employed who are typically excluded from collecting these benefits.
Here’s what else freelancers can expect to receive in terms of financial relief under this new law:
• All self-employed workers, contractors, government employees, individuals seeking part-time work, and workers who quit their job or can’t reach their place of work as a result of COVID-19 are among those eligible for unemployment benefits.
• The law allows for individuals to claim unemployment benefits for an extended period of time (up to four months) and waives the typical one-week waiting period to start receiving benefits.
• Weekly unemployment benefit payouts are increased by $600.
• The law also revives the “Emergency Unemployment Compensation” program for 13 additional weeks on top of states’ standard programs, meaning that if your state’s total benefit period for unemployment payments is 26-weeks you could receive up to 39 weeks with this federally-funded extension.
• On an individual basis, freelancers are also eligible to receive the direct cash payments to lower- and middle-income Americans of $1,200 for each adult (up to $2,400 for couples), as well as $500 for each child if they meet the stated income. People with no federal tax liability will receive only $600. It is anticipated that checks will be cut April 6.
• The individual check totals start to phase out from $75,000 to $99,000 ($150,000 to $198,000 for couples filing jointly) in adjusted gross income based (AGI) on 2019 income tax returns. 2018 returns will be used to calculate your AGI if the more recent information is not available). Ultimately, the package will be “reconciled after the fact” with your 2020 earnings, meaning if you earn more or less this year, you may have to pay back some of the relief money or get a bigger rebate next year.
• The law also allows corporations to delay estimated tax payments until October 15, 2020. Self-employed people can also delay payroll taxes.
• In addition, The Department of Education is suspending student loan payments until September 30, 2020 without penalty.
• Last week, the federal government also extended FMLA coverage to freelancers and the self-employed who get ill from the coronavirus or who must care for a family member or a child who is not in school due to the pandemic. You can read our previous blog for details on these benefits.
The Paycheck Protection Program May Help Freelance Businesses
Another element of the CARE Act is the Paycheck Protection Program. Under this program, the Small Business Administration (SBA) will distribute $350 billion in small business loans that can be partially forgiven if companies meet certain requirements. The objective of the program is to provide up to eight weeks of cash-flow assistance through 100 percent federally guaranteed loans.
Here are the key points about the Paycheck Protection Program:
- The program is expected to be enacted no later than two weeks from the date the CARES Act was signed into law.
- The program is retroactive to February 15, 2020. This is to help bring workers who may have already been laid off back to work.
- The loans are only available to companies with 500 or fewer employees that were in business on Feb. 15, 2020. This includes freelancers, independent contractors, and sole proprietorships.
- The loans will be administered by banks and other lenders via what is anticipated to be an expedited origination process and must be in place by June 30, 2020.
- The maximum loan amount available will be the lesser of 5 times a company’s average monthly payroll costs during the one-year period before the date on which the loan is made, or $10 million. For new businesses, the period considered would be January 1 to February 29, 2020.
- The loans will carry an interest rate of up to 4%.
- The loan amount is intended to cover eight weeks of payroll expenses and any additional amounts for making payments towards debt obligations. This eight-week period may be applied to any time frame between February 15, 2020 and June 30, 2020. Seasonal business expenses will be measured using a 12-week period beginning February 15, 2019, or March 1, 2019, whichever the seasonal employer chooses.
- The loan will be forgiven at the end of the eight-week period after you take out the loan. Your lender will help you verify covered expenses and the proper amount of forgiveness. If the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest accrued in the 8-week covered period. Be sure to check with your lender about the terms for repaying any portion of your loan that is not forgiven.
- The principal of the loan will be forgiven if your business uses the loan funds for certain approved purposes and maintains the average size of its full-time workforce based on when it received the loan. Therefore a business may only be responsible for the interest that accrues, as long as they maintain their employees and pay them at least 75% percent of their prior-year compensation.
- Loan forgiveness can be reduced (not increased) by the following formula: # of FTE equivalents during period / # of FTE equivalents from January 1, 2020 to February 29, 2020. Loans will also be reduced by any wages for an employee whose pay is now more than 25% higher than it was prior to the loan.
- The funds from the loan can be used to cover payroll costs (but not salaries over $100,000); employee commissions and tips; business-related mortgage obligations, rent, and utilities as well as debt obligations on other loans taken out before the Payroll Protection Program loan; healthcare benefits including paid sick or medical leave and insurance premiums.
- The Paycheck Protection Program also provides debt relief. For six months the SBA will pay all principal, interest and fees on all existing SBA loan products including 7(a), Community Advantage, 504, and Microloan programs.
- This program also includes independent government contractors. Federal agencies are required to extend contract performance periods and promptly pay small business contractors impacted by COVID-19.
- The legislation also temporarily increases the maximum amount for an SBA Express loan from $350,000 to $1 million through December 31, 2020.