The Ultimate Freelancer’s Guide to the C.A.R.E.S. Act: New Funds and Benefits

Intro

The Freelance Co-op is a cooperative of creative freelancers who work, create, and build our businesses using shared resources, knowledge, and experience. Studies predict that by 2027, over half of Americans will be freelancers and currently 47% of millennials do at least some freelance or contract work.

Important Links

Here are some primary source links that we’ll reference throughout the guide and where you can do more comprehensive research on the CARES Act.

Section 1: Your Stimulus Check

Summary

The most talked about section of the CARES Act is the “2020 Recovery Rebates” commonly known as Stimulus Checks.

Eligibility

To qualify to receive a check you must:

  • Have an adjusted gross income under $75,000 ($112,500 for head of household and $150,000 married) — this is based on your most recent PERSONAL tax return (2018 or 2019 if you’ve already filed this year). This number can usually be found on line 8b of your tax return (IRS Form 1040).
  • Not be a dependant on someone else’s tax return
  • Have a work-eligible Social Security Number

How to get it

If you filed your 2018 taxes last year OR your 2019 taxes this year, you don’t have to do anything. In fact, DO NOT call the IRS or other financial advisors to check the status as this will impede their ability to get information and checks out in a timely manner. The IRS will calculate how much your check will be and distribute it however you typically receive tax returns (direct deposit into your bank account or with a paper check). The IRS has said that paper checks may take longer to receive than direct deposit.

FAQ

When will I see my money? Government officials, including President Trump and Treasury Secretary Steven Mnuchin have said that checks will be distributed in about 3 weeks, but those with paper checks may take longer.

Additional Resources

Senate Finance Committee Stimulus Checks FAQ

Section 2: Unemployment Insurance for Freelancers

Summary

The CARES Act creates three new Unemployment Insurance Programs. They have confusingly similar names: Pandemic Unemployment Compensation (PUC), Pandemic Emergency Unemployment Compensation (PEUC), and Pandemic Unemployment Assistance (PUA).

  • Pandemic Emergency Unemployment Compensation (PEUC) — We’ll call this one “The Time Boost”
  • Pandemic Unemployment Assistance (PUA)- This is “The Eligibility Boost”

Eligibility

Anyone eligible for The Eligibility Boost is eligible for the other two programs as well, so we’ll just focus on who’s now eligible for Unemployment through PUA.

  • A member of their household has been diagnosed with COVID-19
  • They are providing care for someone diagnosed with COVID-19
  • They are providing care for a child or other household member who can’t attend school or work because it is closed due to COVID-19
  • They are quarantined or have been advised by a health care provider to self-quarantine
  • They were scheduled to start employment and do not have a job or cannot reach their place of employment as a result of a COVID-19 outbreak
  • They have become the breadwinner for a household because the head of household has died as a direct result of COVID-19
  • They had to quit their job as a direct result of COVID-19
  • Their place of employment is closed as a direct result of COVID-19
  • They meet other criteria established by the Secretary of Labor

How to get it

You’ll apply through your State’s Department of Labor.

FAQ

How much do I get? This varies widely by state. Most states cover about 40–45% of your normal income. You’ll get the state’s normal unemployment formula plus the $600 per week “Money Boost.”

Additional Resources

CARES Act Unemployment Insurance Fact Sheet

Section 3: Business Tax Changes

Summary

The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19.

  • You may be able to get a 50% tax credit on wages (up to $10,000 per employee) for employees that you retain during the COVID-19 crisis if your business was shut down in full or in part. This is to encourage businesses to keep paying employees.
  • Businesses that have net operating losses (NOLs) have some limitations relaxed. If your business had an NOL in a tax year beginning in 2018, 2019, or 2020, that NOL can now be carried back five years instead. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.
  • Businesses that were due to receive corporate alternative minimum tax (AMT) credits at the end of 2021 can instead claim a refund now, in order to improve cash flow during the COVID-19 emergency.
  • On your personal tax return, there’s a new deduction for up to $300 for charitable contributions. Previously, charitable contributions were only available for people who itemized their deductions. This new deduction is for you if you use the standard deduction formula.

Eligibility

Businesses are eligible for an employee retention tax credit if 1.) your business operations were fully or partially suspended due to a COVID-19 shut-down order; or 2.) gross receipts declined by more than 50% compared to the same quarter in the prior year.

How to get it

Most of these changes will apply to quarterly or yearly tax filings and guidelines have not been released from the IRS. Speak with your accountant or tax preparer about if you qualify for any of these new programs.

Additional Resources

US Chamber of Commerce Guide for Businesses

Section 4: Student Loan Relief

Summary

There are two major provisions in the CARES Act regarding Student Loans.

Eligibility

Most federal loans from the last 10 years are eligible for automatic payment suspensions.

How to get it

Most loan servicers will automatically suspend payments and interest of federal loans. You should check your online account to make sure you have no payment due.

FAQ

If my payments stop, will interest continue to accrue? No. The bill says interest will not accrue.

Additional Resources

Article: What the CARES Act means for Student Loans

Section 5: Other Relief

Summary

There’s a few other provisions in the CARES Act that may apply to your situation.

Additional Resources

Full Text of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

Section 6: New Loans for Your Business

Summary

There are two main expansions of Small Business Administration Loans and Programs.

  • EIDLs can be approved by the SBA based solely on an applicant’s credit score.
  • EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
  • Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.

Eligibility

The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, select types of businesses with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(c)(19) veteran organizations.

How to get it

The SBA loans work through a network of lenders. You can use Lender Match, a free online referral tool that connects small businesses with participating SBA-approved lenders within 48 hours.

FAQ

Can I get both loans? Yes, as long as they don’t pay for the same expenses. However, be sure to check with your financial advisor or lender before taking both types of loans if you are not sure of the specifics.

Additional Resources

Small Business Administration (SBA) Guide to COVID-19 Loans and Programs

Section 7: Retirement Account Withdrawals

Summary

The CARES Act Hardship Distribution waives the 10% early withdrawal penalty tax under Internal Revenue Code Section 72(t) on early withdrawals up to $100,000 from a retirement plan or IRA for an individual.

Eligibility

You can have the 10% penalty waived for up to a $100,000 withdrawal if you:

  1. have a spouse or dependent diagnosed with COVID-19;
  2. experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  3. other factors as determined by the Treasury Secretary.

How to get it

Speak with your retirement account holder or financial adviser on how to withdraw funds. Many financial institutions allow you to process your withdrawal online.

Additional Resources

Article: Retirement and IRA Changes in the CARES Act

Have Questions?

Join the Freelance Co-op for a LIVE Q&A with CPA Jonathan Medows.

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