CARES Act — Equitable is here to help

At Equitable, we understand the immediate financial obligation that meeting day-to-day expenses may have upon you and your family during this challenging time.

We have developed this FAQ to help you understand the recent enactment of the CARES Act, how it impacts you, and provide some helpful strategies you can employ now while also meeting your long-term retirement goals.

What is the CARES Act?

In response to the current COVID-19 pandemic, on Friday, March 27, the President signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act or the Act) into law. This new law includes approximately $2 trillion in emergency relief to address the economic effects of the COVID-19 pandemic.

How the CARES Act can help you – relief in a time of great need

If you’ve been impacted financially as a result of the COVID-19 pandemic, make sure any monetary moves you make aren’t guided by pure emotion. To help you meet immediate costs, you should look into options laid out in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Questions about CARES

  • I’m a small business owner and participated in the Paycheck Protection Program (PPP). How can I start preparing for my 2020 year-end planning?

    Paycheck Protection Program: 2020 Year-End Checklist

    The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provided $349 billion in loans, guarantees and investments to help businesses. One of the most popular forms of assistance for small businesses, the Paycheck Protection Program (PPP), made loans available to small businesses with no more than 500 employees and to those in certain industries with gross receipts less than a certain threshold. Administered by the Small Business Association (SBA) through local banks, PPP also made funds available to 501(c)(3) organizations, sole proprietors and independent contractors.

    One of the most compelling aspects of PPP loans is the potential for businesses to get all or a portion of the loan forgiven so they don’t have to pay it back. However, there are stipulations involved. Borrowers must use the funds within a certain time frame and only for the purposes specified within the parameters of the PPP. The PPP will forgive loaned amounts to the business but will deny a deduction for those expenses associated with the loan. This can have a direct effect on the business owner of a flow-through business, like an S Corporation, sole proprietorship or partnership. Because the PPP was very popular, initial funding ran out in less than 1 month. Congress provided additional funding, expanded and updated the terms of the program, then closed applications as of August 8, 2020. 

    If you are a small business owner and participated in the PPP, you can use the following checklist as a general guide for your 2020 year-end planning.

    Recommended action steps

       Schedule time with your accountant or other tax professional to:

    • Review the impact PPP loan proceeds may have on your tax returns for 2020 and 2021, as applicable
    • Start the loan forgiveness application process — Applications must be submitted to your lender within 10 months following the end of your applicable “Coverage Period” (either 8 or 24 weeks following receipt of your PPP loan proceeds or December 31, 2020, if earlier). If you borrowed $50,000 or less, the SBA provides a simplified procedure for loan forgiveness.

      Gather the following documentation regarding utilization of Loan Proceeds:

    NOTE: To be eligible for forgiveness, PPP Loan Proceeds must be exhausted during your Coverage Period according to PPP parameters. Generally, payroll costs must make up at least 60% of expenditures and the remaining 40% may be used for mortgage interest payments, rent payments and utilities. You’ll need to provide:

    • A list of all employees on payroll during your applicable Coverage Period with the dollar amount of attributable payroll costs (defined below)
    • Payroll records to show employees remained on payroll or were rehired after PPP loan proceeds were received, including a calculation of the average monthly number of full-time equivalent employees for the period February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020 (as previously selected by you, the borrower) and the average monthly number of full-time equivalent employees during your Coverage Period
    • Payroll records showing restoration of pay by June 30, 2020 for any individual whose pay was reduced by 25% or more, where applicable
    • Evidence of contributions to qualified plans and health care plans for employees

      NOTE: For borrowers who are self-employed, the forgiveness amount for owner’s compensation is limited to 8 weeks’ worth of 2019 net profit and does not include covered benefits. It also excludes any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a tax credit is claimed under section 7004 of the FFCRA (similar rule as applies to employers with respect to pay for time for which a tax credit is claimed under FFCRA).

    • Evidence of mortgage interest payments, rent payments and utilities paid during your Coverage Period
    • Copies of cancelled checks
    • Bank statements with ACH info
    • Utility bills
    • Mortgage statements
    • Lease agreement
    • Evidence of payroll costs, utilities, rent/lease payments and mortgage interest paid before February 15, 2020 to compare to what is paid or incurred during your Coverage Period to make sure it aligns
    • Copy of PPP Loan Application paperwork submitted to your lender
    • Where applicable, copy of Economic Injury Disaster (EIDL) loan if refinanced with PPP loan (be sure to identify how much was an advance that does not have to be repaid or is forgiven). If you used PPP to refinance an EIDL loan, only the funds used for payroll costs will be forgiven, so be prepared to provide documentation listed above for the EIDL loan, too.

    NOTE: If you used PPP funds for purposes outside the parameters of the PPP, SBA will direct you to repay those amounts. Loans originated prior to June 5, 2020 are payable over 2 years and loans originated after June 5, 2020 are payable over 5 years, both at an interest rate of 1% with payments deferred for 6 months. No collateral or personal guarantees are required and neither the government nor your lender will charge any fees.

    If you knowingly use the funds for unauthorized purposes, you may be subject to additional liability, such as charges for fraud. If one of your shareholders, members or partners used PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member or partner for the unauthorized use.

    For more information, please visit: www.sba.gov/funding-programs/loans/coronavirus-relief-options.

    This informational and educational article does not offer or constitute financial, legal, tax, or accounting advice.  Your unique needs, goals and circumstances require individualized attention of your own professional advisors. Equitable Financial Life Insurance Company and its affiliates do not provide tax, legal, or accounting advice or services.

    Equitable is the brand name of the retirement and protection subsidiaries of Equitable Holdings, Inc., including Equitable Financial Life Insurance Company(Equitable Financial) (NY, NY), Equitable Financial Life Insurance Company of America (Equitable America), an AZ stock company with main administrative headquarters in Jersey City, NJ, and Equitable Distributors, LLC.  Equitable Advisors is the brand name of Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI and TN). 

    GE-3294057(10/20)(Exp.10/22)

  • I just lost my job. Does the CARES Act expand unemployment benefits?

    State-run programs will continue to pay unemployment benefits, but eligibility is increased and benefits are broadened. 

    The law adds $600 per week from the federal government on top of whatever the recipient is currently making. This payment will continue for 4 months (until July 2020). So, if a person is currently unemployed and making $300, that person will make $900 for the next 4 months.

  • I have lost my job. Can I take money out of my retirement account?

    Federal and state unemployment benefits have been expanded in response to the COVID-19 pandemic. Contact your state’s Department of Labor to get details on what may be available to you.

    You many also be eligible for a federal tax rebate of at least $1,200 — possibly more — depending on your tax filing status, income and whether you have children.

    If you need to access your retirement savings, check with your employer to see if a distribution and/or loan may be available under your retirement plan.

    If you are not otherwise eligible for a plan distribution, you may be eligible for a coronavirus-related distribution (CRD) if you meet at least one of the following criteria for a qualified individual:

    1. You have been diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention.
    2. Your spouse or dependent has been diagnosed with such virus or disease by a test approved by the Centers for Disease Control and Prevention.
    3. You have experienced adverse financial consequences due to such virus or disease as a result of being quarantined, furloughed, laid off or having work hours reduced, being unable to work due to lack of child care, closing or reducing hours of a business you own or operate, or other factors as determined by the Secretary of the Treasury.
  • I am eligible for a coronavirus-related distribution from my employer’s plan. Should I consider taking an early withdrawal from this plan?

    As a general rule, you would want to use other assets and not use money you are building for your retirement account. Your financial professional can provide further details. If you still need to take a withdrawal from your retirement account, here are a few things you can begin to think about:

    What will your “market opportunity” cost be? In other words, how much will it cost you to have money out of the market? For example, if you withdraw $50,000 now, how much would it have been worth in 5 years? In 10 years? Assuming a 5% rate of return, in 5 years the potential gain would be approximately $14,000 for a projected total of $64,000.* Assuming that same 5% rate of return, in 10 years the potential gain would be approximately $31,000 for a total projected value of $81,000.*

    Consider the tax consequences resulting from your early distribution. Many individuals may be in a higher tax bracket now than at retirement.

    How will the distribution impact your current tax bracket? The early lump-sum withdrawal may cause you to fall into a higher tax bracket than you’re in today. Even though you can include the CRD in your income over 3 years, you may need to take a higher distribution amount to pay the applicable taxes. It’s very important to consult with a tax advisor.

    Are you prepared for the additional taxes that may be due as a result of the CRD? Remember your CRD is includible as ordinary income. There’s no required federal income tax withholding on CRDs. This could leave individuals with greater tax obligations if the funds are not repaid within 3 years. This is especially true if you return to work and your personal income has increased. It’s very important to consult with a tax advisor.

    Taking withdrawals at market lows can have a negative impact on a portfolio. Many participants’ accounts are much lower today than they may be 5-10 years from now, if the account stayed untouched.

  • I just got laid off and might be hired back in 3 months. Can I take my money out of my employer sponsored retirement plan, such as a 401(k) plan?

    If the layoff is due to the COVID-19 pandemic (i.e., you meet the requirements to be a qualified individual), your employer may allow you to withdraw from your retirement account.

    In lieu of having to deplete your retirement savings in current market conditions, check with your state’s Department of Labor to see if you are eligible for unemployment compensation. You may be able to receive an additional $600 per week if you remain unemployed through July 31, 2020.

  • My plan permits me to take a loan from my retirement plan account. What should I consider before doing this?

    There are pros and cons associated with plan loans.

    If you decide to take a loan, it must normally be repaid over a maximum of 5 years. If the loan is used to purchase your principal residence, your plan may allow a longer repayment period, typically 10-15 years, but not longer than 30 years.

    If you have been impacted by COVID-19 (i.e., you are a qualified individual), and take a loan during the 180-day period beginning on March 27, 2020, you may delay loan repayments for 12 months. This will extend your loan term for 12 months. However, you must pay the interest accumulated during the suspension period.

  • Will there be taxes or penalties applied to my retirement distribution?

    If you are a qualified individual and you take a CRD, your distribution will be included in your income for federal income tax purposes ratably over 3 years. You may choose otherwise at the time you file your tax returns.

    A CRD is not subject to the 10% early withdrawal penalty if you are under age 59½.

    A CRD is not subject to mandatory 20% federal withholding.

    A CRD is subject to any required state income tax withholding and is includible in income for state income tax purposes (where applicable) in the year distributed.

  • My family member lost their job. Can I take a distribution from my employer’s retirement plan to support them?

    Unless you are otherwise eligible for a plan distribution or are yourself a qualified individual, generally, no.

    The definition of qualified individual (see above) does not include adverse financial impact due to the job loss of a family member.

    The family member themselves may qualify for unemployment compensation and/or a distribution under a retirement plan in which they participate.

  • Should I take a distribution out of my retirement account and roll it into an annuity for protection?
    Consult with your financial professional or tax advisor regarding the pros and cons based on your individual financial circumstances.
  • I have a life insurance policy. Can I access this money?
    If you have a permanent life insurance policy, you are allowed to take withdrawals and loans. Consult with your financial professional or tax advisor regarding the pros and cons based on your individual financial circumstances.
  • Am I eligible to receive a payment in the form of a tax rebate?

    The CARES Act includes provisions for individual tax rebates of $1,200 per individual, $2,400 for joint filers plus $500 per qualifying dependent child.

    The rebate amounts are subject to phase-out based on annual income ($75,000-$99,000 for individuals, $112,500-$136,500 for heads of household and $150,000-$198,00 for joint filers).

    Tax returns filed for 2019 will be used to determine AGI for rebate purposes.

    Alternatively, if a 2019 return hasn’t been filed yet, the IRS will use a taxpayer’s 2018 return (or if no 2018 return has been filed, the individual’s Form SSA-1099, Social Security benefit statement, or Form RRB-1099, Social Security-equivalent benefit statement).

    For details check www.IRS.gov.

  • Am I permitted to take a withdrawal from my retirement plan account or IRA?

    If you are eligible, yes, but you should weigh the pros and cons of withdrawing assets from your retirement plan.

    While it may help with short-term needs, it may affect your retirement income when you’re ready to retire. Additionally, if you participate in an employer sponsored retirement plan, you should review the Summary Plan Description (SPD) of the plan or check with your employer to determine whether a distribution and/or loan may be available to you.

  • What if the current plan rules do not permit me to take a distribution from my employer’s retirement plan account? What can I do?

    If the normal plan rules do not allow for a distribution, your employer can choose to make the CRD available to you.

    If elected by your employer, the CRD provision under the CARES Act allows U.S. workers who are qualified individuals to take a distribution from their retirement plan account. You are a qualified individual if you meet any of the following requirements:

    1. You have been diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention.
    2. Your spouse or dependent has been diagnosed with such virus or disease by a test approved by the Centers for Disease Control and Prevention.
    3. You have experienced adverse financial consequences due to such virus or disease as a result of being quarantined, furloughed or laid off or having work hours reduced, being unable to work due to lack of child care, closing or reducing hours of a business you own or operate, or other factors as determined by the Secretary of the Treasury.

    Regardless of the provisions of your employer’s plan, you may also take a CRD from your IRA if you are a qualified individual. Note that your CRDs from all available sources cannot exceed $100,000.

* This example is a hypothetical intended for illustrative purposes only and is not indicative of the actual performance of any particular product.

Important Information

Talk with your financial professional and your own legal and tax advisors to: Review current financial circumstances. Learn about available state and federal resources designed to help business owners and employees. Review options for temporary modification of retirement plan employer contribution levels, if necessary. Review current retirement plan withdrawal provisions and assess potential financial needs of employee/participants based on their employment status. Review options to temporarily expand the availability of plan withdrawals and/or loans in this time of need. Please be advised that this presentation is not intended as legal or tax advice. Accordingly, any tax information provided in this presentation is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Clients should seek advice based on their particular circumstances from an independent tax advisor.

Equitable Financial Life Insurance Company, NY, NY (Equitable). Distributors: Equitable Advisors, LLC, Equitable Distributors, LLC. Equitable Advisors (member FINRA, SIPC), Equitable Distributors and Equitable are affiliated companies and do not provide legal or tax advice.