The U.S. Congress passed a $2.2 trillion stimulus bill called the Coronavirus Aid, Relief, and Economic Security Act (CARES) in March 2020 to blunt the economic damage set in motion by the global coronavirus pandemic.
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 furloughed workers, families with children, small businesses, independent contractors and gig workers, large corporations, the health care system, and more.
President Donald Trump signed the bill into law on March 27, 2020.
Key Takeaways
- The CARES Act authorized direct payments of $1,200 per adult plus $500 per child for individuals making up to $75,000, heads of households making up to $112,500, and couples filing jointly making up to $150,000.
- It was the first program of the COVID-19 era to place a moratorium on mortgage foreclosure and tenant evictions.
- It extended unemployment assistance and subsidized payroll for affected small businesses.
- It injected billions into the airlines to keep them flying through the pandemic.
Understanding the CARES Act
At over $2 trillion, the CARES Act stands as the largest financial rescue package in U.S. history. The 2009 Recovery Act was $832 billion, the Consolidated Appropriations Act (CAA) contained $900 billion in pandemic relief, and the American Rescue Plan Act (ARPA) comes closest at $1.9 trillion.
The law allocated $175 billion to states and localities battling the pandemic and $185 billion more for the health care system.
Eligibility for some of the loans and small business assistance was left 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 CARES Act can be broken into seven major areas, including benefits for individuals, unemployment assistance, small business relief, big and medium-sized business relief, tax breaks and credits, hospital and health care assistance, and state and local government.
Important
Some of the provisions of the CARE Act were extended for one year past 2021. All of the provisions of the act expired during 2022.
CARES Act Benefits for Individuals
Direct Payment to Taxpayers
The act authorized direct payments to families of $1,200 per adult plus $500 per child for individuals making up to $75,000, heads of households making up to $112,500, and couples filing jointly making up to $150,000.
Mortgage and Rent Relief
The CARES Act was the first piece of coronavirus legislation to place a moratorium on foreclosures and evictions. The expiration date was extended numerous times. However, on August 26, 2021, the Supreme Court rejected the latest extension requested by the CDC.
There is still help available, however, through the Treasury Emergency Rental Assistance Program. For those seeking assistance on their mortgage or rent payments, the National Low Income Housing Coalition provides a searchable list of such programs available on its website.
Unemployment Assistance
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 otherwise would not qualify if their loss of work was related to the COVID-19 pandemic. This included contractors and the self-employed, those whose existing benefits had been exhausted, those seeking only part-time employment, and those with insufficient employment history.
However, it specifically excluded people who could continue their jobs working remotely or already were being paid sick leave or other leave benefits.
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 2020, the FPUC was modified and extended as part of the Continued Assistance Act. This provided an additional $300 per week in benefits. The funds were available for any weeks of unemployment beginning after December 26, 2020, and ending on or before March 14, 2021. These benefits ended on September 4, 2021.
Pandemic Emergency Unemployment Assistance
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.
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.
The benefits under the PEUC program that expired on December 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 December 27, 2020, as part of the Consolidated Appropriations Act (CAA), 2021.
Individuals were able to collect unemployment benefits for an additional 24 weeks (versus the original 13 weeks under the CARES Act).
As of September 5, 2021, all pandemic-related unemployment benefits have ended, although some states stopped them even earlier.
Student Loan Relief
The CARES Act suspended required payments on student loans owned by the U.S. Department of Education, reduced interest rates to 0%, and stopped collections on defaulted loans. This pause on payments and interest was extended numerous times, but came to an end in September 2023 when interest began to accrue again with payments beginning in October 2023.
Note
President Joe Biden announced the Saving on a Valuable Education (SAVE) plan on June 30, 2023, after the Supreme Court ruled against his efforts to forgive federal student loan debt. Starting in July 2024, the new plan will reduce minimum payments for some borrowers and also reduce the number of years some borrowers must make payments before loans are forgiven. Borrowers can register for the SAVE plan starting in August 2023.
Small Business Relief
Paycheck Protection Program
The law appropriated $349 billion to support small businesses’ efforts to maintain their payrolls and some overhead expenses through the emergency. The stated goal was to keep workers paid and employed.
The Paycheck Protection Program (PPP) applied to any business, nonprofit organization, veterans organization, or tribal business that had fewer than 500 employees—or, under the Small Business Administration standard, had under 500 employees per physical location for all food service 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 could be used 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.
Emergency Loans
A total of $10 billion in emergency grants was 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 another $17 billion to pay the principal, interest, and fees on existing federally guaranteed small business loans for a period of six months.
Finally, funds were allocated for 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.
Big and Mid-Sized Business Relief
Economic Stabilization Loans
In order to provide liquidity to the hardest-hit businesses and industries, the CARES Act allocated $500 billion for economic stabilization 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.
The remaining $454 billion was allocated toward programs and lending facilities operated by the Federal Reserve to support other businesses, states, and municipalities.
Unlike the Small Business Interruption loans, these Economic Stabilization loans were not forgivable.
Employee Retention Credit
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 may not be available to businesses that took advantage of other benefits.
Employer payroll taxes were deferred for 2020. Fifty percent of payroll tax payments for 2020 were due in 2021, with the other 50% due in 2022. Business operating losses for 2020 can be carried back for up to five years.
Tax Breaks and Credits
For Individual Taxpayers
If taxpayers did not receive their direct stimulus payments of $1,200 per adult and $500 per child, they could claim they amount they were due as a tax credit.
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.
Retirement Plan Withdrawals
The plan 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 could 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.
Important
The plan dramatically expanded eligibility for unemployment benefits just as new unemployment claims were skyrocketing. Nearly everyone except remote online workers and those already on paid leave were eligible.
Hospital and Health Care Providers Assistance
The stimulus plan addressed both emergency health care and financing for treatment and prevention of COVID.
The plan boosted payments to health care providers and suppliers by $100 billion through various programs, including 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.
The stimulus plan relaxed numerous laws, Medicare payment rules, and drug approval requirements to allow more flexibility to respond to the emergency.
It also 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 health care providers from liability when they volunteered to fight the pandemic across state lines and increased funding for health care workforce training, education, and modernization programs.
Important
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.
State and Local Government Relief
State and local governments received up to $150 billion in assistance through the new Coronavirus Relief Fund. Of that, $3 billion was reserved for federally administered territories and $8 billion 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.
Earmarked Spending
As can be expected with this type of extreme federal spending, numerous industries, agencies, and special interest groups lined up for 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 administered by the National Endowment for the Arts
- $88 million for the Peace Corps
- $674 million for the Department of State’s diplomatic programs, and 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 the 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 | |||
|---|---|---|---|
| Legislation | CARES Act | CAA | ARPA |
| Signed into law | March 27, 2020 President Donald Trump | Dec. 27, 2020 President Donald Trump | March 11, 2021 President Joe Biden |
| KEY COMPONENTS | |||
| Direct payment/EIP | $293 billion ($1,200) | $166 billion ($600) | Over $400 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 |
What Is the CARES Act vs. the CAA vs. ARPA?
All three were major federal spending bills enacted consecutively to protect American working people and businesses from the worst fallout of the COVID-19 pandemic. They differ in the details and the time periods during which they were effective:
- The Coronavirus Aid, Relief, and Economic Security Act (CARES) authorized direct payments to individuals, generous monthly rebates to families with children, and extended unemployment benefits for laid-off workers. It was in effect from March 13, 2020, through Dec. 30, 2020.
- The Consolidated Appropriations Act of 2021, at $910 billion, extended many of the benefits available under the CARES Act and included a refundable tax credit of $600 per family member. It went into effect on Dec. 27, 2020.
- The American Rescue Plan (ARPA), at $1.9 trillion, was only a little smaller than the CARES Act. It extended or revised many of the benefits of the CARES Act, including rebates to taxpayers, benefits for the unemployed, and tax credits for parents. It was signed into law on March 11, 2021, and most provisions expired on Sept. 30, 2021.
What Was the Biggest Expenditure in the CARES Act?
The biggest single expenditure in the $2 trillion CARES Act was the $300 billion sent directly to American taxpayers. The payment was $1,200 for every adult and $500 more for each child in the household. Another $350 billion was paid out in forgivable loans to small businesses to subsidize their payrolls during the disruption of the pandemic.
Did Anyone Oppose the CARES Act?
The Senate approved the CARES Act in a unanimous vote, with 96 in favor, on March 25, 2020. Then-President Donald Trump signed it into law two days later.
The Bottom Line
The CARES Act was the first of three huge spending bills that opened the government’s coffers to those affected by the coronavirus pandemic.
All three of those bills have run their course, but their longer-term effects are still largely unknown. Will small businesses continue to employ those whose paychecks were subsidized by the government? Will people who benefitted from the moratorium on evictions and foreclosures be able to make up their missed payments? Will people who took out retirement money to get through the crisis be able to make up their shortfalls? All of these questions and more cannot be immediately answered.