COVID-19: Stimulus Relief For Tutors

The new stimulus bill will send checks to most tutors and expands eligibility for SBA loans to self-employed sole proprietors and independent contractors

The CARES act signed into law last week provides multiple ways for tutors to receive some much needed cash during these difficult times (I am not a lawyer, so this post is informational only and should not be considered legal or tax advice):

Individual Tax Rebate

Also known as a check straight from the federal government! The amount you’ll receive depends on your tax filing status and the adjusted gross income amount stated on your 2019 tax return (or 2018 return if you haven’t filed 2019 yet):

• Single: $1,200 if you make less than $75,000 a year. Then, reduced by 5% of every dollar earned over $75,000 (so you’d receive $1,150 if you made $76,000 last year). No money for anyone making over $99,000 per year.
• Head of Household: $1,200 + $500 per child if you make less than $112,500 a year. Then, reduced by 5% of every dollar earned over $112,500.
• Married: $2,400 + $500 per child if you make less than $150,000 a year. Then reduced by 5% of every dollar earned over $150,000. No money for any couple making more than $198,000 a year.

Assuming you indicated direct deposit on your tax return in either 2018 or 2019, there will be no action required on your part. The government will deposit your payment directly into your account. So for example, if you changed addresses during 2019 and haven’t filed your 2019 taxes yet, you do not need to rush to file them to send the IRS your new address as long as you filed 2018 and indicated direct deposit! You can wait for the extended tax deadline of July 15th.

But if you haven’t filed taxes for either 2018 or 2019, go do that now.

A few other things to note about these checks:

• They are tax free
• Since they are technically tax refunds, you could end up receiving additional money after you file your 2020 tax return. For example, if you are single and made $100,000 in 2019 but then only make $70,000 in 2020, you’d receive the $1,200 tax credit when you file your 2020 taxes next year.
• Importantly, you will not have to pay more in 2020 even if you end up making more than you did in 2018–2019. For example, if you’re single and made $70,000 in 2019, receive your $1,200 check, and then go on to make $100,000 in 2020, you will not have to pay the $1,200 back. That money is forgiven.

SBA Economic Injury Disaster Loan

These loans have always existed, and Americans can apply for them now that the COVID-19 crisis has been deemed a national disaster. What’s changed is that the pool of eligible businesses has been greatly expanded to include sole proprietors and even independent contractors! That means most tutors should be able to apply for assistance.

Since COVID-19 has created such a devastating immediate need for so many businesses, the SBA has published a new streamlined application.

Note that any applicant can request up to a $10,000 advance on the loan. This advance is a grant, and thus does not have to be repaid under any circumstances. Even if your EIDL application is ultimately denied, you can still receive the $10,000 grant and you would not have to pay it back.

The best part? The $10,000 grant should come within 3 days of submitting your EIDL application.

SBA Paycheck Protection Program

This is a new program introduced under the CARES stimulus act. The program allows small businesses, sole proprietors, and independent contractors to apply for loans to cover wages (up to $100,000 annualized per person), health insurance costs, 401k contributions, rent, mortgage interest, and utilities.

The most notable thing about these loans is that the principal is forgiven if certain conditions are met:

1. You use all the funds for “qualified uses” for the next eight weeks from the date the loan is taken (payroll, mortgage interest, rent, and utilities).
2. Your number of full-time equivalent employees is not reduced.

So if you receive a $15,000 loan and meet those two requirements, you will not have to repay the $15,000 back. You also will not have to pay taxes on the $15,000. Note you will still need to pay interest on the loan.

However, note that the amount that is available to be forgiven will be reduced if you also qualify and receive the $10,000 EIDL grant!

In other words, if you would qualify for a $15,000 forgivable loan under the PPP but already received your $10,000 EIDL grant, only $5,000 will be forgiven under the PPP. Since the $10,000 EIDL grant is paid out within 3 days, it likely makes sense to apply for that first and then see what you could qualify for through the PPP.

Unlike the EIDL grant, you apply for PPP loans through lenders. The SBA simply guarantees the loan with the backing of the federal government. Go to this link for more information, but note that the details are still unfolding at this point.