Why the CARES Act May Matter to You
Something from Nate
I hope you and your family are doing well and staying healthy. The last couple of weeks have been especially difficult for many Americans. We are all dealing with the stress of possibly losing our health or seeing loved ones impacted by the pandemic. Additionally, many of us, even those who thought they were immune, are beginning to experience the slowing economy. Unemployment is rising, and wages are decreasing. Many of us are looking to our checking and savings accounts, and asking ourselves, "How do I keep afloat?" I hope to help answer that question with the resources I will be providing.
A lot of information is floating around out there regarding personal finance and COVID-19. In the weeks and months ahead, I will be doing my best to keep you informed of the fast-changing policies which may prove to be beneficial to you. My goal is to keep this information clear, concise, and easily accessible. To reach this goal, I set up a
Coronavirus resource page on Pursuit Planning and Investments, LLC's website. The page currently includes:
A checklist which helps answer: "What emergency relief options should I consider during the coronavirus pandemic?"
A primer on the CARES Act (also included in the body of this email below)
If you need someone to talk to about your finances, feel free to reach out. You may place a time on my calendar. In the meantime, if you are bored of watching Neflix, feel free to learn. Below is a primer on the CARES Act and how it may possibly impact you, a family member, or friend. Stay safe! - Nate
The CARES Act - Elements That May Matter to You
Congress designed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to serve as a financial bridge for many Americans until quarantine measures pass and citizens return to work. The CARES Act is 880 pages long (yeah, it's a beast, see for yourself here). The Department of Treasury is expecting more than 80% of Americans to receive a recovery check, and direct assistance to individuals represents the most significant portion of the bill (see here). For now, here are items regarding the recovery checks, retirement plan options, student loans, and small business owner relief programs covered under the Act, which I believe many people should consider.
Understanding Rebate Checks:
Tax filing and payment deadline postponed to July 15. Individual and family tax returns for 2019, will be due on July 15. There is no need to file an extension to take advantage of the postponed deadline. However, you may still consider filing your return early. For example, if you expect a check, submitting your 2019 taxes as soon as possible, may result in a quicker recovery check.
Recovery checks are coming. The CARES Act provides recovery checks for individuals and families. How much you receive will depend on your financial situation. Individuals will receive up to $1,200, couples filing MFJ can expect up to $2,400, with an additional $500 per child. However, those numbers are adjusted depending on the adjusted gross income (AGI) you reported in 2018 or 2019 (the most recent year for which a filed tax return is available). If your AGI was over $75,000 as an individual or $150,000 as a couple, the received check could be less. Some people may receive no check at all.
The Recovery Check is a tax rebate. The government will use taxpayer's 2018 or 2019 tax return to cut the initial checks. When you file your 2020 tax return, the tax paperwork will recalculate if you are eligible to receive the rebate. As a result, some taxpayers may get a small (or no) check, but they may receive additional funds later when their 2020 tax return shows they fell inside the eligibility requirements. If your 2020 tax return shows you should have received less than what you received, the government will not clawback the excess money received. So, once you receive the recovery check, you get to keep it.
Consider filing a 2019 tax return soon if a lot has changed in your life since 2018. A lot could have happened since 2018 (i.e., marriage, moved, kids, etc.). And, of course, your adjusted gross income for 2018 may be higher than in 2019 or 2020. If your income was high in 2018, consider filing your 2019 return as soon as possible to communicate income changes to the IRS. There is a chance the IRS will use your 2019 numbers to calculate the rebate. However, we do not know when the IRS will look at your paperwork to determine your check's amount.
Checks will be sent via the most recent available information on file. If you are receiving Social Security benefits and qualify for funds, the money will be direct-deposited into the same account as your social security checks. Otherwise, the Treasury Department will use information used on your 2018 or 2019 tax return for direct depositing or mailing checks. According to the Treasury Department, checks could be sent as soon as three weeks from the bill's enactment (i.e., mid-April). You may also submit a notification of address change to the IRS if you need more time to file your 2019 return, and the 2018 tax paperwork has outdated information (although whether the IRS processes it in time, is to be determined). See form 8822 for updating your address with the IRS.
Understanding Retirement Plan Options:
IRA and HSA contribution deadlines extended. The deadline to contribute to Individual Retirement Accounts (IRA) and Health Savings Accounts (HSA) is July 15. That means you have until July 15 to make your 2019 IRA and HSA contributions. Have other questions about tax deadlines? View the IRS's Filing and Payment Deadlines, Questions, and Answers page.
The IRS waived the retirement plan early withdrawal penalty for 2020. Under normal circumstances, the standard advice is to contribute to your retirement savings accounts, and do not touch that money until retirement. Using funds from retirement plans to shore up near term finances is what I would call the "Nuclear Option." If you have lost income and are having a hard time meeting life's needs, using funds from your retirement accounts may be an option. You may qualify for a coronavirus-related distribution from an IRA or a 401(k) if the pandemic has adversely impacted your finances. If you can show hardship, you may be exempt from paying the 10% early withdrawal penalty from your retirement account. Any income from a distribution may be spread across three years and is eligible to be repaid over three years. Anyone considering this option should talk to their accountant or financial planner before taking action. Other options may be available before taking this course.
Required Minimum Distributions (RMDs) waived in 2020. The changes to RMDs mostly applies to folks who are in retirement. RMDs are not required for traditional IRA, SEP-IRA, SIMPLE IRA, 401(k), 403(b), or 457(b) plans in 2020. There are special distribution provisions for those who have inherited a retirement account since the passage of the SECURE Act. Those who have already received an RMD this year, and don't need the funds for 2020, should consider working with their accountant or financial planner to see if it would be advantageous to return those funds.
Understanding Federal Student Loans
If you hold federal student loans (not to be confused with private student loans), you may receive some relief. If you can afford to continue to make payments, it may make sense to continue working down these loans. Consult with a financial planner or student loan specialist to consider possible benefits. To learn more about the relief programs for federal student loans, visit the Federal Student Aid website.
Federal Student Loans will charge 0% interest for student loans until September 30, 2020. Loan servicers should adjust accounts so that interest does not accumulate from March 13 to September 30, 2020.
Federal Student Loans are in administrative forbearance until September 30, 2020. Administrative forbearance means payments are not required from March 13 - September 30, 2020.
Those on Income-Driven Repayment Plans or Public Service Loan Forgiveness (PSLF) may have suspended payments count toward forgiveness. Be sure to read the fine print with your servicer.
The CARES Act provides other provisions. Namely for small business owners and those who are filing for unemployment.
The CARES Act expands unemployment benefits. Typically, self-employed individuals are unable to receive unemployment benefits. However, the CARES Act expands benefits to self-employed workers. Additionally, the CARES Act increases weekly benefits as much as $600 in addition to what workers may regularly receive for up to four months.
The CARES Act provides small business emergency assistance. The details of the programs are very intricate, and if you are a small business owner needing emergency assistance, I encourage you to:
Contact your local bank. Banks are ramping up operations to help businesses with Small Business Administration (SBA) loans and assistance programs. These funds are limited, and so it would be best to put your name in the hat sooner than later.
Work with your banker and gather the documentation needed for your loan application.
Review this Coronavirus Emergency Loans Small Business Guide and Checklist from the U.S. Chamber of Commerce and the Small Business Administration website.
Have something on your mind? Schedule a free call with Nate.
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