The C.A.R.E.S. Act: The most important things to know, and what you may need to do….
The Coronavirus Aid, Relief and Economic Security Act (CARES), signed into law by President Trump March 27th, provides over $2 Trillion of money especially aimed to provide help to individuals, families, and small businesses, in order to provide a jolt to our stricken economy. Here’s a summary of what we believe are the highlights of what you need to know, and what to do if these measures apply to you:
Regarding Individual/Family income/Unemployment:
Individual & Family Income - According to Treasury Secretary Steven Mnuchin, within three weeks $1,200 checks will go out to individuals with AGI levels below $75,000 and married couples with AGI levels below $150,000. These figures will be derived from 2018 or 2019 Federal tax returns (whichever was filed last). An additional $500 per child will be added to this relief check, and the money will NOT be considered taxable income. For those above the AGI thresholds cited above, the amounts will be phased out by $5 for every $100 the threshold is exceeded. This phase out ends for single filers at $99,000, and for joint filers at $198,000.
What do I need to do? For the vast majority of Americans, nothing. You do not have to apply to receive the assistance, and the treasury department will conduct the calculations and the money will arrive by direct deposit into the same account connected to your Federal tax return. Social Security recipients who do not file a Federal tax return will automatically receive the full $1,200 by direct deposit. For the small percentage of people who do not use direct deposit with their Federal return, within the next few weeks the Treasury Department will provide a secure web-based portal where you can provide banking information.
Unemployment - Benefits have been expanded making unemployment benefits available to more workers and the amount unemployed workers can receive has also been increased. States have been incentivized to waive the normal one week waiting period so that workers may receive benefits immediately. Self-employed workers, independent contractors, part-time workers, and even those without sufficient work histories typically necessary to file for benefits in the past may now be eligible for benefits. Benefit amounts have been increased an additional $600 per week over customary state maximums (through July 2020), and the maximum length to receive a benefit has been extended by 13 weeks beyond each state’s previous maximum limit.
What do I need to do? If unemployed, file immediately. There’s no need to stand in line at your local unemployment office. In Illinois, go on-line to www.ides.illinois.gov, and for questions you can call 312-338-4337. In Missouri, you can file on-line at www.mo.gov/work/unemployment and for questions you can call 573-751-9040. For other states, visit your state’s unemployment website for more information.
Regarding Individual Retirement Accounts (IRAs, 401(k)s, etc.):
1) Required Minimum Distributions (RMDs) are waived for 2020. This is especially helpful to retirees because the percentage calculation was to be based on the December 31st value of your retirement account(s), when the markets were much higher than they are now. This waiver also applies to those who turned age 70 ½ in 2019 but who had yet to withdraw their RMD by the April 1st deadline (but if you already did it cannot be redone).
2) The deadline to make 2019 contributions to IRAs has been delayed from April 15th until July 15th (concurrent with the individual deadline to file Federal tax returns).
3) The 10% penalty for early withdrawals (prior to age 59 ½) is waived for 2020. Not only is this penalty waived, but tax on such withdrawals taken in 2020 will be allowed to be spread over three years, and you will be able to recontribute the amount taken above and beyond the maximal limits for future year contributions. Also, employer retirement plan loan eligibility limits have been increased from $50,000 to $100,000, and the repayment period has been extended, making this loan option much more attractive.
What do I need to do? Unless you need the money, don’t worry about taking RMD withdrawals for this year (and leaving the money will help speed your account’s recovery), and for those who turned 70 ½ this year your RMD age has now been delayed until the year you turn 72. If you’re in need of loan assistance, talk to your employer’s HR department about how to apply to take advantage of the enhanced limits and/or enhanced payback periods.
Regarding Business Owners (For Profit & Non-Profit, 500 Employees or Less):
Paycheck Protection Program (PPP) – A potentially forgivable loan program that offers business owners up to 2.5 times your monthly average expenses (may include payroll, lease/mortgage, and/or utilities). Eligible payroll figures max out at $100,000 annual salary per person. This loan is 100% forgivable provided proof is made that demonstrates the money loaned is spent on eligible expenses in the 8 weeks immediately following the date of receipt of the money. This loan is easy to qualify for, and there is very little underwriting involved, but it’s first come, first served, as there is a cap on what is available to eligible lending institutions to distribute.
What do I need to do? If you think your business could use this loan assistance, which can essentially become a grant, contact your local lending institution immediately for application details and to see if they are participating. There will certainly be a rush on this available money, so don’t drag your feet on making application. Applications begin April 3rd for small businesses and sole proprietorships and begin April 10th for individual contractors and self-employed individuals. For a full list of SBA lenders visit www.sba.gov. Attached is a more detailed description of the details regarding the PPP loan program.
Expanded Economic Injury Disaster Loan – Increases the availability of monies through the Small Business Administration, with funding for loans designed to help those businesses that can show economic harm as a result of the Coronavirus situation. Loan approval is now made easier by basing eligibility on credit score alone, with no personal guarantee required on loans of $200,000 or less. Up to $2 million can be borrowed at a relatively low rate (less than 4%), and term lengths in some cases may be extended to 30 years. Borrowers can also receive a $10,000 cash advance, which will become forgivable if the funds are used for eligible expenses including paid leave for employees, maintaining payroll, and/or dealing with added costs due to supply chains being interrupted.
What do I need to do? Contact your local lending institution to see if they are participating in this program, or a full list of SBA lenders visit www.sba.gov.
More information that you may need to be aware of that pertains to this historic $2.3T stimulus package:
Home Mortgage Payments May Be Delayed
Homeowners with certain loans are eligible to put their mortgage into forbearance and thereby pause payments for at least six months, with the possibility of an additional six months of forbearance. Homeowners are eligible if they have one of the following types of mortgage loans: FHA, VA, USDA, 184/184A, and any mortgage backed by Fannie Mae or Freddie Mac.
Missed payments will be required to be repaid, but borrowers can work with their lenders at the end of the forbearance period to develop a workable repayment schedule. Borrowers who want to put their loans into forbearance should contact their mortgage lender immediately.
Giving to Charity Gives Back in a Big Way in 2020
Even if you don’t itemize, taxpayers can take a deduction up to $300 in charitable donations, and for the small donor this goes on top of the increased standard deduction that began in tax year 2018.
Taxpayers who wish to make larger deductions can still claim them if they itemize, and large contribution donors can also deduct the value of their charitable contributions up to 100% of gross income in 2020 (normally capped at 60% of Adjusted Gross Income). However, this increase in deductibility for 2020 only applies to cash gifts made to public charities.
More Tax Relief for Small Business
Companies can qualify for a refundable 50% tax credit on wages up to $10,000 per employee if their gross receipts decline by more than 50% compared with the prior quarter. This applies to wages paid between March 13th and December 31st of this year.
Also, companies and self-employed workers can delay payroll tax payments and pay them over the next two years instead of owing the full amount in 2020.
Help for Student Loan Borrowers Too
Federal student loan borrowers can without penalty push the pause button on their payments. Student borrowers will have loans put into forbearance for a minimum period of 60 days between March 13th, and until Sept. 30th of this year. Federal student loans will also have their interest rates automatically set to 0% for a minimum period of 60 days until Sept. 30, 2020. If borrowers continue making payments, the full amount will be applied to the principal during this time window.
Borrowers do not need to take action to suspend loan payments. For borrowers working toward Public Service Loan Forgiveness, the months when loan payments are suspended will still count toward the program as long as other requirements are met.
Borrowers must be reported as current on their credit reports even if they choose to pause payments on their loans. Collection efforts, including the garnishment of wages and the seizure of tax refunds, are also suspended on federal student loans that are in default.
More Help on the Way?
In a rare sign of bipartisan agreement in Washington, Congress is already deep into discussions regarding another round of stimulus in the neighborhood of another $1T that could include another round of direct payments to Americans and their families, as well as more money to help businesses meet payroll challenges. Exact details of any next round package of economic stimulus are still in the works, and Congress is adjourned for much of the rest of the month in accordance with strict stay-at-home measures that have been put in place by public health officials in an attempt to slow the spread of the Coronavirus.
One More Reminder!
Required Minimum Distributions (RMDs), involving required withdrawals from qualified retirement plans, are not required to be taken in 2020. We strongly suggest that if you do not need this money take advantage of this 2020 RMD waiver as it will help your investment account(s) recover from the market downturn associated with the onset of the Coronavirus in the U.S.
We are here to help and serve you in whatever possible way we can.