Caroline Hwang, CEPF® MAR 30, 2020
Two weeks after the worst day in Dow history, President Donald Trump signed a coronavirus stimulus package called the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. The CARES Act is the biggest rescue package in U.S. history. With a staggering price tag of $2 trillion, the legislation seeks to provide emergency financial assistance to people and businesses as the coronavirus pandemic whipsaws markets and batters the economy. Here’s what the stimulus package will do.
The Stimulus Package: An Overview
The government’s plans include pushing back the tax deadline, sending direct cash payments to Americans and expanding unemployment benefits.
A quarter of the money in the stimulus bill – $500 billion – will go to bailing out businesses and municipalities, while $350 billion is earmarked for small business loans and $100 billion for hospitals. An estimated $300 billion will be sent to taxpayers in the form of direct cash payments. Here’s the breakdown of how the CARES Act will help your finances, both directly and indirectly.
Direct Cash Payments
To relieve the financial pressures most Americans are undergoing, the federal government will send $1,200 in cash to each person ($2,400 to married couples) whose adjusted gross income is less than $75,000 ($112,500 for heads of household and $150,000 for joint filers). People who earn more, up to $99,000 for single filers ($198,000 for married joint filers) would receive reduced amounts. Also, eligible families with children would receive $500 per child. The government will use 2018 tax returns if 2019 returns haven’t been filed yet to determine who qualifies for the rebate. Retirees who receive Social Security benefits are eligible to receive the money as are people who receive the Earned Income Tax Credit.
Stimulus checks are expected to go out in April. The government will disburse checks electronically to bank accounts it sent tax refunds to in 2018 or later. Within 15 days of disbursement, taxpayers will receive notification in the mail that says the method of payment, the amount and a phone number to use if you did not receive your payment.
For instance, if you are married, file your taxes jointly and have a combined income of $149,000. You can expect a stimulus rebate of $2,400. If your spouse doesn’t work, your family will still receive $2,400 as long as you file jointly. If you have, say, two children, your rebate will be $3,400 ($2,400 + $500 + $500). On the other hand, if you are single, earn $98,000 and have two children, you will receive $2,200 ($1,200 + $500 + $500). But if you are single, earn $98,000 and have no children, you will get $50. This is because every $100 in income above the threshold ($75,000 for individual filers) reduces your rebate by $5. Here’s a breakdown of payments by filing status and income.
|STIMULUS PAYMENTS (SINGLE)|
|STIMULUS PAYMENTS (MARRIED)|
|STIMULUS PAYMENTS (HEAD OF HOUSEHOLD +1 CHILD)|
|$112,500||$1700 ($1200 + $500)|
Early Withdrawals from IRAs, 401(k)s
People who have been diagnosed with COVID-19 or whose spouses have been diagnosed – or anyone who has been adversely impacted financially by the coronavirus or disease – can withdraw up to $100,000 from their tax-advantaged retirement accounts like 401(k)s penalty-free. Normally, early withdrawals come with a 10% tax, on top of income tax. The distribution will be counted as income (you still have to pay taxes) over three years. Also, people who take the distribution will have a three-year window to repay the money if they wish. This provision for penalty-free early withdrawals does not apply to pension plans.
Emergency Mortgage Relief
Homeowners who have federally backed mortgages (Fannie Mae, Freddie Mac, FHA or USDA loans) and are experiencing financial hardship due to the coronavirus pandemic may request forbearance for up to 180 days. During this period, borrowers will not incur fees, penalties or interest due to not making their mortgage payments. To receive the deferral, you do not have to prove the condition of your finances; you only have to attest to it. But you do have to contact your loan servicer to have your payments postponed. You may request an additional 180 days of mortgage relief if needed.
That said, if your mortgage is held by a private lender, you should still contact it to see if it is providing mortgage relief. Many banks, including Fifth Third Bank, Marcus (Goldman Sachs) and TD Bank, are suspending payments or offering special terms. Also, check to see if your governor has made any mortgage-related declarations. In New York, the governor has waived mortgage payments for 90 days. Many states are also calling a moratorium on evictions and foreclosures.
Expanded Unemployment Insurance Program
The law provides unemployment insurance to more people and for longer. Workers who lose their jobs because of coronavirus can receive unemployment for 39 weeks – that’s 13 weeks more than usual in most states. Also, the government has expanded the types of workers who are eligible to include independent contractors, gig workers, freelancers and people who have been furloughed. Additionally, the federal government is adding $600 per week in benefits until July 31, 2020.
Extended IRS Tax Filing Deadline
The deadline for filing tax returns for 2019 has been officially moved three months to July 15, 2020. The extension also applies to tax payments owed for 2019 and estimated tax paymentsfor 2020. People who use the extension will not incur late fees. They also don’t need to file extra paperwork, as the extension is automatic.
Paid Sick Leave
Generally, employees who work for public or private companies with fewer than 500 workers are entitled to up to two weeks of paid leave if they can’t work due to COVID-19. It can be the employee who is sick or someone in their family who needs care-taking. Under the new law, employers are required to pay the employee’s regular rate, up to $511 per day, for 10 days if the employee is sick or under quarantine, or no more than $200 per day for 10 days if the employee has to stay home to care for a family member. If your company has more than 500 employees, it likely has a paid sick leave policy.
Postponed Student Loan Payments
To help borrowers during the financial crisis, the CARES Act authorizes the Secretary of Education to suspend payments for federal student loans (e.g., Stafford and Perkins) until September 30, 2020. During this period, no interest will accrue. The Department of Education will inform borrowers by April 11, 2020, that the collection of their payments has been temporarily suspended and interest is being waived. If you choose to continue making payments, though, they will be applied entirely against the principal. Also, students with work-study grants who are not able to do their jobs because their campus is closed may still be paid in full (though schools may choose to pay less).
Relaxed Limitations for Charitable Contributions
So that people can contribute more to their churches and other charitable organizations, the new law allows you to claim up to $300 in cash contributions as a deduction, whether or not you itemize on your tax return. Also, the 50% of adjusted gross income ceiling has been suspended for individuals, while the 10% limitation on corporations has been raised to 25%.
Small Business Loan Program
The Small Business Administration (SBA) has been authorized to provide loans to small businesses, non-profits (that do not receive Medicaid) and veterans organizations to cover payroll, rent, health insurance premiums and other operational costs. These loans require no collateral or personal guarantee. The interest rate is 3.75%. Independent contractors, sole proprietors and certain self-employed individuals are eligible to receive these loans. Find out more about your business interruption insurance.
Suspended Required Minimum Distributions
With so much volatility in the stock market, retirees who must take required minimum distributions (RMDs) may delay making them for one year. This applies to both 2019 RMDs that were supposed to be taken by April 1, 2020 and 2020 RMDs.
Stabilization Loan Program
The law provides a $500 billion fund for the Treasury Secretary to lend money to distressed corporations and municipalities. The caps for funding are $25 billion in loans or loan guarantees to airlines, $4 billion for cargo air carriers and $17 billion for “businesses critical to maintaining national security.” Plus, at least $454 billion is allocated to supporting programs or facilities established by the Federal Reserve for keeping the financial system liquid. Originally, the GOP proposal did not include Congressional regulation. But now the fund will have an oversight board. Additionally, companies that borrow money from the fund must keep employment at their March 13, 2020 level, may not engage in stock buybacks and cannot increase executive pay that was $425,000 or more in 2019 – while their loans are outstanding.