CARES Act – What’s In It For YOU

In response to the global pandemic, Congress has to date (April 2nd) passed three different bills aimed at combating the disease and attempting to mitigate the economic impacts. And they’re not done yet, Congress is currently discussing a fourth phase.

In summary here’s a recap of the first three bills:

Phase 1 – signed into law March 6th – $8.3B – emergency spending package to provide treatment and prevention of COVID 19

Phase 2 – signed into law March 18th – $200B – Families First Coronavirus Response Act – provides free Coronavirus testing and ensures paid emergency leave for those who are infected or caring for a family member with the illness. The bill also provides additional Medicaid funding, food assistance and unemployment benefits.

Phase 3 – signed into law March 27th – $2T – Coronavirus Aid, Relief, and Economic Security (CARES) Act – this in an economic stimulus package, largest ever and it’s roughly equivalent to 10% of the annual U.S. economic output. The act favors the hotel and airline industry, contains provisions helpful to the banking industry, and specifically leaves out the gas and oil industry. A good portion of the bill is also aimed at helping individuals and small business. As a result, there are many personal financial planning considerations to note. They include:

1. Stimulus payment. $300B is earmarked for payments to individuals, structured as a refundable tax credit on 2020 income. The amounts are $1,200 per adult and $500 per dependent child. You are eligible for the payment if your 2018 or 2019 (most recent tax return on file) adjusted gross income is below $99K/$198K (single/married filing joint). However, the payment is reduced starting at AGI of $75K/$150K. Payments should come in the next few weeks, either by check or by auto-deposit, depending on how you paid your taxes. Even people on social security are eligible for the payment, as long as their income is below the threshold.

2. Expanded unemployment benefits. $260B is included for more generous unemployment benefits and for a broader group, including self- and part-time employed people. Payments will be increased by $600/week, a sizable increase considering the current maximum weekly benefit in California is $450/week. The payment period is extended by 13 weeks and the one-week waiting period is waived.

3. Coronavirus Distributions and Loans from Retirement Plans. You can take up to $100K out of your IRA or employer retirement plan without paying the 10% penalty for early distributions. You can opt to pay the income tax due on the distribution over 3 years and you have up to 3 years to put the money back in the account (and recoup any taxes paid). You can also take a loan from your employer’s plan (e.g., 401k, 403b) if allowed, up to $100K (normally limited to $50K) or 100% of the vested balance. Payments owed this year on the loan are deferred for a year.

4. Retirement plan required distributions in 2020 waived. You are no longer required by law to take a minimum distribution from your IRA or retirement plan for 2020 and can put back any distributions already taken within 60 days. This applies to inherited IRAs and those on the 5-year rule as well.

5. Charitable donations. For those who no longer itemize their tax deductions (90% of filers), but still give to charity, you can now take a $300 charitable deduction in addition to the standard deduction. While not that much, every little bit helps. The stimulus package also waived the 60% of adjusted gross income limit on cash donations to charities (not including donor-advised funds). A large donation can also be carried forward up to 5 years.

6. Medicare. In light of the Coronavirus pandemic, the CARES Act requires Medicare Part D plans to provide up to a 90-day (3 month) supply of covered Part D drugs to enrollees who request it.

7. Student loan repayments. If you have federal student loans, no payments are required through September 30, 2020. If you work in public service and are on track for the loan forgiveness program, this is a big bonus. The result will be more of the loan is forgiven and less you had to repay.

8. Small business relief. If you run a small business (under 500 employees) that has been negatively impacted by this health crisis, there are a variety of programs to provide access to capital. One popular program is called the Paycheck Protection Program that provides loans equal to 2.5x monthly payroll, up to $10M at a maximum interest rate of 4% and maximum term of 10 years. It can be used to pay payroll, rent, utilities and the amount used to pay those expenses during the first 8 weeks after disbursement can be forgiven by the government, provided certain criteria are met, such as not laying anyone off until 6/30. There is another program called Employee Retention Credit that offers up a credit of 50% of wages up to $10K/person provided certain criteria are met. There is also payroll tax relief by allowing business owners to delay paying 50% of payroll taxes until 12/31/21 and the other 50% to 12/31/22. Check out the SBA website and contact your business bank to see if they can make SBA loans or can recommend a lender to you.

While there are other aspects of the stimulus plan, the ones summarized above are some of the more meaningful or popular ones impacting individuals and small businesses and provide for numerous planning opportunities.