What is the CARES Act?
The CARES (Coronavirus Aid, Relief and Economic Security) Act was signed into law on March 6, 2020 to provide financial relief to individuals, famlies, businesses and industries severly impacted by the COVID-19 pandemic. Because there is a lot of information, and many specific details still needed to be clarified, we hope that this crash course can highlight some of the basic of what you need to know.
A) What is it and who is eligible?
There is a one-time cash payment for U.S. residents with AGI up to $75,000 ($150,000 for joint filers) as stated below:
a) Individuals - $1200
b) Married couples - $2400 (each individual gets $1200)
c) Per child - $500
Reduced payouts begin above $75,000 AGI for individuals and $150,000 AGI for married couples. For incomes over $99,000 AGI for individuals and $198,000 AGI for joint filers with no children, you are not eligible for a stimulus check.
B) When will it arrive?
It's unclear of the exact date. Check out the IRS website for more information about the economic relief payments.
A) What will change?
For workers already receiving unemployment, an additional $600/week will be added to your base benefit. This increase will last for four months.
For those who remain unemployed after state unemployment benefits are no longer available, the Act provides an additional 13 weeks of unemployment insurance. Check out California's EDD website for more information.
TAX FILING DEADLINE
A) When's the new deadline?
The IRS has extended filing AND payment of federal income taxes from April 15, 2020 to July 15, 2020.
B) What does that mean for IRA contributions?
IRA and Roth IRA contributions for 2019 have also been extended to July 15, 2020. This is a great opportunity to save towards your retirement if you're eligible and have the resources to do so!
Check out more details on the IRS Website.
CHANGES TO RETIREMENT ACCOUNTS
The Act outlines changes to retirement accounts for 2020 below. It's important to note that you qualify for A) or B) if you and/or your spouse:
- is/are diagnosed with COVID-19
- is/are experiencing adverse financial hardships because of COVID-19 (i.e. layoffs, business closures, and childcare responsibilities).
A) Elimination of Early Withdrawal Penalty
The IRS 10% early withdrawal penalty before age 59 1/2 is waived for withdrawals up to $100,000 from qualified retirement accounts (think IRA and 401k) plans. Income tax will still be owed on the withdrawal, but it could be paid over a 3-year period. Individuals could "recontribute" to their funds in the plan within three years without regard to contribution limits.
It's important to note that although the CARES Act provided these changes to retirement accounts, you will need to contact your plan administrator to determine the details and eligibility of COVID-19 withdrawals.
B) Increase in Retirement Plan Loan Amount
Some employers offer a loan to be taken from a qualified retirement plan; the change is an increase from $50,000 to $100,000 in 2020.
C) 2020 RMDs Waived for Retirement Accounts
Required minimum distributions (RMDs) for employer-sponsored plans (think 401k, 403b, 401a, 457b plans) and IRAs are waived for 2020. Unlike the provisions for the elimination of the early withdrawal penalty above, individuals do not need to meet the COVID-19 qualifying criteria to waive their 2020 RMDs.
Before you move forward with withdrawals from retirement accounts, we strongly urge you to use other resources from the CARES Act to bridge the short-term gap. More importantly, talk to your financial advisor about the best strategies for your situation, and the potential impact on your long-term retirement goals.
STUDENT LOAN RELIEF PROVISIONS
A) What's changed?
Student loan payments and accrued interest are suspended through September 30, 2020.
B) Does this apply to all student loans?
No. The emergency-relief provisions of the CARES Act are for federal student loans, NOT for private loans. We encourage you to contact your private student loan provider to see if there are any relief programs available relating to COVID-19.
Check out more information about student loan relief programs here.
OTHER EMERGENCY RELIEF PROVISIONS
We didn't want to bombard you with so much information in one blog, so stay tuned for separate blog posts coming up soon on the following topics below:
*Mortgage Relief for Homeowners
*Eviction Relief for Renters
*Small Business Financial Assistance
We strongly advise that you work with your tax advisor and financial advisor to determine which programs will work best for you, your family and your business. Let us know how we can help; we are in this together.