The CARES ACT And Your Finances: What Do You Need To Know?Submitted by Harvest Asset Group | Fee-Only Financial Planner Portland ME on March 31st, 2020
By Michael Donahoe
It’s no secret that individuals and businesses alike are struggling as social distancing guidelines expand, more businesses close down, and many people are out of work or working remotely with no childcare. Thankfully, our government is attempting to lessen the financial impact by providing a $2 trillion coronavirus stimulus bill, the largest economic stimulus package in American history. On March 27th, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law.
The Act itself is complex and far-reaching. While there is no urgent action that you must address today, tomorrow, or even in the next couple of weeks, we wanted to outline the highlights so you can determine what you need to know and what’s relevant for your situation.
Recovery Rebates For (Almost) All Americans
While this part of the stimulus package will benefit most Americans, it is intended to give a financial boost to those who are currently in desperate need. If you have a work-eligible Social Security number and filed a tax return in 2018 or 2019 with an adjusted gross income below $75,000 for singles or $150,000 for couples, you will receive a check for $1,200 or $2,400, respectively. Families with children under 17 are also eligible for an additional $500 per child.
If you make more than these amounts, you may still receive some money, but the amount you get will be lowered by $5 for every $100 of income (5%) you earn over the phaseout threshold.
If you requested a direct deposit for your most recent tax return, your rebate money will be deposited into your bank account. Otherwise, your check will come in the mail. If you haven’t filed your 2019 taxes yet and have a new bank account or have experienced any changes, such as adding a baby to your family or an income change that puts you under the income limits, you’ll want to file your 2019 taxes as soon as possible. The Treasury Department expects to start processing payments within the next three weeks, but it’s more likely you will receive them sometime in May.
These checks are technically 2020 tax rebates, so although the amount you receive is calculated on 2018/2019 adjusted gross income (AGI), the final amounts will be based on your actual 2020 AGI. If your income for 2018 and 2019 qualifies for a rebate, but you have a lower AGI in 2020, the rebate will be “trued up” and you will receive additional funds when you file your 2020 return. Thankfully, if your 2020 income is too high for you to be eligible, you will not have to pay the money back.
Expanded Unemployment Benefits
Countless Americans have been laid off or furloughed due to mandatory business closures. The Act expands unemployment insurance for workers, including a $600 per week increase in benefits for up to four months. It offers unemployment benefits for workers who are not usually eligible, such as self-employed individuals, independent contractors, small business owners, or those who have been furloughed (meaning you are still technically employed but are unable to work). Even if you were unemployed before the outbreak, you are still eligible to receive increased benefits. This benefit means greater security for many small business owners who make up the backbone of the American economy.
Required Minimum Distributions Waived For 2020
If you are already retired and taking required minimum distributions (RMDs) from your retirement accounts, this may be the more important benefit for you to be aware of. Under the CARES Act, you are not required to take RMDs in 2020. This is particularly valuable since RMDs are calculated based on your account balance in the prior calendar year, and most balances are now much lower than they were at the close of 2019.
Of course, if you need to take a distribution to pay your bills and maintain your lifestyle, you may, but there is no mandatory withdrawal amount. If you’ve already taken RMDs in 2020, you can simply return the money to your retirement account before the end of the 60-day rollover window. If you took an RMD in early January and the 60-day window is closed, you may still qualify, but it’s not as simple. It’s best to work with your financial advisor to be sure you manage the process carefully.
Penalty-Free Emergency Retirement Account Withdrawals
Under the normal regulations, taking an emergency withdrawal from your tax-advantaged retirement account before age 59½ results in a 10% penalty on the amount taken out. The new Act relaxes these rules, allowing you to access funds in a 401(k) or IRA without paying the 10% penalty on the withdrawal. Note, however, that tax on the money will still be due, so use this option wisely.
Protection For Retirement Income From Bonds
If you are retired or close to retirement, municipal bonds likely make up a significant part of your portfolio. The Act allocates nearly $500 billion in emergency loans to state and local governments to safeguard payments on these bonds, ultimately helping to protect your retirement income. These loans will help local governments continue vital services and utilities at a time when revenue from business taxes may drop significantly.
Small Business Loans And Assistance
The CARES Act offers substantial benefits to businesses to help them keep their doors open. The Paycheck Protection Program offers employers SBA loans to pay payroll, rent, utilities, and more. The Act also offers partial loan forgiveness in certain instances. The Employee Retention Credit is available for those not eligible for the loans and offers a refundable tax credit of up to $5,000 per employee and deferment of payroll taxes.
Student Loan Relief
If you or your adult children have Federal student loan debt, you’ll be happy to hear that all student loan payments will be deferred until September 30, 2020. Even better, no interest will accrue during the deferral period. You can still pay down your loans during this time if you are able to, making a larger dent in your debt and cutting down on future interest. If you want to take advantage of this opportunity, you need to contact your loan provider and pause payments. It will not happen automatically. This is particularly important if you are participating in a loan forgiveness program (such as the Public Service Loan Forgiveness Program) so you aren’t continuing to pay down a debt that will otherwise be forgiven.
In addition to the financial aspects of the Act, there are several provisions that focus on bolstering healthcare during the crisis:
More Coverage Of Over-The-Counter Medications From HSAs, MSAs, and FSAs
If you rely on a tax-advantaged account to cover your medical expenses, including a Health Savings Account (HSA), Archer Medical Savings Account (MSA), or Flexible Spending Account (FSA), the CARES Act expands coverage to include over-the-counter medications and feminine hygiene products.
Expanded Medical Coverage For Medicare Beneficiaries
If you receive Medicare benefits, the CARES Act adds some important benefits related to the COVID-19 outbreak. During the COVID-19 emergency period, Medicare Part D recipients may order a 90-day supply of prescription medications. Plus, when it becomes available, you can receive the COVID-19 vaccine at no cost.
Expanded Coverage For Telehealth Services
Telehealth services from providers like Teledoc and Doctor on Demand may be temporarily covered before you’ve met your deductible for an HSA-Eligible High-Deductible Health Plan (HDHP). Rules for providing telehealth services have also been relaxed during the COVID-19 emergency period for facilities such as Medicare federally qualified health centers, rural health clinics, home dialysis, and hospice care recertification providers.
How We Can Help
It’s clear we are still in the thick of the global challenge presented by the coronavirus, and staying healthy should be your number-one priority. But if you’re facing a financial setback or higher stress due to the pandemic, that can be difficult. In these confusing and uncertain times, it’s wise to reach out for help. Even as we are advised to follow social distancing rules, be sure to use the resources at your disposal to help you make the right financial decisions and weather this storm well. If you need help understanding how the new law will impact your finances, please call (207) 775-1151 or email firstname.lastname@example.org to set up a virtual appointment. Be well and stay safe.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.