Coronavirus Aid, Relief, and Economic Security (CARES) Act Provisions
On March 19th, 2020, Congress reached an agreement both wide in scope and deep in stimulus assistance. The President then signed off on the bill, which you can read in its entirety HERE.
The information coming out of Washington DC is fast & furious. There has been some conflicting information from the White House, and several followup clarifications have been issued. However, the information summarized below is what we know at this time.
Every American is scheduled to receive $1,200, fronted as a direct payment, but coordinated with their 2020 tax return. This means that your most recent tax return (2018 or 2019) will be used as estimates to determine your exact payment. Families with children claimed as dependents are entitled to an additional $500 per child. For a family of 4 like mine, that's $3,400 in total.
There are limits based on adjusted gross income (AGI). AGI can loosely be defined as income minus retirement plan contributions. For married filing jointly taxpayers, if their AGI falls above $150,000, they won't qualify for a direct payment at this time (more on this in just a second). The Head of Household filers AGI threshold is $112,500, and the single filer AGI threshold $75,000.
Note that these stimulus checks are designed as current estimates to be fully coordinated with a taxpayer's 2020 filing status. This is going to create some challenges folks need to be aware of. For example, a single filer making $100,000 in 2019 won't receive a stimulus check at this time. However, I imagine there will be plenty of cases where this type of filer ends up reporting a lower AGI due to reduced work or an unfortunate layoff on their 2020 return. When this is the case, the stimulus check they might have needed now will actually be baked into their 2020 tax return.
Additionally, families may have experienced changes in 2019 such as a marriage, divorce, or new baby, but haven't yet filed their 2019 taxes. This can lead to missing out on stimulus money that might desperately be needed. Unfortunately, folks that fall into this scenario will miss out temporarily. However, they'll get the stimulus they're owed baked into their 2020 tax return when the file in 2021.
In terms of when we should expect our stimulus checks, the Treasury has mentioned the target is sometime in May. Current Social Security recipients are slated to receive their checks electronically, as are taxpayers who've elected to have their tax refunds directly deposited at their bank. All other stimulus checks will be mailed to the last known address on file.
If you were thinking of changing banks, now might not be the best time to close out your existing account.
RETIREMENT ACCOUNT PROVISIONS
First, annual Required Minimum Distributions (RMD) have been suspended for the rest of the year. You read that correctly. If you don't need the money for cash flow purposes, you get to punt on this year's distribution. All retirement accounts qualify for the exception, even Inherited IRAs.
For investors who have already taken RMDs, if they're within 60 days of the distribution, then by existing law, they are allowed to put back their RMD via a "rollover" provision. If investors are beyond the 60 days, then unless they can prove the distribution was needed based on COVID-19, they're out of luck.
My recommendation with RMDs is to determine if you actually need the money from your IRA (or Inherited IRA). If you have or can receive income from other sources, then it makes sense to cease RMDs for the remainder of 2020. Let's say you're in the 22% federal marginal tax bracket or higher. This means you paying a lower 15% capital gains rate is advantageous. Instead of electing an RMD from your IRA that is taxed at 22% (or more), consider swapping to distributions from a taxable investment account where you only have to worry about 15% capital gains.
Second, for folks who send RMDs directly from their retirement accounts to a charity as part of a Qualified Charitable Distribution (QCD) strategy, they can still do that. However, the tax benefit has evaporated for 2020 since this type of charitable distribution no longer offsets an RMD since RMDs aren't mandatory this year.
Third, employer-sponsored plans such as 401(k)s and 403(b)s now allow Corona Virus-related loans with enhanced provisions. The maximum loan amount doubled from $50,000 to $100,000. In addition, borrowers can delay loan payments until 2021 if they choose.
Like RMDs, also suspended, but only through September 30th, 2020. This doesn't mean your automated student loan payments will magically stop. You have to be proactive and contact your loan provider and request the suspension.
These next 6 months until the end of September will still count towards your loan forgiveness program, if you have one. It's especially imperative for student loan borrowers to cease payments on their Federal student loan debt such as the Public Service Loan Forgiveness program. Those that mistakenly continue to pay in between now and September 2020 are getting double whacked by paying off a 0% debt which would eventually be wiped clean anyway.
This one is already getting ugly, but thankfully, there are enhancements to the current system.
First is the "Pandemic Unemployment Assistance" provision. If you are a gig worker, self-employed, or otherwise ineligible under the normal unemployment provisions, you are now eligible for up to 39 weeks of assistance.
Second, the normal 1-week waiting period has been repealed. Corona Virus related claims (basically all claims right now) will receive payments beginning immediately.
Third, unemployment claims are now allowed for an additional 13 weeks. Each state has a different set of laws governing how long "normal" unemployment payments last. In Colorado, that length of time is 26 weeks, which means the total here in Colorado is now 39 weeks. This equates to just under 10 months. To determine your state's rules, click HERE.
Last, unemployment payments may be bumped by $600/week for up to 4 months. It's not clear to me if everyone gets a $600/week bump based on the way the bill is worded. I would assume that those with the lowest incomes filing for unemployment wouldn't qualify for the extra $600, but that's just a guess.
If you've never filed for unemployment, consider yourself lucky. If you live in Colorado and need to file, click HERE to start your application. If you live in another state, just Google "where do I file unemployment in ...." and fill your state in the blank.
BUSINESS RELATED ASSISTANCE
You have two options, both worth exploring. The first is the Paycheck Protection Program (PPP) loan. This only works for small businesses that have a payroll, i.e., at least 1 worker is paid a salary.
The PPP loan is designed as a quasi forgivable option available through the Small Business Administration (SBA). Essentially, a business with fewer than 500 employees can apply for a maximum of the lesser of $10 million, or 2.5x the average monthly payroll costs over the previous year.
The loans are designed for a variety of reasons, but specifically, the intention is for businesses to retain and compensate employees during this difficult time. Most interesting is the fact that a portion of these loans is not only tax-free but forgivable assuming loan proceeds are deployed for specific purposes. Loans used for payroll (based on 2019's numbers), rent or mortgage interest, utilities, and group health insurance premiums over an 8-week period following receipt of the loan do not have to be paid back.
Of course, there are gotchas. You can't apply for a PPP loan and then lay off your workers or reduce their compensation by more than 25%. However, for small businesses they meet the criteria and play by the rules, they'll receive a relatively low interest rate of "up to" 4% as well as a payment deferral window of between 6-12 months.
To begin a PPP loan, you should ask wherever your business banks. The PPP application window just opened up on Friday, April 4th, and many banks already have info posted on their websites. The easiest option I've found came from my personal bank, Radius. Their application process was relatively painless and free of any annoying technology glitches. The whole application took me maybe 15 minutes after I had scanned my quarterly payroll tax returns from 2019, which I had been procrastinating getting digitally filed away.
My recommendation is to jump on this one as soon as possible is it's based on a first-come, first-serve priority system. Once the $349 billion is lent out, there's no guarantee that there will be more.
MORE BUSINESS RELATED ASSISTANCE
The second business-related loan is more expansive than the PPP loan as it extends to gig, self-employed, and even contract workers. The Economic Injury Disaster Loan (EIDL) is also administered through the Small Business Administration.
This loan is unique in that it provides a "loan advance" of up to $10,000 that does not have to be paid back. It's important to understand that you don't actually apply for $10,000, but you apply based on your 2019 total profit and loss numbers.
There is little information regarding what loan amounts a certain business (or self-employed individual) will actually qualify for, but my recommendation is to apply none the less and worry about repayment options above the forgivable $10,000 later. At least that's what myself and my fellow financial planner business owners are doing.
You can find more information about this loan and how to apply HERE.
Note that there are a few other business-related assistance programs available, and summaries with links to dive deeper can be found HERE.
A CHALLENGING TIME
I'm a worrier. I worry about my family's health (they're all fine), I worry about my own health (also fine), I worry about society, and I worry about my clients. Although I worry, I'm still mentally tougher than most. However, the response to COVID-19 has taken its toll on all of us, myself included. We are a tired, fearful nation. Let's do our best to remember that this is temporary and to be extra nice to everyone we encounter while we endure.
Many thanks go out to those on the front lines working in hospitals. This means everyone from the doctors and nurses to the cleaning crews, and even the little old lady that every hospital seems to have working in the gift shop.
I wish everyone in my personal and professional circles safe navigation through COVID-19. Be safe, follow the rules, and remember to take care of yourself when things get overwhelming. Here's to (hopefully) a quick return to normal life as well as a minimum of Corona Virus fatalities. Be well, everyone.