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Key Takeaways From the CARES Act

As our financial landscape changes, staying on top of finances can become increasingly challenging. Each day, it seems there are so many new facts, estimates and discussions that it can be tempting to ignore the noise completely. While a break from news can often benefit your well-being, there are times when it’s important to stay aware of what’s changing.

In a newly announced relief package that addresses these current economic challenges, the Coronavirus Aid, Relief, and Economic Security (CARES) Act will affect how most people manage their compensation and benefits, as well as how small teams around the nation can grow through these times. With major updates to federal regulations, it’s more important than ever to keep up to date.

Our team at In Good Company is aware that each individual has unique values and goals that may relate to various pieces of this policy. We want to equip you with some basic takeaways from the CARES Act relief package that may affect your unique financial situation.

THE REBATE DISCUSSION

Recovery Rebate
A lot of talk in the news has touched on the recovery rebate, since it is one of the more unique provisions that will affect most Americans. The recover rebate can essentially be looked at as an up-front 2020 tax credit. Major benefits are as follows:

  • Max payment of $1,200 for individuals and $2,400 for joint filers
  • $500 will be added to this benefit per child under age 17 in each family
  • The total payment starts phasing out at $75,000 adjusted gross income (AGI) for individuals and $150,000 for married couples. Rebates gradually decline by $1 for every $5 their income falls over the threshold.

The IRS will consider figures from either 2018 or 2019 tax years. So, if you didn’t file your taxes yet for 2019, the government will determine your payout based on 2018. Of course, income and circumstances may change for many this year. If you qualify for a payout based on previous years, but end up earning above the threshold in 2020, this does not mean you’ll have to pay back your refund. If you end up earning less in 2020, you may still qualify for the rebate; it will just be delayed until filing tax returns for 2020.

PLANNING & ALLOCATING

Retirement Accounts
At In Good Company, we know that there are many stages in planning for retirement and each person has a unique perspective on their future. No matter where you find yourself along this path, there’s some new information that may prove valuable.

For those already in retirement, the CARES Act provides more flexibility with withdrawing funds from these tax-advantaged accounts. Required minimum distributions (RMDs) have been waived for 2020. Also, if you have not yet taken RMDs for 2019, you may no longer have to.

For those who are not dealing with RMD decisions, there are still several advantages to be aware of. Wealth held in some retirement accounts such as 401(k)s or 403(b)s are able to be withdrawn up to $100,000 in 2020, penalty free, if you have been affected by COVID-19. The scope of who is considered affected includes (but is not limited to) those who have lost work, fallen ill or have to stay home to take care of children.1

Withdrawals are not the only way to access funds in some employer-sponsored retirement accounts; many employers also offer the option to take out a loan from your 401(k) and pay interest back to yourself over time. The rules regarding loans have been loosened a bit for the year 2020 to provide flexibility to those in need: The maximum amount that can be taken from a 401(k) or 403(b) has been increased to $100,000 or 100% for this year (in previous years it was $50,000 or 50% of the value of the account). The commencement of loan payments you owe to your retirement account may be delayed for up to one year as well. While allowable under law, retirement plans will dictate if possible for their specific participants. Unemployment furloughed employees are also eligible.

It’s also worth noting that the deadline for making 2019 IRA and Health Savings Account contributions has been extended until July 15, 2020.

Health Related Accounts
Health Savings Accounts (HSAs), Medical Savings Account (MSAs) and Flexible Spending Accounts (FSAs) will be able to cover more expenses in 2020. Funds from these accounts may be used to purchase a variety of health products and over-the-counter medications in order to ease the financial burdens that many may face at this time.

Student Loans
For certain federal student loans, payments may be deferred until September 30, 2020. No interest will accrue during this time. However, this only applies to direct loans; neither Perkins Loans nor commercially held Federal Family Education Loans (FFEL) will be affected by the CARES Act. Private loans are also not included.

Employers are allowed to pay off student debt of their employees in 2020 up to an amount of $5,250, tax-free. This benefit, however, must be coordinated with other educational assistance programs. So if your employer offers this benefit, but you are also having them reimburse tuition costs for classes you are currently taking, you should be aware that the total tax-free benefit for your debt repayment and tuition reimbursement combined will be $5,250. If you are reimbursed beyond this level, it will be taxed as earned income on your pay stub.

RELIEF OPTIONS

Small Businesses
Many benefits have been initiated to help small business owners during this difficult year. The CARES Act has created the Paycheck Protection Program, whereby there will be a delay in the collection of payroll taxes for companies who have had to partially or fully suspend their business activities. Though the initial loan program was overrun by applications, plans to replenish are in the works.

There’s a lot to stay on top of with this part of the CARES Act, and we recommend accessing further details here. Be sure to contact the financial and legal professionals in your network if you own a small business and wish to use some of these benefits.

Unemployment
There are many changes for unemployment insurance at this time. The total period of potential benefits has been increased to a maximum of 39 weeks, which is a 13-week extension, for those who need it. Self-employed folks and 1099 contractors now qualify for unemployment benefits, too. There is also an opportunity for eligible unemployed workers to receive an additional $600 each week for up to four months, on top of state benefits.

The CARES Act also creates incentives for states to build short-time compensation programs for the underemployed — so if your hours have been cut, check with your state to stay updated on their potential new underemployment benefits.

Mortgage/Rent
There is a postponement of mortgage payment requirements for people affected by COVID-19 who have certain federally backed servicers. Mortgage payments may be postponed for 180 days and may even be extended further by another 180 days in certain situations. Landlords with certain mortgages may not evict non-paying tenants or charge them fees for not paying for up to 120 days. The Consumer Financial Protection Bureau provides a full guide here.

WHAT WE CAN LEARN

Since there’s a lot of information out there, we recommend starting with the topics that are most relevant to you. It’s true that sometimes taking a slow and patient approach to changes in our economy is best. But the unique situation we’re in calls for your attention early and often, since staying up-to-date can help keep you feeling financially confident in this dynamic environment.

Our team at In Good Company believes that staying informed can help you put your best self forward — even in tough circumstances. New laws and updates like the CARES Act can provide significant help to workers and businesses, making situations more manageable. Taking the time to reflect on how these changes might affect you can make all the difference.

1Carlson, Bob. “IRA and Retirement Plan Changes in the CARES Act.” Forbes. 28 Mar. 2020. https://www.forbes.com/sites/bobcarlson/2020/03/28/ira-and-retirement-plan-changes-in-the-cares-act/#68a6965934f5.

2“Coronavirus (COVID-19): Small Business Guidance & Loan Resources.” Coronavirus (COVID-19): Small Business Guidance & Loan Resources, www.sba.gov/page/guidance-businesses-employers-plan-respond-coronavirus-disease-2019-covid-19?utmmedium=email&utmsource=govdelivery.

3“CARES Act.” U.S. Department of the Treasury. 27 Mar. 2020. https://home.treasury.gov/policy-issues/top-priorities/cares-act.

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