What You Need To Know About The CARES Act

| May 11, 2020
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It’s no secret that individuals and businesses alike are struggling as social distancing guidelines linger, businesses close down or modify operations, and a record number of people are out of work (1) or working remotely with no childcare. Thankfully, our government is attempting to lessen the financial impact by providing a $2 trillion coronavirus economic relief package, the largest in American history. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is complex and far-reaching, focusing support on seven groups: individuals, small businesses, big corporations, hospitals and public health, federal safety net, and local governments and education. (2) We want to outline the highlights for you so you can understand how it affects you and your money. 

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. (3)

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. (4)

If you requested a direct deposit for your most recent tax return, your rebate money will be deposited into your bank account. In fact, you may already have received it! 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 amount will be based on your actual 2020 AGI. If your income for 2018 and 2019 qualifies for a partial 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. (5)

New Tax Deadline

The tax deadline has been extended to July 15th, 2020. (6) Note that the IRS is encouraging those who are expecting a refund to file as soon as possible so you can have that money in your pocket if you need it these next couple of months. This also means that you can contribute to your IRA, Roth IRA, or HSA until July 15th to get the tax break for 2019.

Expanded Unemployment Benefits

Countless Americans have been laid off or furloughed due to mandatory business closures. The Act expands unemployment insurance for workers and includes a $600 per week increase, in addition to state 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). (7) Even if you were unemployed before the outbreak, you are still eligible to receive increased benefits. (8) This benefit can’t come soon enough for many small business owners who make up the backbone of the American economy.

Required Minimum Distributions Waived For 2020

If you are currently retired and taking required minimum distributions (RMDs) from your retirement accounts, this is an important benefit for you to be aware of. Under the CARES Act, you are not required to take RMDs in 2020. (9) 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. (10) If you took an RMD earlier in the year 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 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 you will still owe tax on the amount you withdraw, so use this option wisely.

Small Business Loans And Assistance

The CARES Act offers substantial benefits to businesses to help them keep their doors open now or reopen when social distancing guidelines are relaxed. The Paycheck Protection Program offers employers SBA loans to pay payroll, rent, utilities, and more. (11) 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. (12)

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. (13) 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. But 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.

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 contact us at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com. Be well and stay safe.

About Haydel, Biel & Associates

Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.

The commentary on this blog/website reflects the personal opinions, viewpoints and analyses of the Haydel Biel & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by  Haydel Biel & Associates or performance returns of any  Haydel Biel & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Haydel Biel & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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(1) https://www.usatoday.com/story/money/2020/05/07/unemployment-benefits-3-2-million-file-jobless-claims/5175161002/

(2) https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package

(3) https://www.cbsnews.com/news/coronavirus-stimulus-package-2-trillion-senate-white-house/

(4) https://www.forbes.com/sites/anthonynitti/2020/03/25/congress-reaches-agreement-on-a-coronavirus-relief-package-tax-aspects-of-the-cares-act/#4a6f34e95f99

(5) https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/

(6) https://www.irs.gov/coronavirus/coronavirus-tax-relief-filing-and-payment-deadlines

(7) https://www.cbsnews.com/news/coronavirus-stimulus-package-2-trillion-senate-white-house/

(8) https://www.nytimes.com/article/coronavirus-stimulus-package-questions-answers.html

(9) https://www.forbes.com/sites/jamiehopkins/2020/03/30/cares-act-drastically-changes-required-minimum-distribution-rules-for-2020/#5e23084719a0

(10) https://www.forbes.com/sites/jamiehopkins/2020/03/30/cares-act-drastically-changes-required-minimum-distribution-rules-for-2020/#76b3b31419a0

(11) https://taxfoundation.org/sba-paycheck-protection-program-cares-act/

(12) https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act

(13) https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package#education

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