On Friday, the President signed into law the largest relief stimulus package ever; the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The CARES Act offers over $2 trillion of stimulus to the people, businesses and the economy of the United States and will provide benefits through various forms of direct payments, tax benefits, and grants throughout the economy.
Having read through the 880 pages that make up the act, here is my summary of the major parts that may affect you.
Highlights
- Payments to an estimated 165 million households
- No 2020 Required Minimum Distribution (RMD)
- Waiver of penalties for hardship withdrawals on retirement plans in 2020
- No required payments on federal student loans for part of 2020
- Expanded unemployment criteria and benefits
- Small business assistance
- Corporate help
- Closed business relief
Payments to an Estimated 165 Million Households
The CARES Act includes direct payments to households and families throughout the US based on certain criteria. It is estimated that 165 million US households will receive these payments with the hope that these payments will begin to be sent to citizens as soon as the first week of April. The breakdown of the payments is:
- Individuals with reported income of up to $75,000 will receive $1,200
- They will reduce the payment by $5 for every $1,000 you made over $75,000, therefore individuals with income over $99,000 will receive no payment.
- Married couples with up to $150,000 of income will receive $2,400 ($1,200 per person)
- The payments reduce the same as an individual and so a household with over $198,000 of income will not receive a payment.
- Those who claim dependent children will also receive $500 per child as well.
These payments will be based on your 2019 taxes, but as the deadline for filing of your taxes has been pushed back due to the virus some may not have filed the taxes at this point. If you have not yet filed your 2019 taxes, the government will use your 2018 tax information. For those who did not earn enough to require them to file taxes are being asked to file as soon as possible so they can be counted among the people receiving these payments.
No 2020 Required Minimum Distribution (RMD)
Once you reached age 70 ½ prior to January 1, 2020 or those that reached age 72 on or after January 1, 2020 must take an annual Required Minimum Distribution (RMD) from their IRA or other retirement accounts. With the CARES Act, the 2020 RMD has been waived. A lot of Americans have most likely seen the values of their retirement accounts impacted by the market downturn in 2020, so not having to take this mandatory withdrawal may allow a longer time to recover these losses. This RMD waiver for 2020 applies both to those who are over 70 ½ years old in 2019 and those with Inherited IRA and Roth IRA accounts who would be required to take the distributions this year.
Waiver of Penalties for Hardship Withdrawals
Some Americans may choose to access funds from their retirement to help with hardships caused by the virus but are under the age of 59 ½. Accessing these funds before age 59 ½ would typically incur a 10% penalty for early withdrawal. The CARES Act offers some relief for these hardships withdrawals:
- Waiver of the 10% early withdrawal penalty for hardship withdrawals up to $100,000 related to COVID-19.
- Ability to spread the income taxes owed on these withdrawals over a 3-year period.
- The taxes would normally have been owed the same year as the withdrawal.
- Also, the same 3-year period applies for depositing the withdrawn funds back into the retirement account.
- The normal rules required the funds to be re-deposited within a 60-day period.
No Required Payments on Federal Student loans for part of 2020
Those who have federal student loans are not required to make payments on these loans through October of 2020, and the interest accrued during this time will be waived as well. This waiver of payments is automatic and there is no provision requiring people to sign up for the waiver of payment or interest. Also, employers providing loan assistance to their employees will not have to pay taxes on these payments as well.
Expanded Unemployment Criteria and Benefits
There is also the issue of many people throughout America being left laid off from their jobs as this time. This week’s report of unemployment claims saw the highest week to week jump in history, with over 3 million people filing claims of unemployment. The stimulus package has provided provisions to help the states handle these unemployment claims by:
- Expanding the criteria for benefits to allow that more people will qualify than under previous rules.
- Increasing the benefits a state gives by $600/week for the next 4 months.
The main goal of these measures was to help more people throughout America recoup their full pay over the next 4 months. This is actually one month more than the bill had originally provided but was negotiated in before its passage to help more people for a longer period.
Small Business Assistance
Small businesses employ over 49% of private sector payroll according to the Small Business Association and do not have the same resources to weather a crisis as a large business does. To aid small business, it includes emergency grants and a forgivable loan program for small businesses (500 or fewer employees). There are also changes to rules for expenses and deductions meant to make it easier for companies to keep employees on the payroll and stay open in the near-term.
- $350 billion will be provided to aid small businesses through the Small Business Association to provide loans up to $10 million per business to help them stay open and continue to keep employees on their payroll until the end of June.
- $17 billion to cover payments to small businesses with existing SBA loans for 6 months
- $10 billion in grants for up to $10,000 to provide emergency funds for small businesses to cover immediate operating costs
Corporate Help
$500 Billion in assistance to corporations in the form of loans and grants across a wide range of various industries who have been hit hard over this time. It includes protections such as:
- Companies receiving a loan under the program are barred from making stock buybacks for the term of the loan plus one year.
- All assistance provided to companies by the government must be publicly disclosed.
- A special inspector general will oversee to provide oversight of all the benefits.
- The President, Vice President, members of the Cabinet and members of Congress are barred from benefiting from the benefits given to corporations. It also includes their spouse, child, son-in-law or daughter-in-law.
Closed Business Relief
For businesses of all sizes that are closed or distressed, there is a fully refundable tax credit that covers 50 percent of payroll on the first $10,000 of compensation including health benefits for each employee.
The CARES Act is over 880 pages and covers a wide array of issues including:
- $153.3 billion for health care
- $339.8 billion for state and local governments
- $26 billion for social welfare programs
In addition, there are various programs for arts, universities and other institutions. My goal was to highlight the most important points that affect our clients. The key takeaway from this act is that there is now a direction for the people, businesses, and communities in the US to go to find aid where it may be needed.
If you would like to read more about this act, you can it is provided in it entirety at: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text. Also, National Public Radio (NPR) provides a thorough summary that goes into much more detail than we addressed at: https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package
I hope that this helped to clarify much of what may impact you directly. As always if you would like to speak with a financial professional about this Act and how it might impact you directly, feel free to reach out to any of our professionals at Beratung Advisors by calling us at 412-357-2002.
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The information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to the accuracy and is not intended to be used as the basis for any investment decisions. This is meant to be general, and it is not investment or financial advice or a specific recommendation of any kind. Opinions and forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results could differ materially from those anticipated. Please consult your financial advisor before making financial decisions.
