By Ryan Graves on Apr 11, 2020

It's no secret that COVID-19 has severely impacted the world's population and its economy. Even those of us that are fortunate enough to be healthy are facing uncertainty around our livelihoods and the economic impact of this pandemic. To stem the economic shock of the virus, governments around the world are responding with massive economic stimulus packages. The package that passed in Congress is known as the Coronavirus Aid, Relief, and Economic Security Act of 2020, or CARES Act.  

 

The CARES Act is approximately 900 pages in length, and there is A LOT of information in there that will impact everyone. CARES will be the subject of conversation over the coming weeks and months, but here are some of the most relevant provisions for individuals and families.

The Government Checks 

Clearly, the most covered provision so far is Section 2201, Recovery Rebates For Individuals. Everybody wants to know if they will be getting a check and for how much.  Some estimates show that 90% of taxpayers will receive some of the Recover Rebate. Unfortunately, there could be some practical issues over the timing and disbursement of the checks.

Calculating the amount of the recovery rebate

CARES will provide a refundable tax credit for $1,200 for individuals and $2,400 for joint filers. Also, taxpayers with children will receive $500 for each child. The rebates will not count toward taxable income as it is being considered a refund against taxable income. The amount scales down out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint filers at 5% per dollar of income.

graph that shows lines scaling downward with more income as follows: CARES will provide a refundable tax credit for $1,200 for individuals and $2,400 for joint filers. Also, taxpayers with children will receive $500 for each child.  The rebates will not count toward taxable income as it is being considered a refund against taxable income.  The amount scales down out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint filers at 5% per dollar of income.
Source: CARES Act 2020

 

Example: A married couple with two children and a 2019 adjustable gross income of $182,000 would expect to receive $1,800 after the adjustment for income and children.

How will the government figure your income?

If you have already filed your 2019 return, that will be used to determines the amount of your check. If you have not yet filed, then your 2018 return will be used. Taxpayers that that are eligible for a more substantial rebate based on 2020 income will receive it in the 2020 tax season. The rebates are being issued based on the 2018/2019 income but are actually for the 2020 tax season. Taxpayers with higher income in 2020 than projected by the rebate will have the rebate "overpayment" amount forgiven.  

Charitable Giving

Those taking the standard deduction will have a partial above-the-line charitable contribution for filers for $300 and expands the limit of charitable donations for those itemizing.  

Dipping into Your 401(k) or IRA

The act will also waive the 10% early withdrawal penalty on retirement account distributions for taxpayers facing virus-related challenges. The language was left deliberately vague so that people may get the help they need. To qualify: You, a spouse, or dependent are diagnosed with COVID-19; endure financial hardships as a result of being quarantined, furloughed, laid off, or reduced workload. Also, if you own a business that is struggling to operate, you would qualify. Finally, it can be whatever other reason the IRS would deem "okay."

 

The amounts withdrawn are taxable over a three-year period or all at once. Taxpayers can recontribute to their accounts without worrying about exceeding the contribution limits. The act will also waive the required minimum distribution rules for specific plans in the calendar year 2020.

Help for Student Loans

Some of you are most interested in this section, and sorry, it's not as helpful as the other provisions. Required student loan payments are suspended until September 30, 2020, and no interest will accrue. It needs to be noted that borrowers will need to contact their loan provider to pause the payments.  

 

This period will also count towards any loan forgiveness program. So, if you are a borrower that will qualify for a program, such as the Public Service Loan Forgiveness program, it would make the most sense to pause the payments immediately. By pausing the payments, you are essentially getting rid of that debt that would otherwise have been paid.  

Lots of Unemployment Benefits

Individuals that would not typically qualify for unemployment insurance are now covered under the expansion of benefits for up to 39 weeks. Also, there will not be a one week waiting period. Typically, there is a waiting period to encourage people to find jobs quickly. However, under current circumstances, it is more important for people to stay at home than to find work.  

Unemployment is up by $600 a week 

States now can increase their unemployment benefits up to $600 a week with Federal money for up to four months. With the weekly average at about $400 before, this is a significant bump.  With 17 million people filing for unemployment this week, these measures are welcome while people are sidelined through the pandemic.  

Self-employed qualify too

Generally, self-employed people do not qualify, but the new provision is throwing out a lot of the older stipulations. So, individuals that would not have qualified for the usual unemployment will be eligible for up to 39 weeks through the act.

Unemployment time extended

If the maximum amount of weeks is reached under state law, the act will extend unemployment benefits by an additional 13 weeks.

Short-time provisions

Some states do not currently offer benefits to employees that have had their hours cut, but are still technically employed, which disqualifies them from unemployment benefits. This provision of the act attempts to incentivize states to provide such benefits by covering 50% of the establishment costs through the end of the year.  

There is a lot of uncertainty around how long this pandemic and perhaps even more on what life will look like afterward. It could be a long time before businesses open again, and even longer before businesses return to a healthy level of operating activity. While the CARES act is a strong start, more help could be necessary, especially the longer the economy is throttled. 

 

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