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What the CARES Act means for you

While I’m sheltering-in-place, social distancing, and WFH (working-from-home), the world keeps spinning. Congress has acted. Late Friday, the Coronavirus Aid, Relief, and Economic Security (CARES) Act—the largest economic stimulus package in American history—was passed by the Senate and signed into law by the President. The Act provides a total of about $2.2 trillion in aid to help jumpstart the economy.  

You’re already on overload with the rapid newscycle of information about the virus itself, but I want to give you the highlights of the new package to give you a preview of how it is likely to affect your finances amid the crisis. Here are the items I see as having the greatest impact:

  • Recovery rebates for (almost) all Americans. 
    While this will benefit most Americans, it is intended to offer a financial boost to those who are in desperate need at the moment. If you filed a tax return in 2018 or 2019 and have 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. The money will be auto deposited to your bank account if you chose that option on your most recent tax return or if you paid along with your social security deposit. Otherwise, your check will come in the US mail. Families with children may also be eligible for an additional $500 per child. The Treasury is ramping up to start processing payments within the next three weeks. However, I expect that you may not see the money until May.

    NOTE: The amount received is calculated based on 2018/2019 adjusted gross income (AGI), but the final amounts will be based on your actual 2020 AGI. This means that if you qualify in 2018/2019 but have a lower AGI in 2020, the rebate will be “trued up” and pay you additional funds when you file your 2020 return. Surprisingly, there will be no claw back of any excess payment if your 2020 AGI is higher. 
  • Expanded unemployment benefits for those laid off or furloughed due to mandatory business closures. 
    The Act expands unemployment insurance for workers, including a $600 per week increase in benefits for up to four months. It offers unemployment benefits for workers who are not usually eligible; if you are self-employed as an independent contractor or small business owner, or if you have been furloughed (meaning you are still technically employed but are unable to work) you will be eligible for benefits. Even if you were unemployed before the outbreak, you are still eligible to receive increased benefits. This benefit means greater security for many small business owners who make up the backbone of the American economy.
  • RMDs waived in 2020.
     
    This may be the most important benefit if you are already retired and taking RMDs (Required Minimum Distributions) from your IRA or other tax-advantaged retirement accounts. Under the Act, you are not required to take RMDs in 2020. (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. And what if you’ve already taken RMDs in 2020? You may simply ‘return’ the money to your retirement account before the end of the 60-day rollover window. If you took an RMD in early January and the 60-day window is closed, you may still qualify, but it’s not so simple. It’s best to work with your financial advisor to be sure you manage the process carefully.
  • Penalty-free emergency withdrawals from IRA/401(k) before age 59½. 
    Under the normal regulations, taking an emergency withdrawal from your tax-advantaged retirement account before age 59 ½ results in a 10% penalty on the amount taken. 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 the taxes on the money will still be due, so use this option wisely.
  • Protection for retirement income from bonds.
     
    If you are retired or close to retirement, municipal bonds are likely a significant asset class in your portfolio. The Act allocates nearly $500 billion in emergency loans to state and local governments to safeguard payments on these bonds, ultimately helping to protect your retirement income. These loans will help local governments continue vital services and utilities at a time when revenue from business taxes may drop significantly.
  • Small business loans and assistance. 
    The Act offers substantial benefits to businesses to help them keep their doors open. The Paycheck Protection Program offers employers SBA loans to pay payroll, rent, utilities, and more. 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.
  • Student loan relief.
     
    If you or your adult children are carrying student loan debt, all student loan payments are deferred until September 30, 2020. Even better, no interest will accrue during the deferral period. You may still pay down your loans if you choose to. Note that if you do want to take advantage of the deferral, it is not an automatic process; you must contact your loan provider and pause payments. 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.

In addition to these financial aspects of the Act, there are several provisions that are focused specifically on bolstering healthcare during the crisis:

  • Coverage of over-the-counter medications from HSAs, MSAs, and FSAs.
    If you rely on a tax-advantaged account to cover your medical expenses—including a Health Savings Account (HSA), Archer Medical Savings Account (MSA), or Healthcare Flexible Spending Account (FSA)—the Act expands coverage to include over-the-counter medications and feminine hygiene products.
  • Expanded medical coverage for Medicare beneficiaries.
    If you receive Medicare benefits, the Act adds some important benefits related to the COVID-19 outbreak. During the COVID-19 emergency period, Medicare Part D recipients may order a 90-day supply of prescription medications. Plus, when it becomes available, you can receive the COVID-19 vaccine at no cost.
  • Expanded coverage for telehealth services.
     Telehealth services from providers like Teledoc and Doctor on Demand may be temporarily covered before you’ve met your deductible for an HSA-Eligible High Deductible Health Plan (HDHP). Rules for providing telehealth services have also been relaxed during the COVID-19 emergency period for facilities such as Medicare federally qualified health centers, rural health clinics, home dialysis, and hospice care recertification providers.

Clearly, we remain in the thick of the global challenge presented by the coronavirus, and staying healthy should be your number-one priority. But that can be particularly difficult if you’re facing a financial setback because of the pandemic. As you might expect, what I’ve included above are just the highlights, and there may be other provisions in the CARES Act that apply to you. Your financial advisor can help you analyze the details and be sure you are taking advantage of the provisions that relate to you.

The Act is imperfect, but it is good. While it certainly does not address all the challenges we are facing as a nation, it applies fiscal policy to help protect those in need and the economy. I hope it is able to ease any financial stress you are feeling at the moment. 

Stay safe, stay healthy, and if you have any questions about the CARES Act or any other aspects of your financial life, please reach out. As always, we are here to help!