This article was written in collaboration with Executive Chairman, Stewart S. Koesten, M.S.F.S., CFP®, CIMA® —

Phase 3 of the fiscal stimulus plan just passed both houses of Congress and was signed by the President on Friday, March 27, 2020. The $2 Trillion deal, named the CARES Act, provides financial help to individuals and families, as well as to hospitals, airlines, hotels and entertainment, and other large businesses as well as family-owned small businesses or individuals who own business enterprises.

The scope of this new act covers over 800 pages of detail and is way too much to communicate in this writing.  Instead, we hope to highlight those areas in the Act that we believe most affect you directly or your family members.

We’ve attached a link to a much more detailed summary you can view at your leisure if so desired.  So, let’s get started:

EXPANDED UNEMPLOYMENT BENEFITS

Unemployment insurance benefits have been extended to 4 months up to $600 a week in addition to eligibility at the state level. Potentially this could mean lower-income employees who lose their jobs will earn more unemployed than they were earning employed but for a limited time. The Act provides benefits for self-employed, independent contractors, and gig economy workers.

 

SMALL BUSINESS LOANS

“Small business” is defined as a business with fewer than 500 employees. The Small Business Administration (SBA) will provide loans to small businesses to cover payroll, group health premiums, interest payments on mortgages, other interest payments, rent, and utilities.  Businesses that qualify include franchise operations.  These loans are eligible for forgiveness based on a formula: the percentage of retained employees between February 15, 2020 – June 30, 2020.

 

DIRECT PAYMENTS

Eligible families and individuals will receive direct cash payments of $1,200 per adult and $500 per child under age 17.  The income based phase out begins at $75,000 of income for individuals and $150,000 for a couple that is Married Filing Jointly.  The benefit reduces at $5 per $100 of additional income over that threshold.  For example, a married couple with 2 children with $100,000 of income would receive $3,400.  If that same family earned $200,000, the payment would be a little less than $1,000.  The payment will be based on your income reported on the 2019 tax return (if you’ve filed already) or the 2018 return, whichever is the most recent.  It is not certain when these payments will be made, but legislation suggests they are targeting to have the payments out in May. Note: Payments will be made to those with no income, as well as those whose income comes from Social Security.

 

RETIREMENT LOANS

Individuals can make loans from certain retirement plans, including IRAs, up to $100,000 without penalty.

 

NO RMD’s

No Required Minimum Distributions (RMDs) in 2020. For individuals not needing these distributions for income purposes, this may result in substantial tax savings for 2020.

 

STUDENT LOANS

Federal student loan payments are suspended through September 30, 2020, without interest accrual during the suspended period. Federal loan repayment requirements are waived for students withdrawing from institutions during the emergency situation.

 

ADDITIONAL NOTES:

  • All patient testing and potential vaccines for COVID-19 will be covered at no cost to patients
  • A 120-day moratorium on evictions.
  • $500 billion will be provided for loans to large corporations for non-forgivable loans for up to 5 years, including directed funds
  • $30 to $50 billion for the Agriculture Department to use for bailouts
  • $140 billion to support the US health system, split between direct support to hospitals, as well as for personal protective equipment or PPE’s for healthcare workers, testing supplies, training, and other supportive health investments

There will be some unintended consequences from elements of this new act.  For example: how does the provision for suspension of Federal student loans affect employees of public institutions looking forward to loan forgiveness after 10 years of consistent payments?  I’m sure there will be more.

 

Many of our clients may wish to be aware of these two items specifically:

  • The stimulus package eliminates the requirement for Required Minimum Distribution, RMD. We are monitoring to see if those who have already taken a distribution this year can retroactively reverse it.
  • You can still make IRA contributions up through July 15, 2020, the new deadline for Federal Tax Filing as per the Families First Coronavirus Response Act.

The CARES Act in text format:

https://www.documentcloud.org/documents/6819206-CARES-ACT-FINAL-TEXT.html

Over the next couple of weeks, we will be going more in-depth on this Act. Stay tuned!

 

Angela Kreps leads commercial strategy for the firm, seeking to connect with new clients to define their goals, develop outcomes-based plans, and Master What’s Next. She spent 30 years in executive leadership and business development, including 10 years as CEO of a bioscience organization.

Master What's Next