Congress has recently taken decisive action to help people mitigate the financial impact of the COVID-19 crisis. In this post, we describe critical ways the March 27th CARES Act and associated legislation can help individuals and small businesses. We will supplement this with more targeted information for our clients who will need help with specific sections of the Act.
Certain provisions of the CARES Act have already been changed or amended, and we expect this to continue, as the Act was signed quickly and not all consequences could be analyzed at the time. Be sure to revisit our COVID-19 Resource Page for updates. That page also has some great resources for those who want to volunteer or donate to pandemic-related causes.
As always, we recommend connecting with your financial advisor or accountant to see how these new policies affect you, particularly because not all states will embrace these new options.
- Direct cash payments of $1,200 will be sent to individuals earning up to $75,000 (or $150,000 for couples, $112,500 for head of household), plus $500 for each child under the age of 17. These payments will be phased out for higher-income earners. You do not have to request a payment; it will be sent directly to those who filed taxes in 2018 or 2019. If the IRS has your direct deposit information, you will receive your payment faster. You can check the status of your payment here.
- Some Social Security recipients will also receive these payments even if they don’t typically file taxes.
- Unemployment insurance will increase by $600 per week for up to four months.
- Foreclosures on federally insured mortgages are prohibited for 60 days. Some rental evictions are also prohibited.
- Self-employed people, gig workers, and part time workers can submit claims for unemployment insurance.
- Under the Families First Coronavirus Response Act (FFCRA), most workers at small and mid-size companies (under 500 employees) will have access to two weeks of paid sick leave if they get the virus, and possibly 12 weeks of paid leave to care for children who can’t attend school.
- Employers with less than 50 workers can deny workers the child-care leave (but not the sick leave) if it would be hard on their businesses; companies with more than 500 employees are excluded from the rules entirely.
- The Federal government (and most states) have extended the tax filing deadline to July 15, 2020. This includes payments of your estimated taxes due, as well as filing the actual tax forms. No action is required to file after April 15th.
- First quarter estimated tax payments usually due April 15, 2020 are now postponed to July 15, 2020, interest and penalty free.
- You can also delay funding your IRA, Roth, or other tax deferred savings account until that date, without penalty.
- If you, your spouse, or a dependent is diagnosed with COVID-19 or is financially harmed by the pandemic, you can withdraw up to $100,000 from your 401(k), 403(b), 457, or IRA in 2020, without the 10% penalty that would normally be assessed if you are under 59.5. This will be taxable income to you, but you can stretch the liability over 3 years. (Or claim the income this year if your income is likely to be higher in 2021 and 2022.)
- You can put some or all of this money back before 2022 (three years) and defer the income taxes; the rules are complicated so speak to your CPA or Abacus advisor.
- If your employer permits loans, account holders can also take a loan of up to $100,000 (previously $50,000, or 50% of your account, whichever was smaller) from an employer-sponsored plan, as long as the amount is already vested.
- If you already have a loan from your retirement account, you may be able to delay loan repayments for a year.
- People who would normally be required to take a distribution (RMD) from their IRA, Inherited IRA, or other tax-deferred retirement account can delay the distribution this year. While that will affect you from a cash flow viewpoint, it will also help save money on taxes this year if you don’t need the cash. Remember, withdrawals from retirement accounts are considered taxable income.
- If you already took your RMD for 2020 and meet the criteria above for being negatively impacted by the virus crisis, you may return your RMD and won’t have to count it in your taxable income for 2020. If you had taxes withheld when you took your RMD, you may not get those back. This does not apply to Beneficiary IRAs.
- Even if you haven’t been affected by the virus crisis, if you took your RMD less than 60 days ago, you may be able to “return” it and avoid the taxable income. See your Abacus advisor for assistance. This does not apply to Beneficiary IRAs, unless you are the spouse and beneficiary of the deceased account holder. In that case, you can return the RMD to your retirement account.
- People who are working and going to school can receive up to $5,250 in loan repayment benefits from their employer if the employer provides education reimbursement benefits.
- People with Federal student loans will automatically have their payments paused from March 13 until September 30. No interest will accrue during that period. (Yes, if you have income you can continue to make your loan payments, and that will probably help your loan eligibility in the future.)
- For those in the Public Service Loan Forgiveness Program, the $0 payments will count as payments made on time when calculating your eligibility for public service loan forgiveness. It will not count towards an income based repayment schedule.
- Note: the new law does not cover loans issued by state agencies and private issuers, including Sallie Mae. People with student loans from those sources should contact their lender to see if they will follow the Federal government’s example.
- Generous donors who don’t itemize and who take the standard deduction can make a one-time deductible donation of up to $300 to a charity. Donations to Donor Advised Funds (DAFs) and non-cash donations don’t count.
- Very generous donors who are able to itemize can give up to 100% of their Adjusted Gross Income to charities this year (the limit has been 60% in the past). This also does not apply to DAFs, and only applies to cash donations.
The CARES Act provides significant relief to small business owners. Please visit our page dedicated to an in-depth overview of the resources available: CARES Act: Small Business Owner Resources.