CARES Act to Become Law

CARES Act to Become Law

CARES Act to Become Law

Includes Relief For:

  • Newly Unemployed Workers
  • Families & Individuals
  • Large Corporations
  • Small Businesses/Business Owners
  • Retirement Account Holders
  • Student Loan Borrowers

Congress Fires the Relief “Bazooka”

Today, lawmakers in Washington D.C. approved the “CARES (Coronavirus Aid Relief and Economic Security) Act and sent it to the President for signature. The Act itself is over 800 pages long and is intended to act as a stop-gap for U.S. workers, business owners, retirees, and students during a time of economic crisis. At a cost of over $2 Trillion, the Act provides for billions in aid to certain hard-hit industries such as Healthcare, Aviation, and additional yet-to-be-determined sectors deemed essential to the U.S. economy. The bulk of the remaining price tag comes in the form of tax rebates and provisions for small businesses and consumers.

Opinions on who stands to benefit most and who got overlooked will be plentiful in the coming days and weeks. For now, our focus is getting the word out quickly so our clients can take advantage of the features impacting them, their businesses, and their families. Your upcoming review meetings will include an analysis on what changes or benefits, if any, are available for your particular circumstances. In the meantime, we’re here for any questions you may have on what steps can be taken to optimize your financial plan given the new legislation. Due to the urgent nature and sweeping impact of the package, details are still being digested by media outlets and financial experts alike. In the meantime, we wanted to communicate what we felt were the most meaningful, and in many cases, time-sensitive components

What’s In It For Me and Who Gets What?

Legislative benefits are listed below by impacted demographic:

Newly Unemployed Workers:

  • Unemployment benefits have been increased by $600 per week for up to 4 months
  • Independent contractors and the self-employed qualify for extended benefits
  • An additional 13 weeks of UI benefits beyond state benefits will be available

Families & Individuals:

  • Individuals will be entitled to receive a $1,200 cash payment. Joint Filers will receive $2,400
  • Families will receive an additional $500 for each qualifying dependent child age 16 or under by the end of 2020
  • Income limits apply and these amounts will be gradually reduced for joint filers with incomes over $150,000 and eliminated for joint filers earning over $198,000
  • For single filers, the phaseout starts at $75,000 and payments will be eliminated for incomes over $99,000
  • Income limits (Adjusted Gross Income) will be based on 2019 taxes (if already filed) and 2018 taxes for those who haven’t filed yet. If 2020 income qualifies you for a higher payment, it will be paid after taxes are filed for 2020
  • Actual payments will technically be treated as “tax rebates” but won’t require tax liability. They will be treated as a credit, and thus, will not be taxed
  • Payments will be made by direct deposit to the bank account you had your 2018 tax year refund deposited to; otherwise they will be mailed
  • Timing of payments is unknown (U.S. Treasury has expressed a 3 week goal) but will likely be sometime in April or May depending upon the form of payment

Business Owners:

  • Employers are eligible for forgivable loans through the Small Business Administration of up to 2 ½ months of payroll expenses (maximum amount considered per employee is $100,000 regardless of pay)
    • Loans can be used for payroll, rent, utilities, or existing debt obligations
  • Forgiveness is achieved either by retaining the same number of employees as employed “on average” during 2019, or, as many as were employed on average from January 1, 2020 to February 29, 2020 (employers can use either comparison)
    • SBA has voiced an intent to get loans approved in 3-5 days, but banks handling loans will likely require more time. For updates visit the SBA
    • Eligibility for forgiveness is based on a “good faith certification” that funds will be used for payroll, retaining workers, or necessary expenses to keep the business running
  • Tax credits for employer payroll taxes paid during the crisis up to $10,000 are available for businesses experiencing significant disruption greater than 50% in revenue compared to a year ago (cannot be combined with loan forgiveness).
  • Employer Social Security taxes may be delayed until January 1st, 2021 with 50% owed on 12/31/21 and the balance on 12/31/22
  • Other tax provisions for business owners relating to issues such as Net Operating Losses, AMT, and Net Interest Deduction limitations are also included

Retirement Account Holders:

  • The $50,000 401(k) loan limit is doubled to $100,000 for 2020 with additional time to pay back
  • Early withdrawals from certain retirement accounts allowed for “Coronavirus-related distributions” (assumption is that IRS will be lenient, the Act defines this rather loosely):
    • 10% early withdrawal penalty (for those under 59 ½) is waived (up to $100,000)
      • These distributions will be taxable over 3 years
      • Amounts can be re-contributed over the next 3 years without impacting regular contribution limits
      • Applies to 401(k)s, 403(b)s, and IRAs
  • For IRA account holders required to take a 2020 Required Minimum Distribution:
    • The RMD is not required for tax year 2020
    • If it has already been taken and you don’t need the funds now, you may be able to roll the money back into the account within 60 days of taking it

Student Loan Borrowers: (for any specific questions – contact allison.becker@legacykc.com)

  • Federal Loans Only – No interest accumulation or payments due through September 30, 2020
  • Students receiving certain employer assistance in loan repayments would not be taxed on those payments up to $5,250

Please let us know if you have any questions on how any of the above may affect your family or your wallet! In the meantime, our team wishes you and your family health and security during this trying period.

Download the March 27, 2020 CARES Act Commentary

Chris Proctor

Chris Proctor

Chris Proctor, CIMA® is a Principal, Chief Investment Officer and Financial Advisor at Legacy Financial Strategies. Chris has over 25 years of experience in financial services, having held investment and advisory positions at large, diversified U.S. and global firms.