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The recently passed CARES Act provides support to Americans and companies large and small. Not so much a stimulus bill but a liquidity bill in our view, it gives a necessary backstop to the forced shut-downs required to fight the Coronavirus. The Act will help families meet their needs, pay their bills, and preserve many jobs to which they can return.
Here are some of the key elements of the CARES Act that may impact you.
Direct Stimulus Payments
Get ready to receive a check from Uncle Sam.
Single filers with 2019 adjusted gross incomes (AGIs) not exceeding $75,000 are set to receive a $1,200 payment. This is phased-out ratably by $5 per every $100 of AGI and entirely once AGI reaches $99,000.
Married couples who filed jointly with AGIs up to $150,000 are set to get twice that amount — up to $2,400. Again, payments are entirely phased out at $198,000.
CARES also provides for a payment of $500 per qualifying child who is 17 years old or younger.
For taxpayers who haven’t filed their 2019 returns yet, officials will base eligibility on the previous year filings.
If you’re curious about whether you’ll be receiving a check, you can use the calculator linked here and data from your 2018 or 2019 tax return.
The Act extends unemployment support to those impacted by COVID-19 and includes those who are self-employed and part-time workers.
How much you’re eligible for depends on state benefits. In Ohio, you can receive up to 50% of your average weekly wage, capped at $480 in 2020. With CARES, another $600 a week in federal money is added for an annualized amount of $56,000.
Further, while unemployment in Ohio can last up to 26 weeks, the legislation provides for an additional 13 weeks for a total of 39 weeks – or 9 months.
Required Minimum Distributions (RMDs) Optional in 2020
The Act makes 2020 RMDs optional though many retirees will want to continue taking IRA distributions for living expenses.
By not taking your RMDs, however, those assets can remain in your portfolio for future growth. You can also use the IRA money to make a Roth conversion or a larger Roth conversion that what you were already planning.
IRA/401k Withdrawal & Loan Changes for 2020
Changes for 401k/403b loans were passed, increasing the loan amount from $50,000 to $100,000 and removing the limitation of it being up to 50% of the vested balance. The loan must be taken within 180 days of the implementation of the Act. It’s important to remember that plan loans remain subject to your respective employer’s plan rules. So it’s possible you may not be able to take advantage of the higher amounts.
Additionally, IRA/401k owners aged 59.5 years and younger can now take a withdrawal (not a loan) up to $100,000 in 2020 without being subject to a 10% excise tax. Although those distributions will be counted as income, taxes assessed on those distributions by the IRS can be spread over 2021 and 2022. The withdrawal may also be repaid under prescribed terms within a 3-year period and avoid taxes.
Payroll Protection Loans for Business Owners
The Act also creates a new payroll protection loan program that business owners are now able to apply for through their local banks. The program is on a first-come-first-served basis, so affected business owners should apply immediately.
This can be a significant benefit for business owners impacted by the Coronavirus. In addition, if these loans are used to cover certain operational expenses, the entire amount borrowed can be forgiven.
There are also tax credits available for certain businesses. For more details, you can check here on the SBA’s site.
If you have additional questions about the CARES Act or your financial, tax, or investment planning, schedule a call with one our of Certified Financial Planner professionals here.