COVID-19 & The CARES Act
Tommy
Let me start off by saying that I am sorry for everyone who has passed away from Covid 19… As a nation, we are going through some difficult times. And when we go through difficult times we have put differences aside and come together to help each other out. The best thing we can do right now is protect ourselves and others from spreading the virus by social distancing, not going into public when you are sick, and wearing masks to cover our mouths. This is being responsible for your actions and not harming others. Remember that there is light at the end of the tunnel.
I’ll be honest. We don’t know what is going to happen in the future. This could potentially become worse if the stay-at-home bans go past April… Jamie Dimon, the CEO of JPMorgan Chase, came out and said he thinks a major recession is on its way. Fortunately with Congress passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act, economic relief is underway and can mitigate some of the economic distress in the short-term.
In this post, I wanted to discuss on how the CARES Act can help middle class Americans. The CARES Act is the biggest bill passed in U.S. History at an estimated $2.2 trillion. $560 billion will go to individuals in forms of direct payments to households, $500 billion for big corporations mainly the hotel & airline industries, $377 billion would go to small businesses, $339.8 billion to state/local governments, $153.6 billion to public health, $43.7 billion to education, and $26 billion to safety net services like food stamps. I won’t go into depth about how the CARES Act helps businesses, but you can find more detailed information here. Here are some of the main points of the bill that will help middle class Americans.
Cash Payments:
American that file Single who are earning less than $75,000 in AGI, are over age 18, and cannot be claimed as a dependent will get a one time payment of $1,200. Couples who file married filing jointly (MFJ) who earn a combined AGI below $150,000 will receive $2,400. Head of Households with AGIs under $112,500 will receive $1,200. For every child under age 18 and they are a dependent, you would receive an additional $500. AGI is based upon 2019 tax returns if you filed or 2018 tax returns. Payments are not taxable and checks are expected to be sent out later this month.
The payments phase out at $50 for every $1,000 of income over those thresholds. Individuals who make $99,000 or $198,000 for MFJ with no children won’t qualify for the cash payments. More specific information provided by the Tax Foundation can be found here.
Mortgage Payments:
Mortgage payments can be delayed up to a year under the CARES Act. Wells Fargo, Bank of America, and Chase will allow borrowers to tack on suspended payments to the back end of a mortgage. If the bank doesn’t own the mortgage and acts as a loan servicer, meaning the loan is federally backed by Fannie Mae, Freddie Mac, FHA, or VA, then all payments are due after 90 days. This situation is fluid and can change.Â
The CARES Act gives homeowners with federally backed loans two types of relief. First, it prevents lenders from beginning foreclosure proceedings on federally backed loans for at least 60 days from March 18. Second, homeowners who experience financial hardships from the pandemic can request forbearance (suspended loan payments) for up to 180 days, which can be extended for an additional 180 days if the borrowers are still under financial distress.
Struggling borrowers should reach out to their loan providers to see what options are available to them. Contact your loan provider, loan modifications are an option, ask for when suspended payments are due, and go from there. Make sure to document everything in writing.
Unemployment Benefits:
The bill increases the unemployment insurance benefits from the federal government and broadening eligibility. Americans are eligible if they lost their job by being laid off or furloughed. Individuals will receive $600/week from the federal government on top of unemployment benefits from the states. The bill also extends unemployment insurance by 13 weeks to July 31. You can find how to apply for state unemployment benefits here.
Retirement Savings:
Retirement savings are changing too with the newly passed bill. The law loosens hardship distributions by allowing people to make distributions from retirement accounts up to $100,000 without a 10% penalty. The law also waives 2020 RMDs giving you time to strategize on how to begin taking them in 2021.
Also, the law doubles 401(k) loans for the next 6 months. You can borrow up to $100,000 or 100% of the account balance, whichever is lower. If you leave or lose your job when you have a 401(k) loan outstanding, loans must be paid in full by that year’s tax return deadline. If you can’t pay back the loan, then it will be subject to income tax.
401(k) loans or liquidating retirement assets is not recommended and is to be used as a last resort. It would be better to put expenses or transfer expenses to a zero percent interest rate credit card and pay it off within the promotional period. Only liquidate assets if it lowers your current payments or you can eliminate debt as you will lose the power of compound interest.
Student Loans:
Under the bill, all student loan payments are suspended without penalty until September 30. No new interest will accrue. If you are a borrower who is enrolled in a loan forgiveness program, then interest rates are waived. More information can be found here.
Lastly, tax returns are now extended until July 15, but make sure you file ASAP if you haven’t filed so the IRS has your information to make the cash payment into your account if you are eligible. Remember that you are not alone. If you need help, don’t be afraid to ask for it as we are all in this together.