Episode Summary

Today on Agile Finance Radio, we’re going to talk about the Coronavirus stimulus package, known as the Coronavirus Aid, Relief, and Economic Security Act or CARES Act. This is a massive $2 trillion package.

We’ll look at the things that could impact you the most from the tax credits or rebate and when you might get that to the unemployment compensation changes. Also, we will look at some of the provisions in the Act that allow you to take distributions from retirement accounts, changes in employer loans and student loans, required minimum distributions, and small business provisions.

Key Points

  • How do they determine the refund check I’ll get?
  • How is unemployement benefits affected?
  • Understand the changes for retirmement accounts and ways you can access your money.
  • Student loan help.
  • Charitable contribution changes
  • Learn about the Small Business loans, credits, and deferrals to help you weather the virus.

Resources

Small Business Administration

The CARES Act details on Congress.gov

Transcript

Introduction

Today on Agile Finance Radio, we’re going to talk about the Coronavirus stimulus package, known as the Coronavirus Aid, Relief, and Economic Security Act or CARES Act. This is a massive $2 trillion package.

We’ll look at the things that could impact you the most from the tax credits or rebate and when you might get that to the unemployment compensation changes. Also, we will look at some of the provisions in the Act that allow you to take distributions from retirement accounts, changes in employer loans and student loans, required minimum distributions, and small business provisions.

Stock Market Update

Before we move into the CARES Act, I wanted to talk briefly about the market. It’s been a historic ride for the first quarter. A massive drop in a short period of time. Hopefully, you didn’t sell out at 25% or 30% down because we’ve already recovered past those paper level of loss.

During these times, that’s why it’s crucial to have a plan to guide your decisions. Some unique event always causes bear markets, but human nature and behavior are relatively consistent.

We have seen a little bit of a character change. Now, I don’t know if we are on the road to recovery. History tells me that we aren’t because we rarely see a V-shaped recovery as we did in early 2019.

However, my approach to investing is I have a core portfolio, and also a portfolio that I call my opportunity portfolio. I’m active in this, whereas my core is mostly following rules and rebalancing when it makes sense. I’ve started to nibble in my opportunity portfolio. However, we could be in for more down legs in the market. We don’t know the economic impact of the Coronavirus.

Free Money

I think everyone has heard about the bill, and the question most are asking is when will I get my check. If you like money for nothing, then you’ll be happy that it’s estimated that around 90% of taxpayers will get a check. Checks are said to be coming as soon as possible, but probably not until May timeframe.

Technically this is a refundable tax credit, so think of it as you paid too much in taxes, and now you are getting a refund. The amounts are $1200 for individuals, $2400 for married couples, and an additional $500 per child for if they are under the age of 17.

There is a phase-out based on your adjusted gross income for married filing jointly over $150,000, $112,500 for Head of Household, and $75,000 for other filers. It phases out at $5 per $100 of additional income over the amount. So the amount of the check will be based on your family size, ages of kids, and your income.

Also, the income level is based on your 2019 tax return if you’ve filed; otherwise, they will use the 2018 tax return. So if your income was lower in 2019, get your taxes filed.

The money will go to your where you get your Social Security checks if you are currently receiving Social Security. Next, it will go to direct deposit if you received a refund for 2019 or 2018. Otherwise, it will go to your last known address. So, if you’ve moved, fill out the form to get your address updated.

Unemployment

A big part of the stimulus is increasing the amount and eligibility for unemployment compensation.

First, the typical waiting period of a week is eliminated. The Federal government will now cover that first week.

Second, if you have state unemployment, this will add an additional $600 per week for up to four months.

Third, there is an extension of benefits for an additional 13 weeks.

Fourth, there’s a new pandemic unemployment insurance option for people that may not qualify for state unemployment like self-employed individual or people working in the gig economy as a consultant or contractor.

Retirement Plans

You can take up to a $100,000 distribution from IRAs or employer plans in this year only. You must qualify to be able to make the distribution.

  • Diagnosed with COVID-19
  • Spouse or dependent has COVID-109
  • Financial challenges because of being quarantined, laid off, reduced hours because of the virus
  • Your business had to close or operate under reduced hours
  • Or other IRS approved reasons

The distribution is exempt from the 10% early withdrawal penalty, and it’s eligible to be repaid over three years to put it back into the account. It will still be considered taxable income, but it can be spread out over three years unless you want to have it all in 2020.

You can now take up to a $100,000 loan from your employer retirement plan. The prior maximum amount was 50K, and it can be 100% of your vested balance.

Required Minimum Distributions are suspended for 2020 for IRAs and employer plans like a 401(k). If you already took your RMD, you may be able to roll it back in.

Student Loan Relief

For those of you who have student loans, no payments are required until September 30, 2020. Interest does not accrue during this time as well. Effectively you are getting a grace period. You have to reach out and stop the payments if you want, and you can still pay like normal.

On pure math, it makes sense to suspend and use that cash elsewhere, but getting rid of debt is a good thing as well. It all depends on your cash flow needs right now.

Charitable Deduction

There is a $300 cash only charitable deduction that you can take even if you do not itemize. It’s not a significant amount but could be a difference if you are on the line of a tax bracket. It must go directly to a 501(c)(3) charity.

In addition to the deduction, the Adjusted Gross Income limit for cash charitable contributions has effectively increased from 60% to 100% of your AGI. Again, it must go directly to a 501(c)(3) charity.

Small Business

Another big item pertains to small businesses. The government wants to incentivize a company to keep its employees employed. They’ve created loan provisions that will be issued by banks that are approved lenders of the Small Business Administration.

Paycheck Protection Program

You must apply for the loan by June 30, 2020, and the maximum duration is for ten years and the maximum interest rate of 4%. In general, you have to have less than 500 employees and certify that the loan is necessary due to the current economic conditions.

You can get the lessor of 10 million or 2.5 times the average monthly payroll cost of the previous year. You do have to exclude employee compensation greater than $100,000.

The loan proceeds can be used for things like payroll costs, salaries, utilities, rent or mortgage interest, and healthcare costs.

There is a part of the loan that can be forgivable on amounts spent during eight weeks following the loan on things like payroll costs, rent, utilities, and group health insurance. But you have to keep your employees, and they can’t have reductions in income greater than 25% compared to the prior quarter. There are some specifics on dates as well that you’ll need to check to see what makes sense for your company.

Deferral of Payroll Taxes

Another thing you can do as a small business is defer your 2020 payroll taxes. 50% is due by 12/31/2021, and the remainder is due by 12/31/2022.

Employee Retention Credit

There’s also a credit against payroll taxes to help with employee retention. This credit is 50% of wages paid for each employee up to a maximum of $10,000 per person. But there are specific criteria that must be depending on the number of employees, if your operations were suspended due to the government or you have a quarter of revenue that is less than 50% from the same quarter last year.

Net Operating Loss Rules

Another benefit is the net operating loss rules now allow for a carryback of up to five years. Two years was the maximum previously set by the Tax Cut and Jobs Act in 2018. This will apply to tax years 2018, 19, and 20.

Other Provisions

There are a few other things that might be useful to you. If you have HSAs or FSAs, over the counter medication is now an eligible medical expense. Also, it was expanded to include certain products for women as well.

People that are on Medicare will receive a COVID-10 vaccine when it becomes available at no cost. Let’s hope that gets here quickly.

Medicare Part D recipients can make a request for up to 90 days for their medication. This is a nice benefit since they are at risk and won’t have to go out as much.

Final Thoughts

If you are ready to update your plan, review your risk, or fine-tune your investment for times like this, then head on over to agile finance radio.com and select the work with me option. We’ll have a 15-20 minute strategy call and then see if it makes sense for us to work together.

That does it for this episode of Agile Finance Radio. Tune in next time as we discover more ways to win with money, gain at life, and ultimately retire with confidence.