What The CARES Act Means for You

On March 27, 2020, the White House and Congress passed the largest relief package in recent United States history, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Spreading $2 trillion among businesses, hospitals, families and individuals, this economic stimulus package is designed to bring relief to those experiencing economic hardship from the COVID-19 pandemic. The size of this relief package is unprecedented. For example, it is nearly 12 times the size of the $168 billion offered to Americans in the Economic Stimulus Act of 2008, which was the last time an economic stimulus package was passed.¹ 

If you’re wondering how this act may affect you, we summarize below some of its most important provisions.  

Waived Required Minimum Distributions

Owners of IRAs who would otherwise be required to take minimum distributions from their retirement savings accounts will not be required to do so for the remainder of 2020. This gives retirees a chance to let their money grow a little longer and, hopefully, gain back some value lost during the COVID-19 pandemic. Of course, if you still need to withdraw from your accounts, you can. But for those who were only planning on withdrawing because they had to, this change offers retirees the opportunity to reduce their tax bill come tax season.²

Penalty-Free 401(k) and IRA Withdrawals

You now have the option to withdraw up to $100,000 from your 401(k), 403(b) or IRA account. This opportunity is open to anyone who has been impacted directly by the COVID-19 pandemic. Examples of qualifying impacted individuals include:

• Someone who has contracted the virus
• Those caring for an immediate family member who has the virus
•  Anyone experiencing financial distress due to being furloughed or laid off during the pandemic
• Business owners who needed to cease operation or reduce hours
• Any additional circumstance in which the IRS deems acceptable²

With this change in policy, the typical 10 percent early-withdrawal penalty has been waived for qualifying individuals (based on the list above) who choose to withdraw before the age of 59 ½. In addition, you have the option to spread the tax liability of this additional income over the next three years. 

Other types of retirement plans, such as money purchase pension plans or defined benefit and cash balance plans, are not discussed in the CARES Act in regards to penalty-free early withdrawals. Therefore, the penalty-free early withdrawal option does not apply to these types of plans.

Withdrawing any amount early from your retirement plan is a decision that shouldn’t be taken lightly, as you are taking income away from your future retirement. If you are in a situation in which you are considering this option, it’s wise to speak first with your financial advisor, as they may be able to present other options.

Unemployment Benefits 

In an effort to extend unemployment benefits, eligible Americans on unemployment will receive an additional $600 per week for four months.³ This is done in an effort to help those who are currently out of work due to the COVID-19 pandemic better achieve their full pay over the next four months. Between regular state unemployment benefits and the additional $600 per week, many workers in the U.S. will make more being unemployed than they earned from working.⁴  

This bill will also allow unemployed individuals affected by the pandemic to receive unemployment insurance for an extended 13 weeks.

The bill has called for the creation of a pandemic unemployment assistant program that would offer unemployment benefits to those who have previously not been eligible - including those who have been furloughed by their employer, freelancers and gig workers (such as Uber or Lyft drivers). Rules vary by state, and many states have been struggling to change their systems to incorporate the CARES Act guidelines.⁵ 

Stimulus Checks

Some American taxpayers will be receiving direct stimulus payments of $1,200 as part of the new bill. Those with incomes under $75,000 (single), $150,000 (joint), and $112,500 (head of household) will receive the full $1,200 (single or head of household) or $2,500 (joint). The payments are reduced by $50 for each $100 of income above these levels, which are based on 2019 tax returns for those who have filed them and on 2018 returns for those who have not. (The 2019 filing deadline has been extended to July 15, 2020.) Families who qualify with children can expect to receive an additional $500 in direct payments per child.⁶

If you have not yet received a stimulus payment into your checking account and you believe that you are entitled to one, the IRS probably does not have your direct deposit information. They normally get this information from you when you file your return if you are receiving a tax refund. If you did not receive a refund when you filed your last return, the IRS probably does not have your direct deposit information. This will significantly delay you receiving a stimulus payment. You can quickly and easily give the IRS your direct deposit information at their "Get My Payment" website. 

Small Business Grants and Loans

A large portion of the CARES Act money will be going toward assisting small businesses who have been affected by the COVID-19 pandemic. Overall, $500 billion will go toward assisting businesses and corporations, with $29 billion going to the aviation industry and $17 billion to businesses that work in national security. The remaining $454 billion can be leveraged as loans for other businesses or municipalities. Companies that choose to take this government assistance must agree to stop any stock buybacks for the length of the loan plus a year. In addition, these companies must retain at least 90 percent of their employee levels between March 24 and September 30, 2020.³

[On April 24, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act⁷ which added $484 billion in economic support, including $320 billion more for the Paycheck Protection Program, a cornerstone part of the CARES Act which quickly ran out of money. Loan applications are available online through banks, with final approval the responsibility of the Small Business Administration.]

Education Loan Repayment Suspension

Millions of educators and students from K-12 through college have been affected by government orders to self-isolate. In an effort to assist school systems and institutions across the country, the government is granting $30 billion in emergency education funding. In addition, The Department of Education will be suspending payments so that borrowers would be allowed to put off paying their federal student loan payments without penalty until September 30th.³

While the news seems to be changing every day surrounding COVID-19, the federal government has never before been so aggressive in spending freely to ameliorate its effects.