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Six Ways the CARES Relief Package Could Help You Save Cash

by Amanda Vaught, amandavaught@propel-fa.com

In general, we advise our clients to achieve self-sufficiency so that in times of crisis, no matter the cause, you are well-positioned to shoulder a downturn. The CARES Act may help you now, but any future benefits are dependent on political winds. We hope you take the time to assess (or re-assess) your financial goals, and modify spending or savings behaviors accordingly to help weather any future storms. Propel Financial Advisors has walked many clients through this process – how can we help you? 

 The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) became law on March 27, 2020. The goal of the CARES Act is to provide relief during an unprecedented economic shutdown. Here are six things to know about how this historic relief package may help you. 

1. Direct payments are on the way!  

Depending on your income, each US taxpayer will receive a one-time payment of $1,200 for individuals and $2,400 for couples. You will also receive an additional $500 for each qualifying child under the age of 17. If you pay taxes electronically, then expect an electronic payment by April 17. If you did not include direct deposit information on your tax return, then you will receive a check in the mail.  The estimates on arrival dates of mailed checks keep changing.  Most reports estimate checks to take up 20 weeks to receive, although the IRS states most people should receive checks before then. 

 You can check your AGI by looking at line 8b of your most recently filed 1040 tax form. Payments will be made based on 2019 income (or 2018 income if you haven’t yet filed your 2019 tax return).

Tax Filing Status

AGI Phase out Begins*

AGI Phase out Ends**

Single

$75,000

$99,000

Married Filing Jointly

$150,000

$198,000

Head of Household

$112,500

$136,500

 * Stimulus checks will be reduced by $5 for every additional $100 of income above this amount up to the amount at which the income phase out ends.
 ** Taxpayers who earn this amount or more generally won’t receive a stimulus check unless they have children; having children raises the AGI phase out limit.                  

You can also use the “2020 Economic Impact Payment Calculator” on the TurboTax webpage.

Can I submit my direct deposit information to the IRS so I can get a payment faster?

Yes.  On April 15th, the IRS opened up a portal for individuals to provide banking information to them online in order to receive payments more quickly via direct deposit as opposed to checks in the mail. Click the "Get My Payment" button to access the portal  here.

How do I receive my payment if I am not required to file taxes?

The IRS opened a portal in early April for non-filers to enter their information. Choose the "Non-Filers: Enter Payment Here" button to access the portal here. If you receive social security payments, you do not need to take any action.

Another option is to use TurboTax. TurboTax partnered with the IRS to offer a free program to help people update their direct deposit information.  See their stimulus check webpage, scroll down, and click on “Register now” under the banner saying “If you don’t need to file your taxes this year.”

*PLEASE NOTE* The IRS will not call or email you asking for personal information. Do not provide any confidential information over the phone or via email.  Be sure that you are on the official IRS or TurboTax page before entering any personal information.

2. Required minimum distributions no longer required for 2020

Retirees may take distributions from their 401(k)s, 403(b)s, and IRAs, but do not have to withdraw a minimum amount this year. The statute also seems to include inherited IRAs, but we are currently waiting for additional guidance before making recommendations on required minimum distributions regarding inherited IRAs.  

By delaying withdrawals until next year, the hope is that your retirement account balance has time to recover before taking a required minimum distribution next year. 

The change in withdrawal rules may or may not benefit your personal tax situation – please reach out to us to discuss your personal situation.  

3. Penalty waived for early retirement withdrawals and expanded access to loans from qualified plans

We suggest taking withdrawals from your retirement plans only as an absolute last resort. Recently, Christine Benz at Morningstar published ten sources of cash to use before raiding your retirement accounts.  

Please discuss your best options with us at Propel Financial Advisors – we are here to help you make these decisions.

If it is necessary to take early withdrawals, here are the details:

The 10% tax penalty for distributions from a retirement plan prior to age 59½ will be waived for withdrawals up to $100,000 in 2020 for people who are impacted by COVID-19 (e.g., sickness, layoff, furlough, reduced work hours, etc.). The income tax owed on such distributions can be paid over three years. Those distributions can be re-contributed to an eligible retirement plan within three years, and this contribution won’t count toward the annual cap on contributions.

On taking a loan against a qualified plan, participants in qualified plans such as a 401(k) who are impacted by COVID-19 may borrow 100% of their vested account balances, up to a maximum of $100,000, until September 23, 2020. In addition, participants who have existing loans will be allowed to delay their loan repayments by up to one year.

4. Deadline extended for 2019 federal taxes and IRA contributions

Although not part of the CARES Act, it happened shortly before the bill was enacted and is a significant development. The deadline for filing 2019 federal taxes and submitting tax payments, as well as the deadline for making 2019 IRA contributions, has been extended to July 15, 2020. Some states have also pushed back their tax filing deadlines to July 15, but some states haven’t yet done so; be sure to check your state’s tax filing deadline to ensure timely filing. 

As of this writing, 37 states have extended their deadline to July 15.   A recent listing of state deadlines can be found here.

5. Enhanced unemployment benefits and categories

People who are eligible to collect unemployment in their state will get an extra $600 a week in benefits for up to four months. 

Additionally, the CARES Act allows coverage for those not traditionally covered by unemployment, including self-employed and independent contractors. For example, New York provides unemployment benefits to many categories of people affected by the coronavirus pandemic.   Illinois provides an FAQ to determine if you’re qualified. Tennessee offers guidance here.

6. Zero percent interest rates on federal student loans

The zero percent loan rate applies to federal student loans owned by the Department of Education between March 13 and September 30, 2020. In addition, no payments are required during this time period.

Assuming you are in a position to do so, continue to make your regular payments on your student loans as 100% of your payment during this time period will go towards paying down the principal of your loan.  This reduces your overall interest payments and ultimately allows you to pay down the loan faster.  

                                    Sources: Bloomberg, US Senate, and Committee for a Responsible Federal Budget

To learn more about how the historic relief package may impact you, talk to us – we are happy to answer your questions on how the CARES Act may affect you.