[Blog Post] - Action Steps for you regarding the CARES Act | The Retirement Planning Group

The $2 trillion coronavirus response bill (the CARES Act) passed on Friday. The bill is 900+ pages.

It is packed with relief measures for big companies, small businesses, state/local governments, public health, education, and individuals. We’ve combed over it and tried to organize the information in a way that is easily digestible and focused on the areas that will affect the greatest number of our clients. It is organized in the following sections:

  • Stimulus Payments
  • Investors with retirement accounts
  • Information for those with student loans
  • Special programs for small business owners
  • Updates to charitable giving

NOTE: The ACTION ITEM sections as there might be an actionable step for you to consider.

Stimulus Payments:

How large will the payments be?

Most adults would get $1,200, although some might get less depending on income limits. For every qualifying child age 16 or under, the payment would be up to an additional $500/child. This is a one-time payment and you won’t owe taxes on the amount you receive.

How do I know if I am eligible?

It depends on your income. Single adults with an adjusted gross income (AGI) of $75,000 or less get the full $1,200. Married couples with no children earning $150,000 or less will receive a total of $2,400. And taxpayers filing as head of household get the full payment if they earned $112,500 or less.

If you make more than the income limits listed above, the payment phases out until it stops altogether for single people earning $99,000 or married people who have no children and earn $198,000. It appears that a family with two children would no longer be eligible for any payments if income surpassed $218,000.

These numbers are based on your latest tax return. So if you’ve already filed for 2019, it’s based on 2019 income. If not, then it’s based on your 2018 tax return.

ACTION ITEM: If your 2019 income is higher than your 2018 income (to the point that it would exclude you from becoming eligible), then you should consider holding off on filing your 2019 taxes. In addition, you should also take into account changes in marital status and/or the number of dependents in 2018 versus 2019 to maximize the stimulus payment you could receive.

Do I have to apply to receive a payment?


How will the payment arrive?

If you have already filed a 2019 tax return, the Internal Revenue Service will use the direct deposit information on your 2019 return to send your payment to your bank account. If you don’t provide the IRS with your direct deposit details or if you closed that account, then the IRS will mail you a check. If you are collecting Social Security, your payment will come via the current way in which you are collecting Social Security.

ACTION ITEM If you’ve moved since you filed your last tax return, you need to update the IRS here: https://www.irs.gov/faqs/irs-procedures/address-changes Or if your bank or bank routing number has changed since the last time you filed your taxes call the IRS at 800-829-1040.

When will the payment arrive?

Most people should expect to get their payments within three weeks. According to the bill, you will be mailed a notice no later than a few weeks after your payment has been disbursed. The notice will contain information about when and where the payment was sent and will provide a toll-free number to call if you cannot locate your payment.

Investors with Retirement Accounts:

Which retirement account rules will be suspended?

For the calendar year 2020, no one will have to take a Required Minimum Distribution (RMD) from any individual retirement accounts or workplace retirement savings plans (like a 401(k)). This applies primarily to those over age 70½ (or age 72 under the new rules) and those with Inherited IRAs. This provision allows you to skip the RMD and keeps you from having to sell investments that may have fallen in value.

ACTION ITEM: If you are currently taking RMDs from your IRA, and you don’t need the money, consider stopping or reducing the amount you take out in 2020. This may lower your overall tax liabilities. Contact your TRPG advisor to discuss the optimal course of action.

Can I take money out of my IRA or workplace retirement plan before age 59½?

For coronavirus-related withdrawals (if you, a spouse or dependent tested positive, or if you experienced a variety of other negative economic consequences), you may withdraw up to $100,000 this year without the usual 10 percent penalty. There will not be the usual mandatory 20% Federal tax withholding on these types of distributions. If you take a distribution in 2020, you will be able to spread out income taxes due on that distribution over three years. And if you want, you could put the money back into the account before those three years are up.

ACTION ITEM: If you find yourself in a situation where you need to pull money out of your retirement account, contact your TRPG advisor to develop a plan for the most optimal way to spread out the income taxes over the three year period.

Can I borrow from my 401(k) or other workplace retirement plan?

Yes, and now you can take out twice the usual amount. For 180 days from when the bill was passed, with certification that you’ve been affected by the pandemic, you’ll be eligible to take out a loan of up to $100,000. Previously, you could not take out more than half your balance, but that rule has been suspended for 2020. If you already have a loan and were supposed to finish repaying it before Dec. 31, you’d get an extra year.

If you have Student Loans:

The federal government has already waived two months of payments and interest for many federal student loan borrowers. Is there a bigger break now with the new bill?

Yes. Until Sept. 30, there will be automatic payment suspensions for any student loan held by the federal government.

ACTION ITEM: Log in online, and you should be able to see if the servicer has reset its billing systems so that you are showing no payment due.

How do I know if my loan is eligible?

If you’ve borrowed money from the federal government, also known as a “direct loan” in the past 10 years, you’re likely eligible. Older Federal Family Educational Loans (F.F.E.L.) that the U.S. Department of Education does not own would not be eligible, nor would Perkins loans, loans from state agencies, or loans from private lenders like Discover, Sallie Mae, and Wells Fargo.

ACTION ITEM: Check with the holders of all those kinds of loans to see if they may be offering their own assistance programs.

Within a few weeks of the bill becoming law, you are supposed to receive notice indicating what has happened with your federal loans. You can choose to keep paying down your principal if you want. After Aug. 1, you should get additional notices letting you know about the cessation of the suspension period.

Would there be damage to my credit report if I took advantage of any virus-related payment relief, including the student loan suspension?

No. The bill states that during the period beginning on Jan. 31 and continuing 120 days after the cessation of the national emergency declaration, lenders and others should mark your credit file as current, even if you decide to make payment modifications.

ACTION ITEM: Keep an eye on your credit report for errors on student loan debt.

Will my loan servicer charge me interest during the six-month period?

The bill says that interest “shall not accrue” on the loan during the suspension period.

ACTION ITEM: Review loan statements at the cessation of the suspension period to make sure there weren’t any errant interest charges or penalties.

Small business owners:

I own a small business. Are there any programs that could help me with my payroll and keep people employed?

Yes. The Paycheck Protection Program is available for companies with less than 500 employees. The maximum value of a company’s loan is based on that company’s average monthly payroll cost in 2019 — including wages for employees making under $100,000, as well as expenses for paid sick leave, health care, and other benefits–multiplied by 2.5. That equals 10 weeks of payroll expenses. The maximum loan size available is $10 million. This loan carries a maximum 4% interest rate. The loan can be forgivable if the proceeds are used for Payroll costs, Group Health Insurance premiums, Salaries, Rent, Mortgage Interest, Utilities and you employ the same number of employees from February 15th through June 30th as well as not reducing salaries by more than 25% for employees making less than $100,000/year.

ACTION ITEM: Begin calculating your average monthly payroll costs from 2019 so you can expedite the application process with your banker. Contact your banker to inquire about the application process.

Are there any tax credits?

Yes. The Employee Retention Credit gives employers a credit of up to 50% of wages paid to each employee, up to a maximum of $10,000 of wages/person. To qualify, your company must have operations partially/fully suspended due to government-required suspension of operations or have a quarter with <50% of revenue (not profit) from the same quarter in 2019. This credit stays in effect until either the end of 2020, suspended operations resume for the quarter or when revenue >80% of the same calendar quarter of 2019. If you have 100+ employees, wages eligible for this credit are those that are paid to employees not able to provide services due to the business activity suspension. If you have 100 or less employees, all employee wages qualify for the credit.

Can I defer payment of payroll taxes?

Yes. Specifically, employers can defer the deposit of the employer share of the social security taxes (but not Medicare taxes) between the enactment and December 31, 2020. Instead, half of such taxes will be due on 12/31 of 2021. The remaining half will be due on 12/31 of 2022. This applies to self-employed individuals as well.

ACTION ITEM: Contact your accountant to analyze if you are eligible for the Employee Retention Credit or deferral of payroll taxes.

Charitable Endeavors:

Does the bill do anything about charitable donations?

Yes. The bill makes a new deduction available for up to $300 in annual charitable contributions. It’s available only to people who don’t itemize their deductions. To qualify, you would have to give cash to a qualified charity and not to a donor-advised fund. If you’ve already given money in 2020, that contribution counts toward the $300 cap.

ACTION ITEM: If you’ve been taking the standard deduction over the last few years, you haven’t been able to deduct charitable contributions and likely aren’t tracking what you’ve given to charity. For 2020 and moving forward, you need to start tracking cash donations.

I would like to give more to charity than I usually do. Have the limits on charitable deductions changed?

Yes, they have. As part of the bill, donors can deduct 100 percent of their gift against their 2020 adjusted gross income. If you have $1 million of income, you can give $1 million to a public charity and deduct the full amount in 2020. The new deduction is only for cash gifts that go to a public charity. If you give cash to your private foundation, the old deduction rules apply. And while the organizations that manage donor-advised funds are public charities, you do not get the higher deduction for donating cash to your donor-advised fund.

ACTION ITEM: If you’ve been gifting stock to charity, get with your TRPG advisor or your accountant to see if gifting cash is a more advantageous strategy.

There is much more covered in this piece of legislation, like unemployment extensions, duration and amounts, eviction moratoriums, wage garnishment suspension, loosening of Net Operating Loss rules, etc. If you have specific questions about any of these topics discussed above, please reach out directly to your advisor.

Disclaimer: Information contained herein is deemed to be accurate. Before taking action, consult with your financial and tax advisor. For details in the bill: Click Here.

*This post was originally published on March 30th, 2020.