Last Friday Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion emergency fiscal stimulus package, which includes a wide range of provisions aimed at helping ease the economic damage that this global pandemic is causing on families and small businesses.
It’ll be some time before I’m done reviewing all of the content within the bill but there are a few key provisions that I wanted to let you know about as they will likely have an immediate effect on you. These include:
Direct payments to individuals
This is probably the most talked-about provision in this bill which provides every adult a recovery rebate of $1,200 and $500 per child (subject to income limitations) for 2020. They are basing the rebate credit on your most current Federal tax return, either 2018 or 2019, so if you had less income in 2019 and haven’t filed your taxes yet, you may want to do that as quickly as possible.
Here is a link to a calculator to estimate how much your check might be https://www.omnicalculator.com/finance/stimulus-payment.
The funds might be best utilized by boosting your cash reserves or paying off debts if you don’t have an immediate need for the cash.
2020 RMDs are suspended
The CARES Act waives any required minimum distributions (RMD) that were to be taken in 2020. This applies to Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b), and Governmental 457(b) plans.
If you’ve already taken your RMD for 2020 within the last 60 days, it is possible to roll it back into the account and defer paying taxes. You’ll just need to transfer an amount equal to your RMD back into your retirement account before the end of the 60-day window.
Student loan payments are deferred
There are no payments due on Federal loans until 9/30/2020 and interest will not accrue during this time.
Payments will continue by default so you must contact your loan provider, or go online, to request the payments be stopped.
If you are on track for a loan forgiveness program, like Public Service Loan Forgiveness, the months of April through September will continue to count toward meeting the requirements even if you aren’t making payments. You are essentially getting 6 free months toward qualifying for whatever loan forgiveness program you are in so be sure to take advantage of it.
Some ideas for the freed up cash flow is to pay off other debts that can not be temporarily paused or to maximize contributions to your retirement accounts.
Help for small businesses
The Coronavirus pandemic has severely impacted small businesses with issues such as loss of revenue, incapacity to make payroll, employee layoffs, inability to maintain inventory, supply chain interruptions, and other unforeseen circumstances.
A significant provision included in the CARES Act for small business owners is the Paycheck Protection Program, a (partially) forgivable loan program offered through the Small Business Administration (SBA). Such loans must be applied for by June 30, 2020, and can have a maximum maturity of 10 years. They may be provided via existing approved SBA lenders, as well as lenders who are otherwise certified by the SBA to offer such loans.
Under the Paycheck Protection Program, lenders will generally be able to issue SBA 7(a) small business loans up to the lesser of $10 million, or 2.5 times the average monthly payroll costs over the previous year. In order to qualify for loan forgiveness, the business must maintain the same number of employees during the period Feb 15 – Jun 30 as it did previously. This forgiveness of debt is not considered taxable income for the business. Be aware that it’s not possible to formally apply for this program quite yet because the applications do not exist at the moment. However, if you do plan to apply for this program, you can get a head start by pulling together all of your documents around payroll for the trailing 12- to 18-month periods.
If you are in immediate need of financial assistance, the CARES Act now permits businesses to take an Economic Injury Disaster Loan (EIDL) for up to $2 million. The EIDL is now available in all 50 states and can be used by any small business that has fewer than 500 employees. Self-employed individuals and non-profits are also eligible for this program. For self-employed individuals, you’ll need a copy of your Schedule C or proof of income and expenses as well as potentially 1099-MISCs.
These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%. SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
The CARES Act also allows for a $10,000 emergency grant to be issued to anyone who applies for the EIDL. The $10,000 emergency grant is given to business owners within three days of their application, and they’re allowed to keep that money even if your loan is denied. The application process is simple, completely online, and should only take about 15 minutes to complete. Follow this link to get started: https://covid19relief.sba.gov/#/
Expanded unemployment insurance (UI)
If you have lost your job or are experiencing reduced hours due to COVID-19, it is encouraged to file for unemployment insurance benefits as soon as possible as there are extended benefits available.
This includes a $600 per week increase in benefits for up to four (4) months and federal funding of UI benefits provided to those not usually eligible such as those who are self-employed, independent contractors, and those with limited work history.
Visit Indiana’s Department of Workforce Development’s website for more information https://www.in.gov/dwd/3474.htm
I hope you and your family are staying safe during this time. We have been through difficult times before and I am confident we’ll get through it this time too.