Six ways the CARES Act can help you financially

Daniel Lee, CFA, CFP®

The $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act is a welcomed relief for millions of Americans. Some provisions in this bill give direct cash payments to millions of Americans, while other parts allow you to conserve cash by giving you more time to repay taxes or loans. While you or someone you know can probably take advantage of at least one of these benefits, some benefits require that you act sooner than later. We’ve compiled a list of some of the key benefits you should know.

1. “Cash money from the IRS” / Direct deposit from the IRS

Depending on your income, you could receive a Recovery Rebate worth as much as $1,200 with an additional $500 for each dependent under the age of 17. A family of four with 2 young children, for example, can receive as much as $3,400.

The rebate is reduced by $5 for every $100 of income above $75,000 for individuals, and $150,000 for married couples. The rebate for high-income earners is completely eliminated.

The IRS has already started distributing recovery rebates. If you filed your taxes in 2019 or 2018 and received a tax refund electronically, you can expect your rebate to be deposited directly into your checking account.

Read More: Am I eligible for the $1,200 recovery rebate? // Three ways to make most of your rebate

2. “I’ll get you later, IRS” / Postponement of federal tax

The deadline for filing your 2019 taxes has been extended from April 15th to July 15, 2020. If you owe the federal government tax from your earnings in 2019, you can conserve cash on hand since you have three more months to pay. There is no late-filing penalty, late-payment penalty, or interest owed for those three months.

Check here (https://www.taxadmin.org/state-tax-agencies) for information on state rules as they may differ.

If you expect to receive a tax refund, there is no reason to delay. File your tax return now so you can get your refund from the IRS as soon as possible.

3. More time to make 2019 IRA and HSA contributions

If you missed the April 15 deadline for 2019 IRA or HSA contributions, you now have three more months to make it happen, until July 15th.

The IRA contribution limit for 2019 is $6,000, or $7,000 if you were at least 50 years old last year. HSA contribution limits for 2019 were $3,500 for individuals covered by a high-deductible health plan, and $7,000 for family coverage. If your emergency fund is in good shape and you would like to push your contributions closer to the limits for these accounts for last year, you get some extra time.

If you’re wondering about the tradeoffs of this advantage, sign in to BrightPlan and schedule an advisor call to discuss.

4. Finally, some student loan relief! / Defer (and partially eliminate) federal student loans

You do not have to make any payments on federal student loans for around six months until September 30, 2020. Interest has been automatically suspended for the same time period and will not accrue during the interim. This is a great interest-free benefit to take advantage of if you need to conserve cash.

There is no action required on your part to defer payments, even auto-debit payments are automatically suspended. If you have manually made payments after March 13, you can request for a refund. If you want to keep making payments, your entire payment will go towards principal.

A good reason to not make any repayments right now is if you are part of an income-driven repayment (IDR) plan, such as the Public Service Loan Forgiveness (PSLF) Program. You will receive credit for the next few months even if you don’t make any payments towards your loan forgiveness. In other words, the government will pay your loan for the next few months.

Check here (https://studentaid.gov/announcements-events/coronavirus) for all the details.

5. Option to flex retirement funds

You can withdraw up to $100,000 from retirement accounts such as your 401(k) or IRA, penalty free, for COVID-19 related reasons.

The IRS is also waiving a mandatory 20% tax-withholding applied to early withdrawals on 401(k) plans, but you will need to pay income tax on these distributions eventually. Tax can be paid in 2020, or evenly over 3 years (2020, 2021 and 2022). You can also repay the distribution over a 3-year period to delay paying income tax until later.

On the flip side, if you do not want to make withdrawals from your retirement account, required minimum distributions are not required for 2020 from accounts such as 401(k) and IRAs. Inherited pre-tax and Roth IRAs also are not required to take a required distribution this year.

Loans or withdrawals from your retirement accounts should not be taken lightly. If you are wondering if this is your best option for finding extra cash right now, schedule a call with an advisor and we’ll be happy to walk you through the tradeoffs.

6. Supercharge unemployment benefits x3

If you or a loved one experiences a job loss during this time, the CARES Act has supercharged unemployment benefits. More people qualify for more money for a longer period of time.

More money

Unemployment benefits vary by state but if you are eligible for at least $1 of unemployment compensation, you will get an extra $600, up to 4 months. That is a huge bump considering that the national average amount is just $190 per week.

Sooner and longer

You typically have to wait one week before receiving your first check. This waiting period has been eliminated so you can get your checks sooner.

Most states limit unemployment benefits to 26 weeks. The CARES Act is giving an additional 13 weeks, bringing the total up to 39 weeks of unemployment benefits for most states.

Wider eligibility

Individuals that are unemployed, partly unemployed or cannot work for a wide variety of coronavirus-related reasons are likely to receive benefits. Far more people are eligible for unemployment benefits than under normal circumstances. Some examples include:

✔ Self-employed gig workers, freelancers and independent contractors
✔ Part-time workers who lost their job due to COVID-19 reason
✔ Immediately laid off new employees without enough work history
✔ Unemployed as a result of being diagnosed with COVID -19
✔ Individuals caring for a family member diagnosed with COVID -19
✔ Individuals unable to work because they are required to be self-quarantined
✔ Unable to work because child’s school or day care is shut down
✔ Unable to work because elderly parent’s care facility is shut down
✔ Survivors of main income earner that died as a result of COVID-19

More information is available at this U.S. Department of Labor sponsored website.

More details and a complete list of all the benefits can be found at this IRS website.