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What is in the CARES Act, the 2020 Stimulus Package

In case you missed it, the president signed a stimulus package into law last Friday, March 27.  This package provided stimulus for the economy in light of the Covid-19 situation.  Today, I want to explore what this bill might mean for you.

Why a Stimulus Package?

If you are wondering why we have a stimulus package at all you have probably been out of touch with the media or something.  In general, this version of the Coronavirus is easy to spread and statistically kills 10x more people than seasonal influenza.  To that end large portions of the world’s economy has shut down.  Wholesale industries have been told since they are nonessential they are not allowed to operate.  The result has been mass unemployment.  The US added 3.3 million unemployed workers last week alone.  That’s a record, unfortunately, and not a good sign.

So, with the government-mandated shutting down of the economy, the government decided to do something to try and protect many of our fellow Americans who have lost their jobs.  A dual goal of stimulating demand while providing a safety net for those most impacted.   And here we are, with a stimulus bill contrived and released in less than 2 weeks time.  So, what is in it?

Helicopter Money

The most communicated part of the bill are direct stimulus checks being sent to individuals.  The amount provided to most individuals is $1200 per adult.  People with children will receive an additional amount of $500 per child. Of course, there has been a means test added to this.

Any individual earning an adjusted gross income greater than $75K will see a decrease in payout of $5 per $100 over $75K.  At $99K an individual filer will no longer receive a check.  For married couples these limits are doubled to $150K and $198K respectively.  Head of household filers get a mid-point with $112.5K and $136.5K.

How To Determine Eligibility for Stimulus Checks

The government for better or worse does not yet know if your income for 2020 will be above these thresholds.  As such they are using your 2019 tax returns to determine the amount owed.  If you have yet to file your 2019 tax returns (the 2019 tax filing deadline is now delayed until July 15 by the way) then your 2018 tax return will be used.

The other requirements to file are a social security number and not being someone else’s dependent.  There are some special qualifications in the bill to ensure those on social security but not required to file also receive the stimulus.  Otherwise you probably should ensure you file taxes against one of these two years.  

Strategies for Maximizing Your Stimulus Check

The payout is in the form of a one time credit against 2020 taxes.  Based on the reading of the bill should you be underpaid you will receive additional funds when you file your 2020 taxes next year.  There also does not appear to be a clawback provision if they overpay you and then your income is too high.

There are some steps that might change whether you receive a check.  If your pay increased from 2018 to 2019 it might be advantageous to delay filing. Conversely, if it decreased it might be a good idea to file quickly.  Also, if you were on the cusp but decided to contribute to your 401K pretax you may also get a check where otherwise you would not.    

In any case the checks will be sent to the bank account used on your last tax return for direct deposit, or via mail otherwise.  The money is expected to start flowing in about 3 weeks.

Unemployment Benefits  in the CARES Act

The other major provision set in the law is around the unemployment insurance program.  A reminder, how much you would normally receive under this program is dictated by your state. My state normally provides a minuscule $330 a week, which would basically cover the average rent in the northern part of my state ($12xx a month for reference).

The new law increases the inital amount by $600 a week for the first four months.  The idea was to get many people to near full salary.  There are some people that fear this will disincentivize some people to work.  To which I say perhaps, but remember to get unemployment insurance you have to be laid off.  Quitting won’t cut it.

Anyway, regular state unemployment only lasts for 26 weeks.  The new bill extended this to a total of 39 weeks.  This change has a bit more precedence as they did something similar in 2008.    I remain hopeful the virus will be a distant memory by the time we get to 26 weeks, let alone 39.  But there is no telling how long the economic impacts will remain after that.

Gig Workers and Furloughed Employees Now Get Unemployment Benefits

There are special provisions in the stimulus bill to address the unique situation we now find ourselves in as well as the changing economy.  First, they have extended the unemployment provisions to those who work in the gig economy.  So if you had a job working as a freelancer, and it disappears because of Covid-19 you can now file unemployment insurance.    A note, how this is calculated going forward is not made clear, so stay tuned.

The bill changes how long it takes to be eligible for unemployment insurance. Historically, in many states, there was a 7 day waiting period to claim.  That is waived during 2020.  Coupled with that you actually don’t have to fully lose your job now to be eligible for unemployment insurance. The bill now provides for individuals that are furloughed but not fully laid off.  Finally,  there are a number of provisions now where you can receive unemployment checks if you were significantly impacted by Covid-19 (like being diagnosed or someone in your family is diagnosed with the virus). 

All in all the bill significantly expands unemployment insurance. If it seems I am short of specifics here:  Unemployment rules are set by the federal government but administered by your state.  As such the exact implementation and rules may vary from state to state.  

Paid Family Medical and Sick Leave in the Stimulus CARES Act

The bill also provides for paid family leave for employers of 500 or more employees.   Essentially you can get up to 12 weeks of FMLA (Family Medical Leave) at 2/3 pay if you have to stay home with a child because schools are closed because of the pandemic and cannot otherwise work.  Note: You must have worked for your employer for between 30 and 60 days in order to be eligible except if you were laid off prior to March 1 and rehired before the end of 2020.  Also, as with any FMLA the first 2 weeks are unpaid.   This amount will be paid by your employer and reimbursed by the government up to the amount of $200 a day and $10,000 per employee.

In addition should you yourself come down with the virus or are in some way quarantined which keeps you from working, the bill provides for 80 hours of paid sick time.  This is capped at $511 a day or and $5,110 per employee.  Part-time individuals will receive prorated amounts.  

Charitable Deductions and the CARES Act

The bill also provides for an added charitable donation above the line.  Even if you do not itemize, if you donate up to $300 in cash (and cash only) to a charitable organization you will be able to deduct that amount from your 2020 taxes.  The CARES bill also removes various caps on charitable deductions amounts.

Retirement Account Changes in the CARES Act Stimulus

The bill also changes retirement plans significantly.  First, RMDs for 2020 are waived.  Second, there is a provision to allow you to take a 401k loan in 2020 for virus-related purposes of up to $100K.  That loan needs to be repaid within 3 years or is subject to ordinary taxes but not the 10% penalty, even if you are not yet of age.  As I have noted I would never recommend loaning from a 401k, but this might help those that are trying to convert their 401k to Roth during early retirement.

Payroll Tax Deferment for the Self Employed

The bill also allows for employers to delay payroll taxes.  50% would be due by the end of 2021 and 50% by 2022.  This will allow a self-employed individual to delay the 6.2% payment (the employer’s social security payment) across up to 2 years.  

Mortgages, Rents, and Student Loans in the CARES Act

The final part of the bill that applies most of my readers would be provisions for mortgage, rent, and student loans.

From a mortgage and rent perspective the law changes only apply to those properties where the federal government backs the mortgage (Fannie Mae or Freddie Mac). In these cases, mortgage holders can request forbearance of payment for up to 6 months.  However, they will still need to pay interest.  Additional fees and penalties cannot  be applied however.  Lastly, they cannot be foreclosed on during this time. For a renter of a property backed by the government, they cannot be charged a late fee or evicted during this period. In both cases, you should contact your bank or landlord as appropriate.

For student loans, all federal loans will not accrue interest and will not require payment from now until September 30th. This period will still count for loan forgiveness and other programs.  Private lenders are not under these rules but are forbidden from perching default borrowers during this time.  

Odds and Ends in the Bill

Now, that is not all that is in this bill.  I would suggest you read the full-text here should any of the following apply to you.  Particularly there are provisions for small business loans, educational training and grants, bailouts for some bigger businesses like airlines, support for health care providers (including liability limits when treating the virus), requires Covid testing coverage by your insurance without cost sharing, has some provision around requiring coverage of the eventual vaccine, and even incentivizes companies not to lay people off.  Given our readership these are outside the scope of what most of you would be interested in.  As such I will leave those parts up to the reader.

How are you impacted by this broad-reaching stimulus package?  If you will receive a check what do you plan on doing with it?

Our usual disclaimer provides. Full Time Finance is not a tax advisor, financial advisor, or lawyer. The post herein is for entertainment purposes only. Any actions you take based on the above information are yours and yours alone.

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