The unprecedented events of the month, as a result of the coronavirus pandemic, has likewise spawned an unprecedented level of financial aid response. From Federal to state to local governments, the list of resources to help individuals and businesses through this crisis has grown seemingly by the day.
Securing accurate information and keeping track of the fast-moving pace at which these resources are, and continue to be, announced is challenging. To help with this, below is a non-exhaustive list of resources compiled by Bridgeworth aimed at helping you to navigate the myriad of options.
Federal Stimulus Bill
Unsurprisingly the much anticipated $2 trillion stimulus bill, known as the Coronavirus Aid, Relief and Economic Security (CARES) Act, has been passed by the house and is expected to be signed by President Trump today. This Act is both the largest and most far-reaching aid package in response to the coronavirus pandemic. The massive bill spreads its dollars among a multi-billion dollar loan program for small businesses, a multi-billion dollar lending fund for industries, cities and states (including the airline industry, state and local emergency aid, and hospitals).
Below are the top 10 most notable components of the Act that impact individuals and families. For provisions applying to Small Businesses, see the Small Business Loans and Relief section.
Who receives Stimulus “Checks?”
In the Act, payments are classified as a “rebate,” and those filing an individual tax return will receive (tax-free) $1,200 or $2,400 to jointly filing taxpayers. Additionally, there is a $500 per child benefit (no limit to the number of children; to qualify, children must be under the age of 17).
Who does NOT receive a Stimulus “Check?”
Not everyone will receive a rebate immediately, and the criteria are based on the most recent tax return that has been filed, whether that be 2018 or 2019. Using that data, individual taxpayers earning in excess of $75,000 and couples earning in excess of $150,000 will see their payments reduced. For those with incomes in excess of these amounts, the phase-out is $5 for every $100 over the limit. This results in the amounts phasing-out completely for individuals earning $99,000, those filing as Head of Household at $136,500, and for joint taxpayers at $198,000.
Impact of varying income on your Stimulus Rebate
Notably, if your income was above the phase-out ranges on your latest filed tax return (2018 or 2019), you will not receive a rebate. Still, if your 2020 income ultimately falls below these thresholds, then you will be able to claim the rebate when filing your 2020 tax return in April 2021. However, if you receive a rebate in 2020 and your 2020 income ultimately falls above the thresholds you will not have to repay the rebate. This is similar in design to the rebates sent to taxpayers in 2008.
How will you receive the Stimulus Rebate?
If you received a Federal tax refund directly deposited to a bank account in January 2018 or after then your check will be directly deposited to that account. If you did not then you will receive a physical check.
When will you receive the Stimulus Rebate?
Expectations are for the direct deposits to occur within 3 weeks (approximately mid-April), with physical checks taking as long as 6-8 weeks (early to mid-May). If there is confusion or delay using these methods (such as those individuals that have closed the bank account on file with the IRS, or have recently moved) an IRS notice mailed 15 days after the payment is sent will state where the payment was sent, the amount of the payment, and a phone number to call to resolve any problems.
Required Minimum Distributions (RMDs) Waived
The Act waives RMDs from an IRA, inherited IRA, 401(k), 403(b), and 457(b) plan in 2020. These are for distributions that would have occurred in the 2020 calendar year based on 12/31/2019 account values. If you have already taken an RMD in 2020 there is no provision to allow you to place the dollars back in your account via rollover or other mechanisms.
Penalty-free Retirement Plan Distributions
The 10% early withdrawal penalty from a retirement plan is waived for amounts up to $100,000 taken prior to 12/31/2020. Note that this waiver is for the penalty, and not the income tax itself on the distributions, although the withdrawn amount is taxable over three years unless a taxpayer elects otherwise. The distribution must qualify as a “Coronavirus-Related Distribution” which is one tied directly to being diagnosed with COVID-19, having a spouse that is diagnosed, or having experienced adverse consequences as a result of the virus. You are also allowed up to three years to repay the distribution amount and replenish the retirement account from which it was withdrawn.
The Act includes a $300 above-the-line deduction for those claiming the standard deduction (i.e. it is not available for those that itemize deductions on their Federal tax return). The donation must be in cash (no securities or in-kind contributions), made directly to the charity (not to a donor-advised fund for example), and is permanent (i.e. it is not a one-time provision for the 2020 tax year) until changed by Congress.
Student Loan Payments Suspended
Payments are suspended through 9/30/2020 and no interest will accrue during this time. See the Student Loans, College Savings, & 529 Plans section below for more details.
Unemployment insurance benefits
The bill expands eligibility for unemployment benefits and offers workers an additional $600 a week for four months on top of what state unemployment programs pay. For additional details see the Unemployment Insurance section below.
Income Tax & Retirement Plan Topics
Federal Income Tax
“The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date is automatically extended from April 15th, 2020, to July 15th, 2020. Taxpayers can also defer federal income tax payments due on April 15th, 2020, to July 15th, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.”
2019 Retirement Plan Contributions
As a result of the tax filing deadline being delayed, the deadline for contributing to a traditional IRA, Roth IRA, SEP-IRA, and Health-Savings Account has been delayed to July 15th, 2020, as well.
Frequently Asked Questions
For a helpful list of other Federal tax-related topics, a list of FAQs the IRS has compiled can be found at:
State Income Tax
While most states have extended their own filing and payment deadlines to match that of the new July 15th, 2020, Federal tax deadline, ensure you check with your own state to confirm its status. Currently, several Southern states have done so including Alabama, Georgia, Mississippi, Kentucky, South Carolina, and North Carolina.
For a list routinely updated with the status of state tax filing deadlines:
Fannie Mae & Freddie Mac Mortgages
The Federal Housing Finance Agency has directed mortgage servicers to allow borrowers whose mortgages are owned by Fannie Mae or Freddie Mac to delay payments. This program allows for a mortgage payment to be suspended for up to 12 months due to circumstances caused by the coronavirus. To determine if your mortgage is owned by Fannie Mae or Freddie Mac visit: Find Out Who Owns My Mortgage
Other Mortgage Lenders
Other mortgage industry groups may also offer suspended payments, for 3 months to as long as 12 months, but this has not yet been finalized. For additional details contact your mortgage servicer listed on your monthly mortgage statement.
For many, the notion of filing for unemployment could not have been farther from their mind just last month, but now the reality of an extended layoff brings this to the forefront.
How does it work?
Each state sets its own rules for eligibility and benefits, which are normally calculated as a percentage of your income over the past year, up to a certain maximum. That maximum can vary, as can the length of time benefits are paid.
Benefits provided by the CARES Act
The Coronavirus Aid, Relief and Economic Security (CARES) Act expands eligibility for unemployment benefits to self-employed workers, independent contractors, and those with limited work history. It also offers workers an additional $600 per week on top of what state unemployment programs pay. The length of time benefits are payable is complicated, but in short, the CARES Act provides up to 39 weeks of unemployment benefits to those that would not normally qualify for benefits or who have exhausted regular benefits.
In the past, if someone lost his/her job due to an illness, they would not qualify for unemployment benefits. However, the Alabama Department of Labor has changed this in response to the coronavirus pandemic.
For a list of helpful Frequently Asked Questions visit:
Small Business Loans and Relief
Prior to the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, there were already two relief provisions in place (payroll tax credits and the Coronavirus Disaster Relief Loans). Notably, the disaster relief loans are not the same as the relief loans provided under the CARES Act; thus businesses should review the provisions of each to determine which is best suited for their situation.
Payroll Tax Credits
Small and midsize employers can begin taking advantage of two new refundable payroll tax credits provided under the Families First Coronavirus Response Act (FFCRA), signed by President Trump on March 18th, 2020. These credits immediately and fully reimburse employers, dollar-for-dollar, for the cost of providing Coronavirus-related leave either for the employee’s own health needs or to care for family members.
Coronavirus Disaster Relief Loans
While SBA loans are typically only made available to for-profit companies, an exception has been made to also allow non-profits to access this loan type as well. These loans, administered directly by the SBA, are to fund working capital, pay fixed debts, payroll, rent, accounts payable, and other bills that cannot be paid because of the disaster’s impact. With loan amounts up to $2 million (interest rate of 3.75% for small businesses and 2.75% for non-profits), the loans offer a repayment period of as much as 30 years.
Additional details and application for loans located here:
CARES Act Relief Loans
For businesses with fewer than 500 employees with employees or paid contractors, and who were substantially impacted by COVID-19. Loan amounts are capped at the lesser of $10 million, or the average monthly payroll costs during the past year multiplied by 2.5. Payroll costs include salaries, wages, payments for sick leave, insurance premiums and state and local taxes assessed on the compensation of employees. Note that it excludes compensation of individual employees in excess of an annual salary of $100,000.
The #BHAMSTRONG Small Business Loan Fund
Available to for-profit companies with less than 50 employees, located within the Birmingham city limits. This fund was implemented to support small businesses affected by COVID-19 who are awaiting state or federal relief funding or a more stable business environment. The first round of applications are due by midnight on March 27th, with future rounds to be opened in mid to late April if money is available.
Student Loans, College Savings, & 529 Plans
Federal Student Loans
Prior to the CARES Act being enacted, there were two critical provisions for student loan relief announced on March 20th, 2020. The CARES Act provisions impacted this relief leaving the end result as follows:
(1) All Federal Student Loan interest rates will automatically be set at 0%.
(2) The March 20th announcement included the ability to request a suspension of your student loan payments for 60 days, however, the CARES Act extended this to an automatic suspension of federal student loan payments through September 30th, 2020. This will result in no student loan payments, principal nor interest, during this time. Borrowers wishing to continue making student loan payments during this time need to ensure they have spoken to their loan servicer to ensure payments will continue.
Employer Payment Toward Student Loans
In the calendar year 2020 only, employers can pay up to $5,250 of an employee’s student loan debt without having it included in the employee’s income.
Private Student Loans
Note these changes to loan payment suspension only apply to Federal Student Loans, although some private student loan lenders (Sallie Mae and Navient, for example) are offering similar options. To enact any changes, you need to contact your lender directly in order to explain how the coronavirus has impacted your personal financial situation.
Student Loan Payoff Strategy Revisited
Those with a debt payoff strategy for Federal Student loans should consider revisiting whether your current strategy is still appropriate. This could mean a short-term switch from an “avalanche” payoff strategy (paying the highest interest rate loans first) to a “snowball” payoff strategy (paying the lowest balance loans first). If you are not familiar with these strategies or have questions regarding which is best, then reach out to a Bridgeworth financial advisor today.
For Current College Students
If a student was sent home from college due to the coronavirus consider contacting the university to request: (1) a partial refund of the spring semester tuition. Certainly, this applies if a college or university canceled classes altogether, but even if a college went to online-only courses, the argument could be made the value of online classes is lower than in-person classes; (2) a prorated refund of room and board expenses.
529 Plan Rollover
The Protecting Americans from Tax Hikes (PATH) Act of 2015 put in place a provision allowing individuals receiving refunds of tuition, fees, and other education expenses originally paid via 529 plan distributions to roll them back into the student’s 529 plan within 60 days of receipt.
Estate Planning & Health Care Decisions
With health at the forefront of many minds, ensuring you have named someone to make healthcare decisions on your behalf if you are unable to do so yourself is paramount. You can find the Alabama Advance Health Care Directive form at this link (note the form does require two signatures of non-family members but does not require a notary):
- March 24th, 2020, Market Perspectives from Bridgeworth’s Chief Investment Strategist Zach Ivey, CFA, CFP®
- 5 Rules for Preserving Your Financial Health During Coronavirus, a webinar by advisor Patti B. Black, CFP®
- Planning in the Midst of a Medical Crisis from advisor Crystal Bowles, CFP®
- Creating a Spending Plan (vs a Budget) from advisor David Ward, CFP®
- The Value of Working with a Financial Planner