Congress is currently working to put money back into American’s wallets to help the nation grapple with the fallout from the COVID-19 pandemic.
The Coronavirus Aid Relief Emergency Security Act (CARES), which has been approved by the Senate and the House of Representatives, will provide up to $2 trillion in relief funds.
“No economic policy can fully end the hardship so long as the public health requires that we put so much of our commerce on ice,” said Senate Majority Leader Mitch McConnell in a speech on the Senate floor on Wednesday. “This isn’t even a stimulus package. It is emergency relief.”
We Americans need that relief, and soon. Think of CARES as a multi-edges weapon to combat the economic damage caused by the realities of a semi-quarantined lifestyle.
The Act would serve as a bridge to getting our national economy closer to normal. It touches retirees, people with 401(k)s and IRAs, small businesses, large corporations and families, whether working or unemployed.
What does this massive stimulus bill mean for you? I’ve put together a rundown of some of the most impactful provisions of the Act:
Retirement Accounts – This is the first momentous portion of the Act. Americans have roughly $20 trillion in 401(k)s and IRA accounts. Congress wants us to be able to tap your retirement money during the current economic shutdown and these financially uncertain times.
Under the CARES, you would be allowed to withdraw from your 401(k)s and IRAs even if you’re under the age of 59½. For these retirement accounts, we can now withdraw funds without the previous 10% early withdrawal penalty, up to a $100,000 cap. And to make the deal even sweeter, you can pay the taxes on your withdrawals over the next three years!
To take advantage of this allowance, you must be suffering economic hardship. The definition of hardship, as I read it, is very broad: The account holder or their spouse or dependent must have been diagnosed with COVID-19 or must have lost income due to a layoff, business closure, reduction in hours, quarantine or inability to work due to a lack of child care. Who among us hasn’t been touched in some way by COVID-19 at this point? I think this measure is powerful and will give Americans the operating money they need in these trying times.
Loan From 401(k)s – If you don’t want to pull money out of your account and pay taxes on it, you may want to take a loan against it. CARES would double the amount you can take as a loan against your 401(k) account from $50,000 to $100,000. If you pay back the loan over the allotted time, you’ll do so tax-free. This would provide a huge measure of relief for Americans.
For those with existing 401(k) loans, there is yet another benefit in the Act. The loan payments that would typically be due are now deferred for the rest of 2020.
Required Minimum Distributions (RMDs) – This new provision is especially important for retirees. Under the standard rules, retirees may begin taking RMDs from their traditional, SEP, or SIMPLE IRAs at age 59½, but must do so starting at age 72. Under CARES, RMDs would be suspended for 2020. This postponement is also applicable to inherited IRAs, no matter the account holder’s age.
Cash – Many of us are faced with hardships because of COVID-19 like the ones we outlined above. In order to give Americans some relief, CARES would provide cash payments to individuals, couples and families.
While the cash distribution process remains unclear – it could be through the IRS system or via paper checks – the parameters are in place. A single individual could get $1200, while a married couple could receive $2400. If you have kids, you’re eligible for an additional $500 per child. So, for a married couple with two kids, this amount would be $3400.
These payments are income-based using the income reported in 2019 (or 2018, for those who have not yet submitted a 2019 return.) If you made under $75,000, you would be entitled to the full amount. If you earned more, you could receive some portion of the funds up to an income limit of $99,000, after which you’re not eligible to receive a check. For married couples, the limits are $150,000 for the full amount, a portion up to an income cap of $198,000.
Unemployment Benefits – Those who are now either unemployed or underemployed qualify for higher unemployment benefits. Under CARES, this assistance would be boosted for individuals by $600 per week for up to four months! The Act also provides for expanded eligibility for the self-employed among us.
Small Businesses – Here’s where CARES really kicks in to turbocharge local economies. The government wants to provide financial relief to small businesses so they can keep employees on the payroll. There are a couple of ways that CARES aims to accomplish this goal.
- Payroll Loans – If you’re a small business (under 500 employees) and you’ve made steady payroll payments, you could get a loan for 2.5 times your average monthly payroll. The ceiling on this is $10 million. And, so long as you keep the same payroll until the end of June, the deal gets even sweeter – the loan can be forgiven in full.
- Tax Credits – Companies under 100 employees would be eligible for tax credits if they’ve had a reduction in revenue, and this credit is up to 50% of wages paid.
Corporate Stimulus – Of the $2.0 trillion allocated by CARES, $500 billion is earmarked for corporate America. About $50 billion would go to specific industries that have been impacted by COVID-19, including the airlines. Another $16 billion has been allocated to help air freight.
Payroll taxes would be deferred for these large companies – with one half being due by the end of 2021, and the other half due at the end of 2022.
Student Loans – Americans with federal education loans would have their monthly payments deferred until September 30 of this year with no accrual of interest.
The CARES Act offers an unheard-of stimulus to American people, small businesses and corporations. That’s because we are in unheard-of times. The Act touches everyone from retirees to families to small business owners. This bridge to better times can’t come quickly enough.
Stay healthy and stay safe.