Curious about what the CARES act will mean for you? Read on for some of the highlights of the new federal stimulus package.
This summary is not all-inclusive; information is deemed reliable but not guaranteed.
LUMP SUM PAYMENT
- The package includes direct payments of $1,200 per adult and $2,400 per couple.
- If you have children, your payment will increase by $500 per child. However, payments could be reduced if you have adjusted gross income over a certain threshold.
The thresholds are:
- $75,000 for single filers.
- $112,500 for single heads of household.
- $150,000 for married couples filing jointly.
For example: Say you’re a family of four and your adjusted gross income in 2019 was $135,000 (assuming you’ve filed your 2019 tax return—the IRS will use your 2018 tax return if you haven’t yet filed). You’d qualify for a payment of $3,400: $2,400 as a couple + $500 x 2 for each dependent child.
UNEMPLOYMENT BENEFITS
- The plan wraps in far more workers than are usually eligible for unemployment benefits, including self-employed people and part-time workers.
- Those who are unemployed, are partly unemployed or cannot work for a wide variety of coronavirus-related reasons will be more likely to receive benefits.
How much will I receive? It depends on your state:
- Benefits will be expanded in an attempt to replace the average. The average worker earns about $1,000/week, and unemployment benefits typically replace roughly 40%–45% of that. The expansion will pay an extra amount to fill the gap.
- Under the plan, eligible workers will get an extra $600/week on top of their state benefit. But some states are more generous than others.
BUSINESS LOANS
Generally, the plan will provide $350 billion in federally guaranteed loans to businesses with 500 or fewer employees. This program is available to sole proprietors and self-employed individuals, too.
- The Small Business Administration will oversee this Paycheck Protection Program, which will distribute the loans via banks to small businesses.
- The plan provides an expedited origination process and loans will be available during an emergency period ending June 30.
- All or a portion of the loan can be forgiven, based on a formula related to the percentage of employees the employer keeps on the payroll
- Each business can receive a loan up to $10 million. The actual amount is related to your payroll costs tested over different time periods
- The loans have an interest rate cap of 4%
RETIREMENT ACCOUNTS
The law will waive the current 10% penalty on early withdrawals from IRAs and qualified plans for people who have been impacted by the coronavirus. In addition, it increases the ceiling on loans (401k loans i.e.) against a qualified plan to $100,000.
- This no-penalty withdrawal applies to those who have been diagnosed with COVID-19 or have experienced financial hardship from being quarantined, laid off or furloughed, or having their hours reduced between now and the end of the year.
- Distributions will still be included in gross income and subject to regular income tax, but you can spread the amount of tax you will owe over a three-year period.
- Distributions also may be re-contributed within three years of withdrawal.
- While this opens up a source of funding for many people, this might be considered as a last resort.
REQUIRED MINIMUM DISTRIBUTIONS (RMDs):
- If you are subject to RMDs, you are not being forced to take them out this year.
STUDENT LOANS
- No federal student loan payments due through Sept 30, 2020.
- No interest on your federal student loans will accrue during that time.
