What Individuals Need to Know about the Coronavirus, Aid, Relief, and Economic Security (CARES) Act

The Stimulus Bill — What Individuals Need to Know

The Federal Government recently passed a $2 trillion economic stimulus bill called the Coronavirus Aid, Relief, and Economic Security Act, or CARES act.  This is the third legislative action passed to address the impact of the pandemic that has been brought on by the Coronavirus.

Stimulus Checks

As part of the CARES act, the Federal government is issuing stimulus checks for $1,200 for individuals with Adjusted Gross Income (AGI) below $75,000, then phases out by reducing payment by 5% for every dollar that your AGI is over $75,000 to a zero payment at an AGI of $99,000.  The stimulus check will be $2,400 for married filing joint couples with Adjusted Gross Income (AGI) below $150,000, which then phases out by reducing the payment by 5% for every dollar AGI is over $150,000 until it is zero at an AGI of $198,000.

A taxpayer may receive a $500 stimulus payment per dependent claimed on your latest filed tax return under the age of 17. The CARES Act uses the Child Tax Credit (CTC) eligibility standards. All qualifying children who are under age 17 who have not provided for more than half of their own expenses and lived with the taxpayer for more than six months are eligible.

The checks will be based on your AGI in 2018, or 2019 if already filed, whichever is your latest return. The payment to you is not taxable, but instead considered a rebate payment that will be reconciled on your 2020 return to determine if it was the correct amount, too much, or too little.  For instance, the payment may not be correct because a child was born in 2019 and the latest return filed is for the 2018 tax year, so the credit is understated and the extra $500 for the child will be reconciled when your 2020 return is filed.

If you have not filed your 2019 return and your income is lower than 2018 as well as now below the phase out threshold ($75k AGI) then your resulting stimulus check may be larger.  You should consult your tax advisor on whether you can file electronically in time to receive a larger check. The direct payment receipt will be based on your direct deposit information being available at the time the IRS is ready to send you the payment.

The IRS has opened a portal at Economic Impact Payment for Non-Filers for low-income non-filers where they can provide information that will allow them to receive their stimulus check as a direct deposit and not have to wait for a paper check. Retirees receiving Social Security (SS) that do not have a tax return filing requirement will receive a check based on their SS records and direct deposit information for their SS checks.

If the government has your direct deposit information for a bank account from your return filing, then the payments are due to be sent out starting in mid-April to lowest AGI recipients over a three-week period. If the government does not have your direct deposit information for a bank account, or the account information has changed since you filed your 2018 return then the payments start going out the first week in May by mailing a paper check. You can expect the paper check to take up to 5 months for all of them to go out. Another option is for you to access the link that will be available during the week of 4/13/20 at Coronavirus Economic Impact Payments – Direct Deposit Entry for Return Filers .

Unemployment Benefits

The latest Stimulus package includes significant changes to unemployment benefits including an extra 13 weeks of benefits, as well as a total of up to 39 weeks of benefits which is an increase from 26 weeks in most States.  Other changes that are an adjustment to regular requirements include the recipient not needing to show proof of employment efforts and the benefits were expanded to include the gig economy, independent contractors, freelancers, and furloughed workers in addition to employees that have lost their jobs.  Another positive change is an extra $600 per week will be available for payments up until July 31, 2020, at which time the extra payments will end.

Tax Deadlines and Additional Deductions

The new tax filing and payment deadline for individuals is July 15, 2020. The due date for the first quarter 2020 estimated income tax payments are postponed from April 15 to July 15, 2020.  However, the second quarter 2020 estimated income tax payments are still due on June 15, 2020 as they would have been without the Coronavirus relief bill. It’s important to make your estimated tax payments on time.

Due to the extension of the return filing deadline for individuals, the deadline for making 2019 retirement plan contributions such as IRAs is also extended until July 15, 2020. The contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year.

A $300 charitable deduction for contributions to a public charity (501(c)(3)) can be claimed on your 2020 return filing, even if you do not itemize deductions.

Emergency Access to Retirement Funds

As a financial adviser, it is highly recommended that you do not access your retirement funds during this time unless it is a dire emergency that you use funds to pay your ongoing expenses.  For instance, if you are unemployed and your expenses significantly exceed your available funds, then you should consider the options that are in the stimulus package.

Under CARES Act, if you are facing financial hardships because of the coronavirus then you can take an early withdrawal of up to $100,000 from your retirement savings, including 401(k)s or individual retirement accounts, without incurring the 10% early distribution penalty that’s assessed for dipping in early. However, you will still be taxed on the withdrawals from your retirement accounts and there is an opportunity cost of taking the money out before it can continue to grow in a tax deferred manner.

The CARES Act did address the potential loss of tax deferred growth from a permanent distribution out of your retirement accounts, 401(k), or IRA, by allowing a temporary loan from the accounts.  The loan option makes the prospect of tapping retirement savings more acceptable in the case of a dire emergency when there is no other option. Anyone who takes a distribution can contribute the money that they took out back to a qualifying retirement plan account. If they do so, they’ll be treated as if they’d met the rules that allow you to roll over retirement money from one account to another.

Therefore, as long as you get the money back into a retirement account within three years, there won’t be any tax consequences. You won’t pay the penalty, and you won’t have to include the distribution you received as taxable income.  You will still lose the investment gains you would’ve earned if you’d left the money alone, so it’s not a perfect solution. Nevertheless, the unique provisions of the coronavirus stimulus bill make taking early retirement withdrawals a lot more palatable.

Other Provisions

The federal government has waived the payments and interest for federal student loan borrowers for two months. In addition, automatic payments are suspended until September 30, 2020.

If you live in an apartment and your landlord gets mortgage relief because of the coronavirus outbreak, you can’t be evicted for 90 days if you can’t pay rent due to your own coronavirus hardship. Freddie Mac and Fannie Mae, in coordination with the Federal Housing Finance Agency, have announced a nationwide relief plan for borrowers who own multifamily properties, as well as their tenants. Under the program, landlords whose Freddie and Fannie loans are in good standing can defer their loan payments for 90 days by showing hardship as a consequence of COVID-19. In turn, Freddie and Fannie are requiring landlords not to evict tenants facing hardship based solely on nonpayment of rent during the forbearance period.

Also, if you are a homeowner with a mortgage backed by Fannie Mae, or Freddie Mac, then you can delay payments for up to 12 months. The lenders are supposed to allow forbearance for those experiencing a financial hardship caused by the coronavirus pandemic. Forbearance is where you and the lender agree to temporarily reduce or suspend mortgage payments, and the lender agrees not to foreclose during that time. The deferred payments still need to be made in the future, as a lump sum or tacked on to the end of your mortgage. Forbearance is not the same as loan forgiveness. Under the Freddie Mac and Fannie Mae plans, loan servicers will not report late payments resulting from forbearance to credit bureaus. They will also waive all late fees and penalties. Both Freddie Mac and Fannie Mae have also agreed to suspend evictions and foreclosure sales for 60 days, through mid-May. If you don’t have a loan with Fannie or Freddie, you’ll have to negotiate directly with your loan servicer. If you’re struggling, be sure to contact your loan servicer sooner rather than later, and be sure to document your Coronavirus hardship, such as proof of job loss.

If you need immediate advice, confirmation, or a second opinion about any of the topics discussed in this article during this time of crisis, please reach out to george@lydfordfinancial.com from Lydford Financial PLLC for a free one- hour consultation now through June 30, 2020.

After this short-term crisis is over, then we would be happy to help you with a comprehensive financial plan that can prepare you for the next strain on the financial system and your personal financial situation.


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