How Do The COVID-19 Stimulus Packages Impact You and Your Family
These are unprecedented times for the world and unprecedented times call for unprecedented action from our elected officials. Thankfully, the U.S. Congress has been able to put aside their partisan differences long enough to agree on three separate stimulus packages designed to lessen the economic damage caused by the COVID-19 virus. There is already talk of additional legislation to come, even though we are just starting to understand how the current programs apply to our individual circumstances. The stimulus packages put forth many different programs designed to help families and businesses weather the storm and we don’t yet know how everything will be implemented. However, there are certain aspects that are particularly pertinent to individual investors and those with significant retirement savings.
Extension of Time to File and Pay your Income Taxes
All federal tax deadlines have been extended from April 15, 2020 to July 15, 2020. Michigan’s Governor Whitmer signed an executive order recently to align Michigan’s deadlines with the federal government, making the state of Michigan tax deadline July 15, 2020. This includes the deadline to file your tax returns and pay any related taxes due. Estimated tax payments due on April 15th are likewise postponed until July. You will have until July 15th to make any IRA, Roth IRA and HSA contributions for the 2019 tax year. However, you will want to file as soon as possible if you anticipate a significant tax refund for 2019.
Waiver of 2020 Required Minimum Distributions (RMD’s)
In order to reduce the long-term impact of virus-related stock market declines, the federal government has waived the 2020 Required Minimum Distribution requirements for all IRA’s and many defined contribution retirement plans (think 401(k)). For those who do not need some or all of their RMD for living expenses, this may provide an opportunity for their balances to recover before being forced to take a distribution. The waiver also applies to first year 2019 distributions that were delayed until the first quarter of 2020, even though most of those were probably taken before the bills were finalized.
Direct Payments to Taxpayers
Most Americans will receive direct payments from the government of $1,200 for a single person and $2,400 for a married couple. An additional $500 will be paid for each child age 16 and under. Unfortunately, this payment will be phased out for taxpayers with an Adjusted Gross Income greater than $75,000 for singles and $150,000 for couples. Eligibility will be based on your 2019 tax return, if you have filed already, and your 2018 tax return if you have not. Singles with income greater than $99,000 and married couples filing jointly with over $198,000 of income will receive nothing. Anyone claimed as a dependent will not be eligible.
The above payments will be an advance of a tax credit applicable to the 2020 tax year. Therefore, you may qualify to claim this credit on your 2020 tax return if you don’t qualify under past returns and your income is reduced in 2020 for any reason. If you qualify based on your 2018 or 2019 tax return, there is nothing you need to do now to receive your payment. Payments will begin in April and will be electronically transferred to your bank account if the IRS already has that information. The Treasury Department is developing an online tool for submitting your banking information and if all else fails, a paper check will be issued.
Relaxed Rules for Retirement Account Distributions Due to COVID-19
Anyone who experiences “adverse financial consequences” as a result of being quarantined, furloughed, laid off, suffering from reduced working hours, or who is unable to work due to lack of child care due to COVID-19 can take a premature (before age 59-1/2) distribution from their retirement plan or IRA up to $100,000 without the standard 10% tax penalty. You will still have to pay the income tax on the distribution, but only if you don’t return the money to the retirement account within 3-years of taking it out.
The Act also raises the maximum available 401(k) loan from $50,000 to $100,000 for any loans made six months after the enactment date of March 27th. Although we believe a loan against retirement assets should be a last resort, it is good to know this is available for those who need it.
Additional Charitable Contribution Deduction
In a nod to the important work done by charities during times of need, the stimulus package provides a $300 above the line deduction for cash charitable contributions whether you itemize or not. The 50% of gross income ceiling on cash contributions by individuals has also been eliminated for 2020 for those who itemize. This is an excellent opportunity to provide extra assistance to your favorite cause at a time when they are being called on more than ever.
Unemployment Insurance Enhancements
Those who lose their jobs due to COVID-19 will be eligible for 39 weeks of unemployment insurance, 13 weeks longer than normal, plus an additional $600 per week from the federal government until July 31, 2020. Unemployment benefits have also been extended to many non-traditional workers such as those participating in the gig-economy, free-lancers and independent contractors.
Student Loan Payment Relief
For those who have outstanding student loans, or have children and grandchildren who do, the CARES Act authorizes the suspension of payments on those loans until September 30, 2020. Interest will be waived during that timeframe and any payments you choose to make will be applied directly to principal.
Mortgage Payment Relief
Anyone who has experienced a job loss due to COVID-19 with an outstanding mortgage backed by one of the federal agencies (Fannie Mae, Freddie Mac, FHA, VA, HUD or USDA) may qualify for a six month, penalty and interest free forbearance on mortgage payments. You do not have to prove your financial condition, but you will have to attest to your circumstances. Many private lenders are also offering payment assistance, so be sure to contact them and let them know you have been impacted by COVID-19 if you need assistance.
There are many other aspects of the stimulus packages that have not been covered in the above summary. We have tried to focus on those provisions aimed directly at individuals and families. However, businesses, especially small businesses, will be able to take advantage of many different provisions designed to help them bridge the gap until things begin to normalize. It is likely that there will be more action taken and we will do our best to keep abreast of that activity and keep you informed along the way. In the meantime, please call us with any questions, stay home and stay safe!
Brian Moore, MBA, CFP®, CTFA ®
Senior Wealth Advisor
Brian Balke, CFP®, CIMA®