…and a Note About Financial Literacy
Financial Literacy for the Pandemic
**NOTE: Our “Financial Literacy for the Pandemic” Zoom calls, which were held weekly during the first few months of the pandemic, will move to monthly as the questions have subsided but many people still need help with financial issues as a result of COVID-19. We will be sending the usual invitation with dates to clients, so you can pass on the link.
Anyone — especially first-responders, nurses, doctors, grocery workers, and delivery people — who have questions can send them in to postoffice (at) bluesparkfinancial.com and we will address it on the next Zoom Financial Literacy call.
The CARES Act
By now you know that Congress has passed a multi-trillion-dollar relief bill to help keep individuals and businesses afloat during these difficult times. The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes many provisions that could be beneficial to you.
Here are some of the highlights of the CARES Act:
Retirement Plan Distributions
There are no RMDs for 2020. Required minimum distributions from IRAs and employer-sponsored retirement plans will not apply for the 2020 calendar year. That is for regular IRAs as well as inherited IRAs. In addition, the 10% penalty for “premature distribution” that would normally apply for distributions made before age 59½ (unless an exception applied) will be waived for Coronavirus-related retirement plan distributions of up to $100,000. The tax obligation may be spread over three years, with up to three years to reinvest the money.
Federal Student Loan Deferrals
For all borrowers of federal student loans, payments of principal and interest will be automatically suspended for six months, through September 30, without penalty to the borrower. Federal student loans include Direct Loans (which includes PLUS Loans), as well as Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans held by the Department of Education.
But be careful, private student loans are not eligible for the deferral. Some private lenders are extending their own versions of the CARES Act.
Help for Businesses
The CARES Act included several provisions designed to help self-employed individuals and small businesses weather the financial slam of the COVID-19 crisis.
Self-employed individuals and small businesses with fewer than 500 employees can get a Paycheck Protection Loan through a Small Business Association (SBA) lender. Businesses can borrow up to 2.5 times their average monthly payroll costs, up to $10 million. There has been a lot of fraud already, and many businesses are returning their loans. This loan can become a grant if an employer continues to pay employees during the eight weeks following the origination of the loan – so the employees are not taking unemployment — and uses the money for payroll costs (including health benefits), rent or mortgage interest, and utility costs. These loans have kept millions of businesses solvent during these tough times.
Also available are the emergency grants of up to $10,000 (that do not need to be repaid if certain conditions are met), SBA disaster loans, and relief for business owners with existing SBA loans. I have not heard of any businesses getting one of these emergency grants so far.
Businesses of all sizes may qualify for a refundable payroll tax credit of 50% of wages paid to employees during the crisis, up to $10,000 per employee. The credit is applied against the employer’s share of Social Security payroll taxes. You cannot use both the refundable payroll tax credit and the PPP loan, you have to choose one.
Many people will receive a one-time cash payment of $1,200. Each U.S. resident or citizen with an adjusted gross income (AGI) under $75,000 ($150,000 for married couples filing jointly) who are not the dependent of another taxpayer and have a Social Security number, should get the full rebate. Parents also receive an additional $500 for each dependent child who is 16 years old or younger.
These payments are not taxable income.
The $1,200 rebate amount will decrease by $5 for every $100 in excess of the AGI thresholds until it completely phases out. For example, the $1,200 rebate completely phases out at an AGI of $99,000 for an individual taxpayer and the $2,400 rebate phases out at $198,000 for a married couple filing a joint return.
The payments will be based on 2019 income tax returns (or 2018 if no 2019 return has been filed) and is being sent by the IRS via direct deposit or mail. People who didn’t qualify for the rebate based on 2018 or 2019 income might still receive a full or partial rebate when they file a 2020 tax return.
Extra Unemployment Benefits
The federal government will provide an extra $600 per week to those getting unemployment benefits as a result of COVID-19, on top of any state unemployment benefits an individual receives. This additional benefit is for up to four months (through July 31.) The federal government will also fund up to an additional 13 weeks of unemployment benefits for those who have exhausted their state benefits (for up to 39 weeks of benefits) through the end of 2020.
The CARES Act also provides assistance to workers who have been affected by the pandemic but who normally wouldn’t be eligible for unemployment benefits, including self-employed, part-time workers, freelancers, independent contractors, and gig workers. Those who had to leave work for coronavirus-related reasons also might be eligible for benefits.