At the end of March Congress passed the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which is a $2.2 trillion life support bill to help the economy survive the duration of the government-imposed shutdown. While the bill is extremely wide-ranging, and many provisions may not apply to you, there are some items in the Act which you should at least be aware of.
Pandemic Unemployment Assistance (PUA) is included in the Act and provides extended eligibility for individuals who are traditionally ineligible for unemployment benefits, including the self-employed and independent contractors. It also provides an additional $600 on top of regular benefits, each week for up to 39 weeks. You are encouraged to check the New York State unemployment insurance website at www.labor.ny.gov for details and read the Frequently Asked Questions page to help determine your eligibility.
The CARES Act also includes a provision to temporarily suspend most Required Minimum Distributions from IRAs and retirement plans. People who were 70 ½ before January 1, 2020, or who turn 72 this year, would otherwise be required to withdraw a portion of their accounts and pay taxes on the distribution. The Act suspends this requirement through the end of 2020, resuming again next year.
Recovery Rebates, which are direct payments from the government to individuals, have also been approved as part of the Act. These one-time payments will include $1,200 for each adult plus an additional $500 per qualifying child, however there is a caveat. Individuals with income higher the $75,000, and joint filers with incomes great than $150,000 will have their rebates gradually reduced, and eliminated for those individuals with income great than $99,000 and joint filers with incomes greater than $198,000. These payments will be automatic, and should require no action on your part.
For people under that age of 59 ½, who qualify, the government is allowing access to up to $100,000 of your IRA or certain retirement plans without the usual 10% early withdrawal penalty. In addition to waiving the penalty, the government is allowing the income to be recognized over three years which would help most individuals remain in a relatively lower tax bracket than they would be in, had they recognized all of the income in just one year. For those who only need to take the withdrawal as a short-term financial bridge, the Act also allows repayment of the distribution within three years of receipt which would avoid the income recognition altogether!
For small business owners, it is important to note that the ACT makes loans and grants available through the Small Business Administration (SBA). Contact the SBA directly for details on these programs.
While not technically part of the CARES Act, it is worth mentioning that the IRS has postponed the tax filing deadline for individuals from April 15, 2020 to July 15, 2020. They tax payment date has also been delayed. According to the IRS, this extension is automatic, and does not require you to file any forms.
While nobody knows the depth or duration of the economic impact from the Coronavirus and the subsequent government-mandated economic shutdown, the CARES Act is a huge step, at least in the short-term, toward providing resources to help individuals and families weather the storm.
Like any piece of legislation, the CARES Act is convoluted and contains a myriad of provisions. Work directly with your Certified Financial Planner® professional and your CPA to help determine which provisions may apply to you, and how best to use them to benefit you and your family.
Stephen Kyne, CFP® is a Partner at Sterling Manor Financial in Saratoga Springs and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, an SEC registered investment advisor or Cadaret Grant & Co., Inc. Sterling Manor Financial and Cadaret, Grant are separate entities.
