The CARES Act was Signed into Law. What Does that Mean for You?
April 3, 2020 Author: Tess Downing, MBA, CFP®, Complete View Financial
On Friday March 27, The Coronavirus Aid, Relief and Economic Security Act—also known as the “CARES Act”—was able to make it through both houses of Congress and was signed into law by President Trump. The hotly debated Act was passed in response to one of the nation’s largest economic shocks, which has affected essentially all workers, employers, and large businesses in some way.
Like most legislative bills, the Act itself is incredibly long and incorporates many different programs. It includes more than $2 trillion worth of financial commitments, which represents about half the amount of money the government spent in 2019 alone.
Naturally, a massive bill of this size is one that seemingly everyone will want to pay attention to. Below, we’ll break down some of the key components of the bill and discuss what the passing of this bill might mean for you.
Recovery Rebates
The most widely talked about part of this bill has been the so-called “Recovery Rebates” that will be given to an estimated 150 million people. The rebates, which will be issued as either direct deposits or paper checks from the IRS, promise $1,200 for most adults earning less than $75,000 in adjusted gross income (AGI). For incomes above $75,000 but below $99,000, the amount given will be scaled proportionately. Married couples earning less than $150,000 will be eligible for $2,400 (total). $500 credits will also be given to parents for each qualifying child. Treasury Secretary Mnuchin anticipates most of the checks will be issued Mid-April, with some remaining checks being delivered later on.
Retirement Adjustments
The Act also included several ways for taxpayers to temporarily access their retirement savings without the usual penalties. In fact, most individuals will be able to have an early withdrawal of up to $100,000 from their savings and avoid the 10 percent fee. The window for withdrawing is currently scheduled to stretch until the very end of the year. However, it is important to note that these withdrawals are essentially loans that will need to be repaid within three years. These special withdrawals are reserved for individuals who have been diagnosed with COVID-19, or have been adversely affected (losing their job, need to care for others, etc.) and should only be used as needed.
Other Benefits for Individuals
In addition to the recovery rebate and retirement adjustments, the bill included a few other benefits for individual taxpayers as well. For example, most federal student loans are currently “paused” (not accruing interest or requiring payments) until at least September 30. Currently, there are about 40 million individuals with federal student loan debt.
Additionally, other “minor” adjustments have been incorporated into the law, including increased flexibility for certain health plans (allowing for telehealth), interest adjustments, expanded charitable deductions, and various others. Furthermore, though it was passed in a separate piece of legislation, most individual taxpayers have also been given a three-month extension for paying their taxes (July 15).
Benefits for Business Owners
While the Act dedicated several hundred billion dollars to helping the “typical” taxpayer, the bulk of the bill was directed towards the business community, specifically towards corporations and business owners. In additional to stimulus loans being issued to larger businesses, there are several programs included to discourage layoffs and encourage continued economic activity.
The employee retention credit, for example, allows employers to take a tax credit against certain employment taxes. The payroll tax credit refund was included to encourage employers to allow paid sick leave, especially for employees affected by the virus. Other benefits for employers include several tax delays, tax alternatives, tax exemptions, and ways to have easier access to capital.
Looking Towards the Future
Clearly, both employers and individuals can potentially benefit from the emergency CARES Act. The economic impact of the virus outbreak has already been quite startling. In addition to the First Quarter of 2020 being the worst (for the stock market) since the great depression, the last two weeks of March saw nearly 10 million people file for federal unemployment benefits.
Ultimately, while the Act itself is far from perfect, certain components of the Act will help limit the total economic fallout. Depending on how the virus spreads during April, there may be more legislation in the future. The economy is certainly down at the moment and many people are facing challenges. But it is important to remember that, even before this outbreak, you made your financial decisions for a reason. Rather than fleeing the market, now may be the perfect time to take advantage of these programs and continue pursuing your long-term financial goals.