The corona virus is making its way through the United States and the rest of the world. In the U.S., there are already more than 35,000 deaths due to COVID-19.
While the health impact is tragic, there is also a deep economic impact. The nation is likely heading into a painful recession with millions seeking unemployment insurance.
To combat the economic effects of COVID-19, the federal government passed a stimulus program called the CARES Act. The objective is to quickly put money into the hands of the American people.
Read on to learn about the COVID stimulus package. Explore 5 things to know about the CARES Act and how it impacts investors and retirees alike.
What Is the COVID Stimulus Package?
In response to COVID-19, the United States Congress passed the CARES Act. CARES stands for Corona virus Aid, Relief, and Economic Security.
The bill is hundreds of pages long and includes various forms of economic assistance for individuals and businesses. The purpose of the CARES act is to inject liquidity into an economy that has, in many ways, grinded to a halt.
What Benefits Are Included in the Stimulus Package?
There are various benefits to the CARES act. The bill’s provisions are designed to keep individuals and businesses afloat during this difficult time.
The benefits range from stimulus checks to relaxing requirements on retirement loans. Here are five major takeaways for individuals from the stimulus package.
1. Stimulus Checks
The Treasury Department is sending checks or direct deposits to eligible Americans. This is perhaps the most discussed benefit in the package.
Eligible Americans would receive $1200 per adult and an additional $500 per child. It is estimated that Americans will start receiving stimulus money three weeks after the CARES Act passage. In fact, millions of Americans have already received their direct deposit.
The eligibility criterion largely depends on income. Individual tax filers earning $75,000 or less will receive the full $1,200. The stimulus check is graduated up to $99,000 at which point the person is no longer eligible.
For married couples, the income threshold is doubled to $150,000. The phase-out threshold is $198,000. Lastly, the head of household threshold is $112,500 and it phases out at $136,500.
Many people are wondering when they will start receiving stimulus checks from the Treasury Department. If you provided your bank account information when filing your 2018 or 2019 federal taxes, stimulus money will be direct deposited during mid-April.
Those that did not provide bank account information will receive checks in the mail. Checks will be mailed out by the Treasury Department in late April.
2. Expanded Unemployment Insurance
Both federal and state governments are mandating that non-essential businesses close down. This is to comply with the government’s stay-at-home orders. The byproduct is that many employees are now unemployed due to the government’s action plan.
To make this right for American workers, the CARES Act expands unemployment insurance. First, unemployment benefits are extended for an additional 13 weeks. This gives Americans another 3 months of money coming in.
In addition, the federal government is increasing unemployment payout. The feds are giving an additional $600 per week on top of what the states already provide.
Finally, the CARES Act expands the pool of eligible recipients. Self-employed and independent contractors are now eligible for unemployment. Also, anyone that cannot work due to a coronavirus impact is eligible for benefits.
3. Relaxed RMD Rules
There is help for retirees and investors as well. The government recognizes that many people depend on retirement accounts and investments to provide monthly income. In addition, economists do not want Americans to take an enormous loss on their investments.
Therefore, the feds relaxed the rules on the required minimum distribution (RMD). An RMD is the amount of money that must be annually withdrawn from eligible savings accounts. Individual Retirement Accounts (IRAs), for example, fall under this category.
How does this help Americans affected by corona virus? All three of the major stock market indexes have declined by over 30% due to the COVID-19 crisis. By waiving the RMD rule, investors can keep their money in their retirement account. The stock market is likely to bounce back eventually and investors can recoup their losses.
4. Waived Penalties and Loan Opportunities
Another benefit for Americans is that the CARES Act temporarily waived the early distribution penalty. This rule assessed taxes and a 10% penalty if you took out the money from an IRA prior to 59 ½ years old.
Now, you can take a hardship loan of up to $100,000 from your IRA. This saves you money because you will no longer be assessed the penalty.
The taxes on the withdrawal will still be required. However, you can now pay them over three years instead upon initial disbursement.
Finally, you can take out a larger loan from your employer’s retirement plan. In the past, the maximum loan was $50,000 but it has now doubled to $100,000.
5. Tax Relief and Charitable Donations
Both federal and state governments alike are giving relief on taxes. This will provide you short-term relief as your tax bill is no longer due in April.
The deadline for federal taxes has been pushed back to July 15th. This gives you an extra 3 months to pay Uncle Sam.
The CARES Act also recognizes that the adverse economic impacts of a national shutdown will negatively impact charities and non-profit organizations. As a result, the federal government relaxed the rules on charitable giving to promote more donations.
In the past, you used to have to itemize your taxes in order to deduct your charitable donations. The Tax Cuts and Job Act (TCJA) doubled the standard deduction leaving even fewer people itemizing their taxes.
The CARES Act allows a $300 above-the-line tax deduction for charitable donations. This gives individual tax filers an incentive to make donations if they are able to do so during this economic crisis.
Learning About the CARES Act
The corona virus pandemic has served as a rude awakening from a health and economic perspective. The good news is that the federal government is here to help. Steps like relaxing retirement account loan requirements will go a long way.
If you want to learn more about the COVID stimulus package and how it impacts your retirement account, contact us today to speak with a specialist.