Steps You Can Take to Utilize the CARES Act

By Lazetta Rainey Braxton, MBA, CFP®


On Friday, March 27th, Congress passed the long-awaited bill, “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act.” This $2 trillion bill provides much needed economic relief for individuals and businesses impacted by the COVID-19 pandemic. We’ll share with you key provisions from the bill and steps you can take to utilize these available resources.


Cash Payments


A cash payment of $1,200 for adults and $500 for children will be issued to households based on the taxpayer’s filing status and Adjusted Gross Income (AGI). Single filers with an AGI of $75,000 or less, $112,500 for heads of household, and $150,000 for married couples filing jointly will receive the full payment. Payments are reduced or unavailable once the AGI hits $99,000 for singles and $198,000 for couples with no children.


Your Steps:


1. Determine your AGI from your most recent filed federal return.

  • Use your 2018 federal return if you have not filed your 2019 return.

  • For the most common tax Form 1040, refer to line item 8b on your 2019 return and line 7 for your 2018 return.


2. Confirm if you have direct deposit information on your tax return.

  • This information is found above your signature.

  • If this information is not available or your bank account is closed, you will receive your check in the mail based on the address the IRS has on record.

3. Calculate the payment.


Unemployment Benefits


The CARES Act provides unemployment benefits for those unable to work as a direct result of COVID-19 and those who traditionally qualify because of job loss. Covered individuals directly impacted by COVID-19 are eligible for benefits during the period of January 27, 2020 to December 31, 2020. The act grants an additional federal weekly benefit of $600 and adds an additional 13 weeks (up to 39 weeks) of eligibility as supplements to benefits awarded by individual states. The provision includes self-employed, gig workers, and independent contractors as well.


Your Step:


1. File for unemployment benefits with your state if you are eligible.

  • Ask for clear guidelines regarding receiving the federal benefits in addition to the state’s benefits.


Mortgage and Student Loan Debt Relief


Mortgage and student loan relief are also addressed in the CARES Act. Borrowers with federally-backed residential mortgages can request payment forbearance for up to 180 days, with the option to extend the request for an additional 180-day period.


For federal student loan borrowers, loan payments and interest can be suspended until September 30, 2020 if requested by the borrower. The act does not provide for loan forgiveness for mortgages or student loans. Employers can also help reduce your student loan bill by contributing up to $5,250 per employee. Under this act, the education assistance program was extended from paying tuition, books, supplies and equipment for employees to also include payments to reduce an employee’s student loans. The payments can be made to the employee or lender and would not be included in the employee’s taxable income. The provision ends December 31, 2020.


Your Steps:


1. Contact your mortgage and student loan lenders directly to make the request (expect a high call volume)

  • Indicate that you are experiencing financial hardship due to the COVID-19 national emergency.

  • Federally backed multifamily mortgages are also included in the forbearance option for a period up to 90 days.


2. Log into your mortgage and the Federal Student Aid website for updates and instructions about your mortgage and student loans, respectively.

  • Follow-up by contacting your loan representatives to confirm your forbearance status (expect a high call volume).

  • Anticipate letters in the mail informing you of your student loan and mortgage status.


3. Consider asking your employers to provide up to $5,250 in tax-free loan payment benefits as incentive pay.


Retirement Loans


Penalties for early withdrawal from retirement accounts are suspended through the end of 2020. Withdrawals of up to $100,000 will be permitted instead of the usual $50,000 limit. Withdrawals will be income taxable, but you will be allowed to pay these taxes over a 3-year period.


You can still borrow from 401(k) plans, but the borrowing limits have been doubled from $50,000 to $100,000 and those who are already repaying 401(k) loans due this calendar year will be given an additional year for repayment.


Required Minimum Distribution


Required minimum distributions are waived in 2020 for retirement accounts and inherited IRAs. If you have already received your 2020 RMDs, you can request that the funds be returned to you by your custodian bank. This allows you to keep your funds invested instead of having to take a mandatory distribution.


Your Steps:


1. Decide if you need the funds for living expenses.


2. If you do not need the funds, contact your financial advisor or your financial institution and request the suspension for 2020.


Charitable Contributions


The act encourages charitable donations by creating a new above-the-line deduction for qualified charitable contributions. According to the IRS, almost 70% of taxpayers in 2018 elected the standard deduction, $12,000 per individual, which was instituted under the Tax Cuts & Jobs Act. Tax filers found the increased deduction more tax advantageous than itemized deductions. Now, these tax filers can take an additional deduction up to $300 for qualified (cash) charitable contributions.


For taxpayers who itemize, the CARES Act also suspends the 60% of AGI limit for qualified cash contributions. The limit of 100% of AGI still applies for all charitable contributions.


Your Steps:


1. Determine if you have the cash flow for charitable donations.


2. Confirm that your designated organization is approved by the IRS by checking the Tax Exempt Organization Search.


3. Save receipts for your tax records.

Small Business Loans


Under the Paycheck Protection Program, small businesses with up to 500 employees are eligible for forgivable SBA loans, and loans issued by Treasury-approved banks, credit unions, and some nonbank lenders. Owners can borrow 2.5x their monthly payroll expenses, up to $10 million to cover qualified payroll costs, rent, utilities, and debt interest, including mortgages. Loan forgiveness (not taxable) is available for funds used to pay 8 weeks of payroll and other qualified expenses.


Your Steps:


1. Ensure that you can prove that you cannot obtain credit from other sources.

  • You must certify the necessity of the loan due to current economic hardships related to COVID-19; that funds will be used per guidelines; and that you are not receiving funds from other sources to cover the same costs.


2. Plan for a deferral period of 6 to 12 months.


Small Business Payroll Tax Credit and Relief


Employers that are not eligible for a small business loan will have the option to receive a refundable payroll tax credit equal to 50% of qualifying wages paid to an employee in a given quarter, up to $10,000. Eligible employers also may defer the employer’s portion of social security taxes for up to two years with 50% of the payment due at the end of 2021 and 2022, respectively.


Your Steps:


1. Review guidelines from the IRS, including the FAQs: Employee Retention Credit under the CARES Act.


2. Consult with your tax professional regarding the appropriate reporting and filing requirements.


3. Factor the new payment deadlines into your cash flow planning for social security payments.


In these unprecedented times, it is important that you know what resources are available to you and how to utilize them for your financial well-being. Because implementation of the CARES Act is rapidly evolving, much of the content posted here may have changed. Please consult with your financial advisor and service providers to confirm the information pertaining to your unique financial situation.