In response to the severe economic fallout stemming from the COVID-19 pandemic, a record $2 trillion fiscal stimulus package was enacted at the end of March. The wide-ranging CARES (Coronavirus Aid, Relief and Economic Security) Act is designed to help ease the financial hardships many Americans are facing. You may be wondering what, if any, economic relief is available to you. Here are some possible ways you may qualify for support.
#1 – Direct payments to many Americans
The CARES Act includes a provision to send most Americans direct payments of $1,200, or $2,400 for joint filers, plus $500 for each child. The amount of the payments will be reduced for those with higher incomes. For individuals filing taxes as singles, the reduced amount begins at an adjusted gross income (AGI) of $75,000 per year and is completely phased out at $99,000. For joint filers, the reduced amount begins at $150,000 and payment is eliminated at $198,000.
Your AGI will be determined by your 2019 tax filing (or 2018, if 2019 is unavailable). These payments will primarily come via direct deposit within weeks, but when you actually receive the rebate may vary depending on your circumstances.
#2 – Enhanced unemployment compensation
For those collecting unemployment benefits, the federal government will bump up your weekly benefit by $600 for up to four months. Laid off workers who file for unemployment would usually need to wait a week to receive benefits. However, the act now allows for that week to be funded by the federal government. Benefits are also extended to self-employed individuals who often don’t qualify for coverage.
#3 – Penalty-free distributions from retirement accounts
If today’s circumstances require you to tap your workplace retirement plan or IRA to meet current financial needs, you may have more flexibility to do so. Affected, eligible participants in workplace retirement plans and IRA owners can take an aggregate distribution in 2020 of up to $100,000 from all retirement accounts without incurring the usual 10% early withdrawal penalty. The affected participant or IRA owner (including a spouse or dependent) would need to either be diagnosed with COVID-19 or experiencing adverse financial consequences that meet a broad-set of COVID-19-related criteria.
Income taxes will still apply to the distribution but can be spread out over three years. You also have the option to refund your retirement accounts any or all of the distribution within three years of the initial withdrawal and adjust your tax liability accordingly.
#4 – No required minimum distributions in 2020
Those who are required to take minimum distributions (RMDs), can ignore RMD rules this year. RMDs for 2020 are suspended for certain defined contribution plans and IRAs to help retirement accounts try to recover from stock market losses. Check with your tax advisor about other options you may have related to RMDs.
#5 – Tax-deductible charitable contributions
As a result of the 2017 tax reform, the vast majority of taxpayers lost their ability to choose itemized deductions due to a dramatic increase in standardized deductions. That eliminated the ability for many to write off charitable contributions on their taxes. The new CARES Act allows for a $300 above-the-line deduction for charitable contributions made to 501(c)(3) organizations for taxpayers who take the standard deduction or those who itemize. The deduction applies to cash contributions. The changes go into effect beginning in the 2020 tax year. The tax savings may be modest, but it helps.
#6 – A break for those with student loans
All federal student loan payments are deferred until September 30, 2020. However, you need to contact your loan provider and inform them that you plan to pause payments as allowed under the CARES Act. There are additional benefits for borrowers and grant recipients as well, so check with your loan provider or school administration for more information.
This is a time when you want to be sure to balance decisions that address your short-term financial obstacles with your long-term financial plan. Touch base with your financial advisor to discuss your situation and best strategies to cope with this challenging time.
Peter A. Ramsay, CFP®, ChFC®, MBA, CLTC, CDFATM, CLU® is a Private Wealth Advisor and President of the PAR Advisory Group a private wealth advisory practice of Ameriprise Financial Services, Inc. in Norwell, MA. Peter A. Ramsay has been recognized for the Forbes Best in State Wealth Advisors for 2020, an honor awarded to a select group of advisors for quality of service and success in business and ethics. Also, Peter was named to the 2020 Financial Times 400 Top Financial Advisors.
To learn more, please visit the PAR Advisory Group website.
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