About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area, that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual financial planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the The DREAM Financial Planning Process ™ to help our clients achieve their goals.
On March 27, 2020, the White House and Congress came to an agreement and passed the most substantial relief package in recent United States history, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Spreading $2 trillion amongst businesses, hospitals, families, and individuals, this economic stimulus package is designed to bring relief to those experiencing the ever-increasing threat of economic turmoil and downturn amidst the COVID-19 pandemic.
After six days of back and forth between Senate Republicans, Democrats, and the White House, all parties agreed on this historic $2 trillion package. For perspective, this relief package greatly surpasses the $168 billion offered to Americans in the Economic Stimulus Act of 2008, which was the last time an economic stimulus package was passed.1
If you're wondering how this newly passed act may affect you, your place of employment, or your local healthcare facility, we've gathered up the essential numbers to know in this overview.
In an effort to extend unemployment benefits, eligible Americans on unemployment will receive an additional $600 per week for four months.2 This is done to help those who are currently out of work due to the COVID-19 pandemic better achieve their full pay over the next four months.
This bill will allow unemployed individuals affected by the pandemic to receive unemployment insurance for an extended 13 weeks. In addition, it will enable out-of-work individuals to receive the enhanced unemployment benefits as outlined in this bill for four months.2
The law has called for the creation of a pandemic unemployment assistant program that would offer unemployment benefits to those who have previously not been eligible - including those who have been furloughed by their employer, freelancers, and gig workers (such as Uber or Lyft drivers).
In the final iteration of the bill, hospitals will receive around $117 billion in aid.2 In regards to helping healthcare workers on the frontline of the COVID-19 pandemic, the law is meant to help workers gain better access to protective equipment, testing supplies, and provide construction or facilities to house the growing number of patients in need.
Additionally, hospitals and healthcare providers will see a 20 percent increase in Medicare payments for treating those on Medicare with coronavirus.2
Some American taxpayers will be receiving direct stimulus payments of $1,200 as part of the new bill. Those with incomes up to $75,000 will receive the full $1,200, with the amount lowering and eventually phasing out for those who earn more than $99,000. Individuals earning $99,000 or couples earning $198,000 or more will not receive checks. Families who qualify with children can expect to receive an additional $500 in direct payments per child.2
To determine how much you will receive, the government will be basing your income level on your 2018 tax return, unless you have already filed your 2019 tax return.2 As a reminder, the tax filing deadline has been extended to July 15, 2020.2
401ks and IRAs
Early withdrawal penalty waiver. The Act waives the standard 10% early withdrawal penalty for qualified coronavirus-related distributions from retirement accounts (retroactive to Jan. 1). You’ll still pay income taxes on withdrawals, but you can spread them over a three-year period or use that time to roll the distribution back over.
2020 RMDs suspended. You won’t have to take a Required Minimum Distribution from your IRA or 401(k) this year, leaving you in control of how much you withdraw. If you already took your RMD for 2020, you have several choices: keep it and pay taxes on it, return it to your IRA as an indirect rollover, or convert the amount into a Roth IRA (Roth conversions are permanent).
401(k) Loans: The loan limit is increased from $50,000 to $100,000
Among other benefits, the CARES Act provides through September 30, 2020:
- No federal student loan payment;
- No interest on your federal student loan payments; and
- No garnishment of wages, Social Security, and tax refunds for student loan debt collection.
Small Business Grants & Loans
A large portion of this stimulus bill will be going toward assisting small businesses who have been significantly affected by the COVID-19 pandemic. Overall, $500 billion will go toward supporting businesses and corporations, with $29 billion going to the aviation industry and $17 billion for companies that work in national security. The remaining $454 billion can be leveraged as loans for other businesses or municipalities. Companies that choose to take this government assistance must agree to stop any stock buybacks for the length of the loan plus a year. In addition, these companies must retain at least 90 percent of their employee levels between March 24 and September 30, 2020.2
If you'd like to see if you qualify for a grant or loan check out this checklist from the Department of Commerce.
This money will be overseen by an inspector general and a five-person panel, who Congress will appoint. Any businesses run or partially run (at least 20 percent stake in the company) by the Trump family, or other senior government officials, will not be eligible to use these funds.2
Millions of educators and students from K-12 through college have been affected by government orders to self-isolate. In an effort to assist school systems and institutions across the country, the government is granting $30 billion in emergency education funding.2
Airlines have been hit hard during the pandemic and requested government assistance to help negate the crippling effects they've endured as a result. The relief bill will provide $32 billion in the form of grants to cover the wages and benefits of aviation employees.2
Here's how the $32 billion will be broken down within the aviation industry:
- $25 billion for passenger airlines
- $4 billion for cargo airlines
- $3 billion for contractors (workers who handle ticketing, cleaning, catering, baggage, etc.)2
Passenger airlines and cargo airlines will also receive additional help, $25 billion and $4 billion respectively, via loans or loan guarantees.2
In exchange for this assistance, the government has banned airlines receiving support from furloughing employees, making pay cuts, buying back stocks or issuing dividends to investors through September.2
State and local governments haven't been immune to the financial hardships this global pandemic has caused. The stimulus package is offering $150 billion for state and local governments that have been working to combat the effects of COVID-19 in their communities.2
Food Assistance Programs
Anticipating a rise in demand for food banks as a result of the increasing unemployment rate, the bill has provided the Emergency Food Assistance Program with $450 million. Approximately $350 million would go toward purchasing food, with the remaining $100 million spent on the distribution of food to those in need. In addition, Puerto Rico and other U.S. territories will receive $200 million for food assistance, and American Indian reservations will receive $100 million for food distribution.2
While the news seems to be changing every day surrounding COVID-19 in America, this stimulus act is coming at a time when families and business owners alike are fearful of their financial future. If you still have questions about how this stimulus package may affect you or your business, you'll want to get in touch with your financial advisor. Together, you can sort through expectations of what's to come and the right next steps to take.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio feel free to send me an e-mail.
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