On March 27, President Trump signed the CARES Act into law — a $2 trillion economic stimulus package that aims to provide relief to Americans experiencing financial hardship due to the COVID-19 pandemic. The bill includes direct cash to Americans, expansion of unemployment, a waiver on penalties and some rules for retirement accounts, suspension of federal student loans until Sept. 30 and more. We spoke to James Royal, an investing and wealth management reporter at Bankrate, to better understand the law and what it means for you.
What are they? The federal government is sending direct cash to most Americans as relief from the coronavirus crisis.
Who will receive payments? Individuals making $75,000 or less will receive a one-time payment of $1,200. Married couples making $150,000 or less will receive $2,400. Families will receive an additional $500 per child. These payment amounts dwindle after those income thresholds and stop altogether for individuals earning $99,000 and married couples earning $198,000. Only people with valid Social Security Numbers will receive payments, with the exception of people in the military. Those who receive Social Security payments, disability payments and unemployment are still eligible.
Do I need to do anything to get it? The process is automatic and does not require you to apply or opt in.
How is income determined? Your income will be based on either your 2018 or 2019 federal tax filings. If you have not filed your 2019 taxes yet, the IRS will go by your 2018 return. “If you haven’t filed your 2019 taxes yet and have something that might increase your benefit — such as a new child — it behooves you to file your taxes as soon as possible, so that you can receive the money earlier,” Royal says.
Who is excluded? People who do not have Social Security Numbers are not eligible for the payments, so this excludes some people with visas and undocumented immigrants.
How will the payments come, and when? The IRS will send the payment to the bank account you’ve set up with the IRS for direct deposit. “If you don’t have a direct deposit set up with the IRS or your bank rejects the direct deposit, the IRS will cut you a physical check, a process that will take longer,” says Royal. At this time, it’s unclear how long it will take everyone to receive checks. For people with direct deposit, the first three payments could go out within three weeks, but experts told CNN that it could take months for people to receive physical checks.
What if I don’t have a bank account? Royal says, “Even if you’re unbanked, you should still get a stimulus check as long as you filed taxes in 2018 or 2019 and have a Social Security number. Even then, the IRS may still be able to pull information on your Social Security benefits and get you a check.”
What happens if I don’t receive the check? After the payment is disbursed via direct deposit or check, you should receive a notice in the mail from the IRS within 15 days that confirms where and how the payment was sent. If you still haven’t found it, you would need to contact the IRS.
Royal says that it’s unlikely you’ll go without it, but it may be handled next tax season instead, unfortunately. “That’s because the government structured the payment as a 2020 tax credit, so you’re just getting an upfront payment of the credit before you file your taxes next year,” he says. “If you miss the payment right now, you’ll be able to claim it when you file taxes next year. Of course, many people need the money now, not in 9 months, but you won’t lose it entirely.”
Unemployment Benefits Expansion
What is it? An expansion of federal and state unemployment benefits, which increases the amount in benefits and broadens the tent to include part-time workers, gig workers and the self-employed.
Who is included? Workers who have been laid off or furloughed “through no fault of their own.” Workers experiencing reduced hours because of COVID-19. Workers who have quit, but only under some extenuating circumstances (e.g, unsafe workplace). Part-time workers, gig workers, self-employed workers, independent contractors, freelancers. People who have been diagnosed with COVID-19 or who are taking care of family members who have it themselves. People who have been ordered to self-quarantine. People whose child’s day care or school has been shut down.
Who is excluded? People whose jobs have been shifted to work-from-home. People receiving paid sick leave or paid family leave. Those who have just entered the workforce and can’t find jobs right now. People who proactively quit their jobs because of fear of COVID-19.
What are the new benefit amounts? The increases will vary from state to state, but federal government is also kicking in an additional $600 per week to whatever a person receives from their state, for four months.
How long will unemployment benefits last? States have varying maximums for unemployment — from 12 to 28 weeks — but most states allow for 26 weeks. The new bill adds 13 more weeks of federally funded unemployment insurance if you reach the state maximum.
How does this affect Medicaid and Children’s Health Insurance Program (CHIP)? At this time, it is unclear if these additional $600 unemployment payouts will count against you as income for these two means-tested programs.
Retirement Account Required Minimum Distribution
What is it? The government has suspended required minimum distributions (RMDs) on all retirement accounts for the rest of 2020, says Royal. “The stated intention of this change is to avoid forcing retirees to withdraw money from their accounts while the market is down, giving the accounts more time to rebound later this year or next.”
What if I’ve already taken an RMD? “You have 60 days to return the money to the account or open a new qualified retirement account and avoid a penalty,” Royal says. “Otherwise, you’ll be liable for any tax on the withdrawal.”
Can I withdraw money from my retirement accounts early? Yes, the 10% bonus penalty on withdrawals for retirement accounts, such as 401(k)s and IRAs, have been waived. There is still a limitation in place, though. “The distributions must occur in 2020 and must be no more than $100,000 in total,” Royal says.
Student Loan Payment Suspension
What is it? If you have federal loans, payments are automatically suspended until September 30, 2020. Interest has also been suspended until that date, so no new interest will accrue from now until the end of September.
Can I still make monthly payments? Yes, though you are not required to. Since interest is suspended, the payment will go toward previously accrued interest and then the principal.
Is my loan eligible? “Direct loans” from the federal government from the past 10 years are eligible. State loans, private loans, Perkins loans, and the majority of Federal Family Education Loans (including Sallie Mae student loans) will not be eligible.
My employer is paying some of my student loans. Does anything change? Yes. From March 27 to the end of 2020, employers can offer up to $5,250 in additional student loan assistance and tuition reimbursement without counting it toward your income.
How will this affect my qualification for the public service loan forgiveness program? This will not affect your ability to make 120 monthly payments, even if you forgo payments until Sept. 30. Your payment will still increase by one payment each until during the suspension.
James Royal is a reporter covering investing and wealth management. Before joining Bankrate, he worked as a stock analyst for The Motley Fool. He holds a doctorate in literature from the University of Florida..
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