Below is a communication that Wellspring Financial Partners has prepared to help participants understand the potential relief available to them and their families through the recently signed CARES Act. Though the Act is 880 pages long, and not all items are perfectly clear from Congress, below are a few key provisions that could be of benefit to you.
The CARES Act
“Coronavirus Aid, Relief, and Economic Security Act”
The CARES Act is the fiscal stimulus bill signed into law to provide financial relief to the United States’ economy and its workers due to the devastating impact of the Coronavirus (COVID-19).
I. Stimulus Checks For Individuals And Families
Based upon 2018 tax returns (or your 2019 tax return if it has already been filed);
- Individuals who earn $75,000 or less per year will receive a one-time check of $1,200. The amount of the check decreases as the amount of money earned increases over the $75,000 threshold up to $99,000.
- Married couples filing jointly with reported income of under $150,000 will receive a check of $2,400. The amount of the check decreases as the amount of money earned increases over the $150,000 threshold up to $198,000.
- Families with children under the age of 17 will receive an additional $500 per child.
- If the reported income on your most recently filed tax return didn’t qualify you for a stimulus check but your income has dropped below the qualifying threshold, you will receive the stimulus dollars as a tax credit on your 2020 return.
II. 2019 Tax Filing And Payment Deadline Extended
- Federal annual income tax return filings and any payment due for the 2019 tax year has been extended from April 15, 2020 to July 15, 2020.
III. Required Minimum Distributions Suspended
- The CARES Act suspends the Required Minimum Distribution (RMD) rules in 2020 without penalty (including Inherited IRA RMDs). This includes an individual’s RMD which is attributable to 2019 (not paid by January 1, 2020) but would normally have to be paid by April 1, 2020.
- If an individual has already received their 2020 RMD they may “roll it back” and defer paying taxes, including rolling it back into an employer’s retirement plan.
IV. Cornavirus-Related Distributions From Retirement Plans
The CARES Act allows eligible participants to request penalty-free distributions (avoiding a 10% penalty if under the age of 59 1/2 years of age) of up to $100,000 for qualifying coronavirus-related reasons. These include adverse financial consequences due to being quarantined, furloughed, laid off or having work hours reduced; being unable to work due to a lack of childcare; or closing or reducing hours of a business owned or operated by the individual. CARES Act Distributions are more favorable than hardship withdrawals – including those for Federal Emergency Management Agency (FEMA)-declared disasters – because:
- Tax on the income from the withdrawal may be paid over a three-year period;
- Participants may repay the amount withdrawn to an eligible retirement plan at any time within three years;
- Repayments will not be subject to the retirement plan contribution limits (i.e. you may still maximize election deferrals up to the 2020 allowable IRS limit);
- Vested balances from all contribution sources (other than money purchase pension plan sources) will be available for the distribution (i.e. not just your own 401(K) deferrals);
- Most recordkeepers will provide for pre-approved distributions with self-certification from the employees.
- NOTE: Plan Sponsors may OPT OUT of offering this provision in their Plan Document. (Be sure to check with your HR Department before requesting a distribution).
V. Change To Participant Loan Provisions And Payment Postponements
- The allowable loan amount doubles the current retirement plan loan limit to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. (Most current loan provisions allow for up to 50% of the participant’s vested balance with a maximum loan amount of $50,000). This only applies to loans made on or before September 23, 2020.
- Individuals with outstanding loans from their retirement plan may delay scheduled repayments due from the date of The CARES Act’s enactment (March 27, 2020) through December 31, 2020, for up to one year if they face financial hardship due to the Coronavirus-Related Distribution circumstances noted above. Interest on the loan will continue to accrue during this time period.
- Most recordkeepers will provide for pre-approved distributions with self-certification from the employees.
- NOTE: Plan Sponsors may OPT OUT of offering this provision in their Plan Document keeping the maximum loan amount of $50,000. (Be sure to check with your HR Department before requesting a high loan amount. This option will be available soon as administratively possible).
VI. Relief For Student Loan Borrowers
- The CARES Act lets student-loan borrowers take a six month break from making payments on most federally-backed student loans including Direct Loans and Federal Family Education Loans (FFEL) thru September 30, 2020. Interest will not accrue while these student-loan payments are suspended.
- The months of deferred payment will still count towards Loan forgiveness programs (e.g. PSLF)
- Commercially held FFELs, Perkins Loans and Private Student Loans are not covered under this Act.
- To postpone payments, the borrower must contact the loan servicer. This will not happen automatically.
VII. Health Plans
- The rules for high-deductible health plans (HDHPs) paired with Health Savings Accounts (HSAs) are amended to allow them to cover telehealth and other remote care services without charging a deductible.
- Over-the-counter medicines and feminine hygiene care products are added to the list of items that can be reimbursed out of a health savings account, Archer medical savings account, or health reimbursement arrangement.
VIII. Pandemic Unemployment Assistance
- Pandemic Unemployment Assistance provides for individuals who are self-employed including gig workers, contractors and others who wouldn’t otherwise qualify for unemployment compensation.
- Once an individual is on unemployment insurance in their respective state, they will be eligible for an extra $600 per week in emergency federal compensation for up to four months ending on or before July 31, 2020.
IX. Mortgage and Renters Assistance
- Upon the borrower’s request, Loan Servicers of “federally-backed mortgage loans” are required to provide a forbearance of up to 180 days if borrowers are experiencing a financial hardship from COVID-19.
- Borrowers are eligible for a 180-day extension if requested during the initial 180-day period.
- During the forbearance period, no fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full will accrue.
- For renters, there is a temporary 120-day non-foreclosure related eviction moratorium beginning as of March 27, 2020. During the 120-day period, a lessor may not:
- File an eviction action from a tenant for non-payment of rent;
- Charge fees, penalties, or other charges to a tenant for non-payment of rent;
- Issue a notice to vacate; or
- Require a tenant to vacate before the date that is 30 days after the date on which the lessor provided in a notice to vacate
X. Helpful Links For Further Information
IRS Link: Coronavirus Tax Relief
https://www.irs.gov/coronavirus?mod=article_inline
Congress Link: H.R.748 – CARES Act
https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-H3A5541A869FA42Abb1BC52330D24DDFA
Please feel free to contact Wellspring Financial Partners with any financial question you may have at (520) 327-1019 or via email at info@wellspringfp.com. They view it as their mission to assist families.
Information contained herein is intended to provide you with a brief overview of The CARES Act’s coverages and options and is provided for reference purposes only. Some information provided herein is for general informational purposes and should not be interpreted as legal advice. We believe the information is accurate, however, we make no warranty or guarantee regarding the accuracy or reliability of the content. Wellspring Financial Partners does not provide legal or tax advice. Each employee has a unique situation thus you should consult your attorney or tax advisor for guidance on your specific situation.
