CARE Act

The CARES Act Reviewed: Part III Expanded Unemployment Benefits

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MILLIONS OF PEOPLE ARE OUT OF WORK

With millions of people out of work due to the Coronavirus, the CARES Act provides much-needed relief in the form of expanded unemployment benefits. It covers workers previously ineligible for benefits, including self-employed, part-time workers, gig workers, freelancers, and independent contractors. It also helps those who have recently exhausted their weeks of benefits and those who haven’t earned enough to qualify for state unemployment. And, it offers benefits to those who are personally affected by the virus due to being ill themselves or being a caretaker to a family member who is sick and many more.

A new program of this size and scope will take a lot of time to get set up and it’s challenging to get the most up-to-date and accurate information. For people who are applying for benefits, the wait-times are long, and state websites are crashing. And there are stories that some workers won’t get the full benefit due to not being able to document their income fully. But it will help many people.

DETAILS
Here are details that I have been able to glean so far:

Federal Pandemic Unemployment Compensation

This is an addition to regular state unemployment checks.
Those who have lost their jobs will get whatever their state usually provides for unemployment, plus $600 per week for up to July 31.

Federal Pandemic Emergency Unemployment Compensation:

People who have exhausted their regular State benefits (which max-out at 26 weeks in California), could get up to 13 more weeks, for a total of 39 weeks.

Federal Pandemic Unemployment Assistance

For newly eligible workers.
The program will provide temporary unemployment assistance to the self-employed and people unable to work for many reasons due to the COVID-19 emergency, for example, people who have contracted the virus, caretakers, people who can’t work because of quarantines, or the person’s place of business has closed. This program does not require a person to actively seek work to receive benefits like most state programs. The benefits are available for the duration of the covered person’s inability to work, beginning retroactively to January 27, 2020, and ending on December 31, 2020, up to a maximum of 39 weeks. These benefits will be no less than $600 a week.

Federal Incentives to Create Short-Time Compensation Programs

The Federal Government will fund 100% of the costs for states that currently have an STC program (California has one) and 50% for those states that choose to implement one through December 2020. These programs are also known as work-sharing or shared-work programs and are an alternative to layoffs for employers experiencing a reduction in available work.

Note: This bill leaves out those workers who are able to work from home, and those receiving paid sick leave or paid family leave. New entrants to the workforce who cannot find jobs would also be ineligible.

Here are some additional resources:

If you missed Part II: Retirement Account Provisions, go here

Next up: The CARES ACT and Small-Business Provisions

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CARES Act Review Part II: Retirement Account Provisions

Photo Credit: Kelly Sikkema, Unsplash

There are several retirement account provisions in the CARES ACT meant to reduce your tax liability or help with current cash flow or both. Here are the details:

1. RMD-REQUIRED MINIMUM DISTRIBUTIONS

You don’t have to take your RMD (Required Minimum Distribution) for 2020, whether it be from an IRA (regular, Simple, SEP), inherited IRA, 401(k) plans, 403(b) plans or 457(b) plans.

PLANNING TIP: If you already withdrew your RMD for 2020, and the withdrawal has been within 60 days, you can redeposit it to your account and avoid tax. If a distribution was taken more than 60 days ago and you can qualify for the coronavirus-related distribution (described below) you can redeposit it and avoid tax. Note: Non-spouse inherited IRA beneficiaries cannot redeposit the withdrawal. 

2CORONAVIRUS DISTRIBUTIONS FROM RETIREMENT ACCOUNTS  – new more tax-friendly rules 

For 2020, the 10% penalty will be waived for taking an early distribution from your IRA or employer plan. Previously, distributions before the age of 59 1/2 incurred a 10% penalty in addition to tax owed (with a few hardship withdrawal exceptions).

  • The distribution can be up to $100,000
  • It must be taken in 2020
  • The income is spread over 3 years for tax purposes unless you proactively elect to include it all in 2020
  • Beginning on the day after receipt of a Coronavirus-related distribution, an individual has up to three years to repay the amount as qualified rollover distribution (in one or multiple payments). Any distribution going back to January 1, 2020 qualifies

PLANNING TIP:  If you elect to take a distribution, it may be beneficial to include the entire distribution in 2020 if you expect your income to significantly decline in 2020 and be higher in future years).​​​​​​

PLANNING TIP: In a perfect world, withdrawing from retirement accounts early should be a last resort. These accounts get tax-deferral benefits to incentivize us to save for our future non-earning years. The compounding that happens when the money is left to grow tax-deferred is invaluable in building a nest egg. However, keeping that caution in mind, these are challenging times and the loosening up of these rules may be very helpful to many people. The good news is that there is a way to pay it back and avoid tax and penalties.

 Eligibility (very broad):

  •  People diagnosed with COVID-19, or have a spouse or dependents diagnosed with the virus.
  •  People who are experiencing adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced hours, unable to work because of childcare issues, and a handful of other similar reasons.
  •  Business owners that had to close or operate under reduced hours
  •  Meet some other reason that the IRS decides to say is OK

3. ​​​​​​​COMPANY RETIREMENT PLAN LOANS – a provision to further expand company retirement plan loans (like from a 401(k):

  • The maximum amount of an allowable plan loan doubled from $50,000 to $100,000
  • The loan may be for up to the present value of the participant’s account
  • Payment on plan loan otherwise owed may be delayed for one year

In addition, the usual 20% mandatory tax withholding for non-direct rollovers from company plans is waived for 2020.  However, you will still need to pay tax (at tax time) on any amounts that you don’t roll back into a retirement plan within 60 days.

Next up: A review of enhanced Unemployment Benefits in the CARES Act

If you missed Part I: Stimulus Payments go here.

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The Coronavirus Aid, Relief and Economic Security Act: Stimulus Payments

The CARE Act signed into law on March 27, 2020, is a 2 trillion package of aid to individuals and businesses to ease financial distress due to COVID-19.  It’s an over eight hundred page bill, so there are lots of details. Over a series of blog posts, I’m going to describe the provisions that will have the most impact on individuals and small businesses.

To start, I’ll describe the stimulus payments to individuals provision.

STIMULUS PAYMENTS

In general, individuals will be entitled to $1200, while joint filers will receive $2400 and taxpayers will receive $500 for each child under the age of 17. The payments are not taxable. Limitations and  phase-outs depend on income (AGI- adjusted gross income) as follows:

The rebate will be reduced for taxpayers whose AGI exceeds:

$75,000 for individuals
$150,000 for joint filers
$112,500 for Head of Household

For each $100 over the applicable threshold, you lose $5 of the rebate until it goes to zero, which means that once you hit the following AGI, you don’t get a rebate:

$99,000 for individuals
$198,000 for joint filers
$136,500 for Head of Household

The above numbers are based on the AGI from your 2019 tax return, or if that return hasn’t been filed yet, your 2018 return. If your income was higher in 2018 or 2019 than you anticipate in 2020, when you file 2020 taxes, you will get the rebate.

PLANNING TIP: If your income is lower in 2019 than in 2018 and you haven’t filed 2019 taxes yet, it would be a good idea to do so as soon as you can. It’s not clear how soon the rebates will go out. 

You don’t have to apply for payment. If the IRS already has your bank account information because you have a direct deposit of your social security check or tax refunds, the money will go there. Otherwise, the IRS will mail a check. If your payment gets misdirected somehow, you will get a paper notice in the mail letting you know where the payment went and in what form. If that doesn’t work, you will have to contact the IRS using the information in the notice.

PLANNING TIP: If you know the IRS doesn’t have your most current address and you expect a rebate, you can file Form 8822 to have your address updated. 

Next up on the blog: CARE Act Retirement Account provisions.

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