Coronavirus

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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Thoughts on the Covid-19 Induced Stock Market Volatility

It’s hard not to think back to the financial crisis and resulting recession of 2007-2009 when watching the stock market volatility today. That was a painful period for many, especially those who were laid-off, small business owners, retirees, or those planning to retire soon. Actually, it was a pretty tough time for everyone for one reason or another. Afterward, it took years to fix the damage to the financial system and the economy, but the economy did recover.

The Current Market

The current market volatility is unprecedented, but we know the cause. Markets (meaning investors who buy stocks) hate uncertainty and uncertainty exists on many fronts right now. We don’t yet know the answers to questions such as:

When will the rate of infection slow down?
How long will it take to develop a vaccine?
How long will we have to shelter in place?
How long will restaurants, bars, retail stores, and other businesses stay closed?
How will reduced sales affect the profits of companies and their stock prices?
And many more.

It is logical that the volatility will subside once we have answers to these questions. And, our new reality of elbow bumping, hand-washing, social distancing, shelter-in-place, work-at-home practices will undoubtedly help to slow the spread and give experts time to develop a vaccine.

Unfortunately, the wait and this new way of life will come at a cost. The decline in economic activity of all types will most likely lead to a recession if we aren’t in one already. Recessions are painful but they do end and so will this one.

The below chart illustrates past world epidemics and global stock market performance. The MSCI World Index includes the U.S. and worldwide stock markets. You can see that recoveries from bear markets are swift in most cases:

You might wonder whether it makes sense to sell now and get back into the market later. But stock market history has shown that missing out on even a few days of positive market returns can derail this strategy as illustrated in the chart below.

The best course of action right now is to take a deep breath and wait this out. Better times are surely ahead.
Chart from VanguardFurther reading:  Freaked Out by the Stock Market? Take a Deep Breath

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