Amid this new age of social distancing, on Friday Congress came together to create a historic $2 trillion COVID-19 stimulus package to combat a pandemic that has effectively shut down the world economy. The Coronavirus Aid, Relief and Economic Security Act (The CARES Act) aims to mitigate the personal, financial, and health losses caused by the global pandemic. The CARES Act is the third piece of coronavirus-related legislation, with possibly more stimulus activity to come.
In addition to the benefits listed below, overall market sentiment for the delivery of the COVID19 stimulus package was positive. Markets finished the week last week with the Dow seeing the biggest weekly gain since 1938 with a 12% gain.
Key Points of the COVID-19 Stimulus Package
Here are some key points that may be of particular interest to SYM clients:
1. The COVID-19 stimulus sends funds directly to taxpayers.
The COVID-19 stimulus package provides funds directly to taxpayers in the form of a one-time stimulus payment (more payments possibly in the next stimulus). Individual taxpayers will receive $1,200 each ($2,400 for married couples). An additional $500 will be given for each qualified child, up to four children. This payment phases out for taxpayers earning over $75,000 in adjusted gross income (AGI). ($150,000 married) decreasing $50 for each additional $1,000 of AGI. Many SYM clients, including retirees, will qualify for these stimulus payments. If your child can no longer be claimed as a dependent but has not filed a tax return in either 2018 or 2019, they should file a return as they are also eligible to receive a stimulus check.
2. RMDs are suspended for 2020.
The package suspends required minimum distributions (RMDs) for 2020. This not only includes IRAs but also employer retirement plans such as 401(k)s, 403(b)s and 457(b)s. What if you’ve already taken your RMD in 2020? An RMD already taken can be rolled back into the account (though not if the IRA was inherited). If you have already taken all or a portion of your 2020 RMD, the SYM team is available to discuss how this may impact you. Your advisor and service team can determine if a rollover back into the account is appropriate. Please note that any tax withholding will also need to be included in the rollover to remove all tax liability.
3. The AGI has been repealed for charitable contributions.
The adjusted gross income (AGI) limit for charitable contributions has been temporarily repealed. The change effectively increases the AGI limit to 100% of adjusted gross income. This only applies to cash contributions to public charities, not private foundations or donor-advised funds.
4. Retirement Account Hardship Distributions
Retirement account hardship distributions may be made to participants who meet specific criteria (also, the plan sponsor may choose to not allow withdrawals). While taking withdrawals is not an ideal choice, this exception does provide flexibility for managing cash flow in the short term. It is critical to seek advice from an advisor before withdrawing funds from a qualified plan.
- Participants are deemed eligible if the participant, the participant’s spouse, or a dependent is diagnosed with the coronavirus.
- Also eligible are participants experiencing adverse financial circumstances related to the coronavirus. This qualification can be marked by being quarantined, furloughed, laid off work, or working reduced hours.
- Participants who owned a business that closed or operated under reduced hours due to the coronavirus epidemic would also be eligible.
- Distributions will be limited to a maximum of $100,000, must be made in 2020, and would be exempt from the early withdrawal penalty. The distribution would not be subject to a mandatory 20% withholding tax at the time of distribution. Taxes may be paid in the year of distribution, spread over three tax years, or paid back to the plan within three years of the date the distribution was originally taken.
5. The CARES Act and Retirement Plan Loans
Retirement plan loan limits may be increased and current loan payments suspended.
- A plan may allow eligible participants the opportunity to take a loan up to the lesser of $100,000 or 100% of the participant’s vested account balance.
- At the request of an eligible participant, a plan sponsor can suspend loan payments for a period of twelve months. The suspension period would be added to the original loan term and interest would accrue.
6. Small Business Loans and Tax Credits
- $454 billion in loans will be provided to businesses.
- $350 billion in small business loans will cover employee expenses up to 250% of the employers’ payroll with a maximum of $10 million.
- The package offers a tax credit up to 50% of wages paid for retaining employees during the crisis. The credit is for businesses forced to suspend service or gross receipts fell by 50% from 2018.
- The healthcare system will receive $117 billion for hospitals and veterans’ services and another $16 billion to amass a strategic stockpile of supplies. Also, health plans will be required to cover coronavirus-related services at 100%.
- The bill would also delay payroll tax for employers, requiring half of the deferred tax paid by the end of 2021 and the other half by the end of 2022. This will cost an estimated $221 billion.
7. Emergency, Mitigation, and Recovery
Go big and go fast: this was a shared sentiment in the Senate chamber before passing and sending the legislation over to the House of Representatives. Emergency, mitigation, and recovery were the essence of the closing remarks in the House of Representatives, leaving the door open for continued economic relief. The bill was sent to the President where it was signed upon arrival.
For a more detailed discussion about your personal interests and how they may be impacted by the COVID-19 stimulus package, please reach out to your SYM advisor.