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CARES Act and Financial Planning Implications

CARES Act and Financial Planning Implications

| April 13, 2020
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Key Provisions in the CARES Act and Financial Planning Implications

On March 27th, the CARES act was signed into law to provide relief for individuals and businesses that are being impacted by the coronavirus pandemic. This $2.2 trillion (that is trillion with a “t”) federal stimulus legislation will likely affect the majority of us across the country. Some key provisions in the CARES act for individuals and business can be found below:

Individuals and Businesses

  • Federal tax filing deadline delayed to 7/15/2020; April 2020 quarterly estimated tax payment deadline also delayed until 7/15/2020
    • Many states, including California, are conforming to new deadlines
    • Potential planning implications:
      • There is more time to fund tax advantaged accounts for 2019
      • If you expect to receive a refund, it is still a good idea file your return as soon as possible. By doing so, not only will you receive your refund sooner, but you could also reduce your odds of falling prey to a tax filing scam

Individuals

  • Cash payments to taxpayers
    • Up to $1,200 per taxpayer ($2,400 for married filing jointly) and $500 per child
    • Payments are phased out for taxpayers making between $75k - $99k ($150k - $198k married filing jointly; $0 payments if over the phaseout) based on your 2019 AGI/2018 AGI if you have not filed your 2019 tax return
    • Potential planning implications:
      • If you do not need this rebate to pay for living expenses, consider using it for other goals such as building your emergency fund or increasing retirement savings

 

  • Increased unemployment benefits
    • Expands benefits for up to 39 weeks and increases maximum weekly benefits by $600
    • Self-employed people and independent contractors are eligible for benefits
    • Potential planning implications:
      • Those have lost or quit their jobs due to the Coronavirus pandemic should file for benefits as soon as possible

 

  • Student loan payment suspension
    • Federal student loan payments are suspended until 9/30/20 and additional interest will not accrue. Payments can be made if desired
    • Potential planning implications:
      • If you have private student loans, reach out to your loan servicer. Some private student loan servicers may also suspend payments during this time period

 

  • Required minimum distributions (including those from inherited IRA’s) have been waived for 2020
    • Potential planning implications:
      • If you are of RMD age and do not need to withdraw money from retirement accounts for living expenses, consider Roth conversions. Roth conversions may also be attractive due to depressed account values and historically low tax rates

 

  • Direct withdrawals from qualified retirement accounts (i.e. IRA’s, 401k’s, 403b’s, etc.)
    • Up to $100k can be withdrawn in 2020 without a 10% penalty if under age 59.5, although income taxes will still apply. Income taxes can be spread over three years (2020 – 2022) and/or the withdrawal can be paid back to your account during that time if possible
    • Available by self-certification if you have been affected by the coronavirus
    • Potential planning implications:
      • Retirement savings is for long-term needs and income taxes may still apply to withdrawals. Even without a 10% penalty, withdrawals from retirement accounts should be considered as more of a last resort

 

  • Increased limits for loans from qualified retirement plans (i.e. 401k’s, 403b’s, etc.)
    • Maximum borrowing limit increased to $100k (from $50k)
    • Potential planning implications:
      • Retirement savings should be considered as more of a last resort

 

  • Increased charitable giving
    • Charitable contribution limit for cash contribution is 100% of AGI (from 60%)
    • Above-the-line charitable deduction available of up to $300
    • Potential planning implications:
      • Potential for significant charitable deductions in 2020 vs. prior years. Increased charitable contributions may be attractive if you expect a high level of income in 2020

Businesses

  • Forgivable loans available to businesses with up to 500 employees
    • Loans may be taken for up to the lesser of 2.5 months of payroll or $10M
    • Other key provisions:
      • Interest rate cap of 4%. Interest, principal and fees are deferred for up to one year
      • Up to the amount of loan principal can be forgiven tax free if used for “eligible expenses,” which includes payroll, for the first eight weeks following the issue date
    • Potential planning implications:
      • Assistance for small business owners so that they may be able to keep their business solvent and potentially retain their employees

 

  • Payroll tax deferral and payroll tax credits in 2020 (for businesses that do not take advantage of the above forgivable loan)
    • 2020 payroll taxes can be deferred, and those taxes can be spread from 2020 – 2021
    • A 2020 payroll tax credit may be available of up to 50% of qualified wages of each employee (capped at $10k per employee)
    • Potential planning implications:
      • Same as above

This legislation is extremely broad, and this is not an exhaustive list. We also anticipate that more federal coronavirus related legislation could be passed in the future. Additionally, some relief packages have been offered at the state and local level, and it is a good idea to determine what may be available to you. As always, we recommend reaching out to your advisor if you have any questions.

 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Marci Bair is a Registered Representative with and securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through WCG Wealth Advisors, a Registered Investment Advisor. WCG Wealth Advisors and Bair Financial Planning are separate entities from LPL Financial.

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