After careful review of the monetary and fiscal policy responses that spurred the Government Coronavirus Stimulus Package, CARES Act we will evaluate in detail how the government programs will likely affect individuals and small businesses. As per the chart below, the $2.28 Trillion Coronavirus stimulus package delivers aid to a number of sectors, but the most crucial ones are those impacting consumers and small businesses. So, without a moment to waste, let’s dive in.
How does the CARES Act affect me?
The CARES Act sends stimulus checks of up to $1,200 for individuals with Adjusted Gross Income (AGI) in 2019 of less than $75,000. For married couples with AGI’s of $150,000 or less, they receive a check of $2,400. For Heads of Households with AGI of $112,500 or less, they receive $1,200. An additional $500 is provided for each child claimed as a dependent.
The stimulus checks phase-out to $0 for individuals that made over $98,000, married couples that made over $198,000, and heads of households that made over $136,500.
The payments should arrive by around April 16, 2020, if the IRS has your bank account information. Checks sent via mail could take longer, potentially even several months.
Change in Tax Filing
For all Americans, the Federal Tax filing deadline for the 2019 Tax year has been extended by three months and is now July 15th, 2020, instead of the traditional April 15th deadline. In addition, there is a change for charitable contributions, as per below chart. Regardless of whether you itemize your contributions on your tax return, you can claim up to the cap of $300.
IRA and 401k Early Withdrawal
If you or your spouse are diagnosed with the Coronavirus or if you have been adversely affected financially, you can withdraw without penalties up to $100,000 from your 401k, 403b, 457(b) and/or IRAs retirement plan . The distribution (withdrawal) will be counted as income, and thus taxable, over three years. The window to repay the money will be three years. Important to note that this penalty-free distribution does not apply to pensions.
Forbearance of Mortgages
The CARES Act gave two major types of relief to homeowners with federally (Fannie Mae, Freddie Mac, FHA, VA, HUD or USDA) backed loans. First, it blocks lenders from starting foreclosure on federally backed loans for at least 60 days from March 18, 2020.
Second, the CARES Act gives homeowners who are experiencing financial hardships because of COVID-19 the option to request up to 180 days of forbearance (postponing of payments) on their mortgage. That forbearance allows you to pause or reduce your mortgage payments, but it’s not loan forgiveness. If, after six months, you’re still experiencing financial difficulties, you can request up to another 180 days. Also, the bank can’t impose any penalties or other fees.
If you got your mortgage through a private lender, you should still give them a call to see if they provide mortgage relief. In New York, for instance, the governor has waived mortgage payments for 90 days.
Student Loan Payments Suspended
Through September 30, 2020, federal student loan payments are suspended. No action is needed as your payments will be automatically suspended. Late fees or penalties will also be waived. In addition, through December 2020 your employer can pay up to $5,250 of your student loans tax-free.
What if I own my own business?
U.S. Congress passed a $377 billion stimulus package to fund small businesses in an effort to keep jobs and ensure their survival through the Coronavirus. The set of provisions within the CARES Act focused on extending capital to small businesses is called Keeping American Workers Paid And Employed Act. The provision is split into the following programs:
Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) Act provides small business loans of two times the average monthly payroll costs plus an additional 25% (Up to $10 million.) The goal of the program is to incentivize businesses to continue employing people. Interest on the part of the loan that is not forgiven is fixed at 0.50%. Keep in mind that the loan will be due in two years and payments are deferred for six months. To apply, you need to contact an existing Small Business Association (SBA) 7(a) lender or any federally insured depository institution, federally insured credit union or Farm Credit System institution that is participating. Small businesses and sole proprietors may submit applications starting on Friday, April 3, 2020. Independent contractors and self-employed individuals can begin applying the following week on April 10, 2020. The program ends June 30, 2020, but applicants should submit sooner rather than later, as funding is capped at $349 billion. Here are the application and the SBA’s website,which provide more helpful information.
The SBA systems are already exceeding their capacity levels as the Wall Street Journal reports SBA’s EIDL app has been down or people are getting bounced off too soon. The backlog keeps growing so it’s imperative that if you need to apply, apply as soon as you can.
As with most government legislation, it can be daunting to understand each provision and how it impacts you specifically. With an act as impactful as the coronavirus relift package, CARES Act, it is important that both small business owners and American families stay informed and, if applicable, receive aid.
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