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What Should You Know About the CARES Act Stimulus?

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Relief for Individuals

The Amount of Your Stimulus Check  

  • If eligible, you can expect up to $1,200 per individual or up to $2,400 per married couple. 
  • If you’re an individual who made up to $75,000 in adjusted gross income (based on your most recently filed tax returns) or a married couple who made up to $150,000, you’ll be receiving the full amount of the stimulus check.  
  • Anyone who makes more than $75,000 or any couple who makes more than $150,000 will have their checks reduced until the threshold reaches $99,000 individually—or $198,000 as a couple—at which point the stimulus checks will phase out. 
  • Parents of children under the age of 17 also will receive $500 per child.  

When Will the Money Be in Your Account?

In the next three weeks, if your direct deposit information is filed with the IRS. If it’s not, you will have the opportunity to add your banking information through an online portal, to be set up in the coming weeks. If you prefer a paper check, it could take up to two months to be delivered by mail. 

New Rules Allow You to Pull Money Out of Your 401(k)

The standard 10% early-withdrawal fee for prematurely removing money from your 401(k) is being waived for anyone who wants to dip into their 401(k) before the age of 59½. You can now pull out more money than usual—up to 100% of your retirement account balance or up to $100,000. The government is also deferring tax payments on emergency withdrawals, giving you three years to pay the taxes on the amount. Finally, if you’re able to pay back all or a portion of the early distribution within three years, your payments will not count toward your annual contribution limit in the years you’re replenishing your fund.  

To qualify for early 401(k) or IRA early withdrawal, you must have faced hardship due to COVID-19. This can include: 

  • You or an immediate family member—your spouse or children—testing positive for COVID-19.  
  • Financial loss due to missing work, having hours cut, or being laid off or furloughed. 
  • Cutting hours or closing up shop on your own business.

No Retirement Plan RMDs in 2020 

For the remainder of 2020, retirees will not be required to touch their retirement accounts. Without the CARES Act, everyone over 72 years old who had a 401(k) or an IRA would be required to take out a specified amount each year, known as a Required Minimum Distribution. Normally, if you skip an RMD, you’re hit with a 50% tax penalty. By waiving this requirement for 2020, retirees can keep this money safe and untaxed while also allowing their portfolios to rebound a bit in the coming year.  

You Can Still Contribute to Your Retirement Plan for 2019  

You have an extra three months to fund 401(k), IRA, Roth, or other retirement plan because  the timeline for 2019 contributions was extended to July 15 along with the tax deadline.  

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Relief for Businesses  

The economy has taken a hard hit. The government is punching back with ways to bolster small businesses during these trying times, including Small Business Administration-backed loans, which will be disbursed by individual lending institutions nationally. The two most relevant of these loans are Economic Injury Disaster Loans (EIDLs) and CARE Act loans. 

Economic Injury Disaster Loans (EIDLs) 

$10 billion was set aside for the SBA’s Economic Injury Disaster Loans (EIDLs). Terms include loans up to $2M, with a 30-year term, and interest rates of 3.75% for small businesses and 2.75% for nonprofits. To qualify: 

  • EIDLs can be approved solely on an applicant’s credit score (rather than repayment ability, and no tax return is required).  
  • EIDLs  smaller than $200,000 can be approved without a personal guarantee.  Real estate is not required as collateral, and a general security interest in business property is acceptable.  
  • Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss.  
  • It expands access to sole proprietors or independent contractors as well as tribal businesses, cooperatives, and ESOPs with fewer than 500 employees and all nonprofits, including 501(c)(6)s. 

To apply for an EIDL online, please visit https://disasterloan.sba.gov/ela/.

Loans for Payroll (Paycheck Protection Program Loan Guarantee

$350 billion was set aside for small-business loans to help cover payroll.1 These are also SBA-backed loans and will be offered through local lenders. Details include:

  • Must be in operation before February 15, 2020 
  • Offered to small businesses with fewer than 500 employees, select types of businesses with fewer than 1,500 employees, 501(c)(3) nonprofits with fewer than 500 workers, and some 501(c)(19) veteran organizations  
  • Self-employed, sole proprietors, and freelance and gig economy workers are eligible to apply   
  • Loans up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs, including wages for employees making under $100,000 as well as expenses for paid sick leave, healthcare, and other benefits  during the one-year period before the date on which the loan was made.  
  • Loan terms: up to 10 years, with a maximum interest rate of 4%  
  • No personal guarantee or collateral required  
  • Payments deferred up to six to 12 months  
  • Part of this loan may be forgiven and not counted as income to you, if it’s spent during the first eight weeks on operating expenses. 

This one’s on us.

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1 Source: Forbes https://www.forbes.com/sites/brianthompson1/2020/03/29/getting-cash-for-your-small-business-through-the-cares-act/#58f245dd43a0