On March 11, 2020, the World Health Organization declared that the novel coronavirus was officially a pandemic. The virus has swept the world, killing thousands and sickening many more. It has also led to an unprecedented shutdown of economic activity both in the U.S. and in many other countries, as social distancing measures are put into place to help slow the spread of the virus.
To help bolster the economy during these troubled times, the United States federal government has taken extraordinary steps to deal with unprecedented economic conditions. Some of these coronavirus stimulus efforts include a suspension of student loan interest, expanded unemployment benefits, expanded sick leave options, and a plan to send checks of up to $1,200 to many Americans.
Here are some of the stimulus efforts that could affect your finances.
1. Checks for most Americans
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides for most Americans to receive checks of $1,200 per adult and $500 per child aged 16 and under.
You'll receive the full amount with an adjusted gross income up to $75,000 for single filers, $112,500 for heads of household, and $150,000 for joint filers. The amount of your check decreases by $5 for each $100 earned over those limits, phasing out entirely for single filers with more than $99,000 in income or married couples with more than $198,000 in joint income.
Your income will be determined by your 2019 tax return, or by your 2018 return if you haven't filed for 2019 yet. If you have neither a 2018 nor a 2019 tax return, you can still receive the check based on information from your Social Security statements. However, whether you've filed a return or not, you'll need a valid Social Security number for every household member to be eligible. And you cannot receive a payment if anyone claimed you as a dependent on their tax return, even if you are an adult.
You don't have to apply to receive your credit, and most people should expect their payments within three weeks from the passage of the CARES Act on March 27, 2020. Taxpayers will receive checks or a direct deposit to the bank account submitted with their most recent tax return.
2. Expanded unemployment benefits
The CARES Act also expanded unemployment benefits, making them available to more workers and increasing the amount workers can receive.
Self-employed workers and independent contractors, part-time workers, and those without sufficient work histories to qualify under traditional state unemployment rules may now be eligible for benefits. The amount of benefits workers can receive has also been raised by $600 per week over customary state maximum limits and covered employees can now receive unemployment benefits for an additional 13 weeks beyond each state's previous maximum limit. The extra $600 in weekly benefits will extend through the end of July 2020.
The federal stimulus package has also incentivized states to waive their waiting week so workers will be eligible for benefits as soon as they become unemployed, rather than having to wait for a week with no benefits.
To take advantage of expanded unemployment benefits, you'll need to apply with your state's unemployment office.
3. Paid sick leave and family leave
The Family First Coronavirus Response Act requires companies with 500 or fewer employees to offer paid sick leave and paid family leave to workers. In return, companies can be reimbursed for the paid leave through tax credits.
The paid leave would be available both for employees who have their own health needs and for those who need to provide care for family members. Covered employees are entitled to:
- Up to two weeks or 80 hours of paid sick leave at their regular pay rate if they cannot work because they are quarantined or are experiencing COVID-19 symptoms. The maximum daily payment is $511 per day.
- Up to two weeks or 80 hours of paid sick leave at two-thirds their regular rate if they cannot work because they are caring for a relative who is subject to quarantine or experiencing COVID symptoms or if they are caring for a child whose school or childcare is unavailable due to coronavirus concerns. The maximum daily pay rate is $200 per day.
- Up to 10 additional weeks of paid expanded family leave at two-thirds their regular rate if they've been employed for 30 days and cannot work because of a bona-fide need to leave work to care for a child whose school or daycare provider is not available for reasons related to COVID-19. Again, the maximum daily pay rate is $200 per day.
Paid sick leave and family leave provisions go into effect April 1, 2020, and employees will be eligible for leave between April 1 and Dec. 31, 2020.
Employees who want to take advantage of paid sick leave benefits should provide their employer with as much notice as possible. The terms of the CARES Act likely do not allow employers to require documentation to prove the affected employee is caring for a family member or child, but the Department of Labor may provide clarifying guidelines on this issue in the coming days.
4. Suspended interest on federal student loans and suspended collection efforts for defaulted loans
Federal student loan borrowers are entitled to administrative forbearance, which means they can pause payments on their loans. Student borrowers will have loans put into forbearance for at least 60 days starting March 13, 2020, so no payments should be due until after Sept. 30, 2020.
Federal student loans will also have their interest rates automatically set to 0% for a minimum period of 60 days until Sept. 30, 2020. If borrowers continue making payments, the full amount will be applied to the principal.
Borrowers do not need to take action to suspend loan payments. For borrowers working toward Public Service Loan Forgiveness, the months when loan payments are suspended will still count toward the program as long as other requirements are met. And borrowers must be reported as current on their credit reports even if they choose to pause payments on their loans.
Collection efforts, including the garnishment of wages and the seizure of tax refunds, are also suspended on federal student loans that are in default.
5. Tax relief for employer repayment of student loans
If employers provide student loan repayment assistance between March 27, 2020 and Dec. 31, 2020, the money will not be counted as income for the employee receiving the repayment assistance. Employers can pay up to $5,250 of student loans without the money counting as income. However, if employers pay tuition for employees, this money will also count toward this $5,250 limit.
6. Penalty-free withdrawals from retirement accounts and larger loan limits from workplace 401(k)s
Under the CARES Act, Americans can withdraw up to $100,000 from a 401(k), IRA, or other retirement account without incurring the customary 10% penalty as long as they are experiencing financial hardships resulting from coronavirus.
While those who make withdrawals will still have to pay ordinary income tax on the money taken out, it's now possible to spread out those taxes over three years from the time of the distribution. Normally, those taxes must be paid the year the withdrawal is made.
Americans are eligible for this penalty-free deduction if they experienced any adverse financial consequences due to COVID-19 or if the person making the withdrawal -- or their spouse -- was diagnosed with the virus.
Americans also have the option to borrow up to $100,000 from a workplace 401(k), which is double the normal maximum amount. And the stimulus bill waived the rule preventing investors from borrowing more than half of their 401(k) balance.
7. Suspended required minimum distributions
Retirees normally must take required minimum distributions (RMDs) each year after age 70 1/2 or after age 72 if they turn 70 1/2 in 2020 or later. However, this requirement is waived by the CARES Act for 2020 so retirees don't have to sell losing investments in order to make the required withdrawals.
8. Extended tax deadlines
The deadline to file and pay federal taxes has been extended to July 15, 2020 for both individuals and corporations. Taxpayers will also have until this extended deadline to make 2019 contributions to their IRAs or health savings accounts (HSAs).
9. Mortgage forbearance and foreclosure protection
Under the CARES Act, homeowners with certain loans are eligible to put their mortgage into forbearance and pause payments for at least six months with the possibility of an additional six months of forbearance. Homeowners become eligible if they have one of the following types of mortgage loans:
- An FHA Loan
- A VA Loan
- A USDA Loan
- An 184/184A Mortgage
- Any mortgage backed by Fannie Mae
- Any mortgage backed by Freddie Mac
Those who pause payments will be required to make up missed payments but can work with their lenders at the end of the forbearance period to develop a workable repayment schedule. Borrowers who want to put their loans into forbearance should contact their mortgage lender.
Starting March 18, 2020, there is also a moratorium on foreclosures for borrowers with any of the above types of government-backed loans.
10. A moratorium on evictions and foreclosure protection for landlords
The CARES act puts a moratorium on evictions for renters who live in properties that receive federal subsidies such as Section 8 vouchers or for renters whose landlords have government-guaranteed loans, including loans backed by Fannie Mae, Freddie Mac, the FHA, or the USDA.
This will last for 120 days after the March 27, 2020, passage of the act. During this time, landlords also can't assess penalties or fees for nonpayment of rent. Landlords also can't issue a notice to leave for 150 days after the Act's passage.
Landlords with multi-family homes are also entitled to up to 90 days of forbearance on their mortgage loan payments if they have documented financial hardship. Landlords must have been current on payments as of Feb. 1, 2020, to take advantage of these protections and can make requests for up to 30 days of forbearance at a time.
11. Charitable contributions are deductible without itemizing, and itemizers can take a deduction for more contributions
Under the CARES Act, taxpayers can now take a deduction in the 2020 tax year for up to $300 in charitable donations even if they don't itemize. Taxpayers who wish to make larger deductions can still claim them if they itemize, but this change enables small-dollar donors to score tax savings for contributions to eligible organizations while claiming the standard deduction.
Donors who make large contributions can also deduct the value of charitable contributions up to 100% of gross income in 2020 and aren't subject to customary limits capping the amount of the deduction at 60% of AGI. However, this applies only to cash gifts made to public charities.
12. Help for small businesses
The CARES Act includes many different types of assistance for small businesses, including:
- Expanded Economic Injury Disaster loans from the Small Business Administration: Businesses must show the coronavirus caused them to experience economic hardship to be eligible. The act provides more funding for these loans and makes it easier to qualify, allowing loan approval based solely on credit score with no personal guarantee required on loans of $200,000 or less. Borrowers can also get a $10,000 emergency cash advance grant, which is forgivable if the funds are spent on eligible expenses including paid leave for employees, maintaining payroll, or dealing with added costs due to the supply chain being disrupted.
- The SBA Paycheck Protection Program: Businesses with no more than 500 employees can qualify for loans of up to 250% of average monthly expenditures and salary costs up to a maximum of $10 million. A portion of these loans may be forgiven if employers keep their average payroll expenses at 75% or more of their expenses from the prior year. The interest rate is also capped at 4% and no personal guarantee or collateral is required to qualify.
- Employee retention tax credits: Companies can qualify for a refundable 50% tax credit on wages of up to $10,000 per employee if their gross receipts declined by more than 50% compared with the prior quarter. Credits can be claimed on wages the company pays between March 13, 2020 and Dec. 31, 2020.
- Delayed payroll tax payments: Companies and self-employed workers can delay payroll tax payments and pay them over the next two years instead of owing the full amount this year.
13. Economic stimulus efforts
The Federal Reserve (the central bank for the United States) has taken a number of steps to try to bolster the economy and stabilize the stock market. Some of the steps the Fed has taken include the following:
- Cutting interest rates to a range of 0% to 0.25%: This reduces the overnight interest rate charged to banks, which often means banks reduce rates on loans to consumers.
- Quantitative easing: This happens when the Federal Reserve buys long-term securities. The Fed does this to add new money to the economy, as increasing the money supply encourages lending and investing. It also helps to reduce interest rates as the Fed buys fixed-income securities.
- Lowering reserve requirements: This reduces the amount of money banks have to hold in reserve, which lets them issue more loans and further increases the nation's money supply.
- Expanding repo and reverse repo operations: This happens when the Fed buys securities, and it increases liquidity in the system.
- Creating a Commercial Paper Funding Facility: This allows for the creation of a corporation that can buy short-term unsecured debt instruments to help keep credit flowing. Commercial paper supplies credit for car loans and mortgages as well as short-term corporate debt. The Fed also authorized $10 billion in funds from the Exchange Stabilization Fund to offset losses resulting from this program.
- Creating a Primary Dealer Credit Facility: This will be operational for at least six months and will offer short-term loans to banks starting March 20. Loans will be secured by corporate debt or municipal bonds.
- Creating a Money Market Mutual Fund Liquidity Facility: This will run through the end of September and provide loans banks can use to buy assets from money market funds.
- Establishing a Primary Market Corporate Credit Facility and Secondary Market Corporate Credit Facility to purchase bonds and loans that banks provided to large companies and to buy bonds and exchange traded funds that trade in bonds in order to add liquidity to the corporate bond market.
Take advantage of the benefits available to you
During these unprecedented times, it's important to understand the benefits available to you so you can remain as financially stable as possible until the coronavirus crisis passes.
We'll keep you updated on new programs and relief efforts as the situation evolves. We have assembled a guide to some resources that can help if you're facing financial or personal challenges as a result of the COVID-19 pandemic.
The important thing to remember is that we're all in this together, so stay home, stay safe, and take advantage of the help that's provided.