What You Should Know about the COVID-19 Stimulus Bill
The COVID-19 pandemic has impacted every individual in the country in one way or another. Hundreds of thousands of jobs have been lost, businesses have shut their doors (perhaps permanently), and many are struggling to deal with the economic fallout that this virus has left in its wake. Congress has passed three bills in an attempt to mitigate the negative economic impact of COVID-19, with the most recent one being the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This $2 trillion act is the largest economic stimulus legislation since the New Deal in the 1930s. Here’s what you need to know about the highlights of this massive stimulus bill.
Payments to Individuals
This is the part of the bill that most people are already aware of. The CARES Act includes a provision to provide most American citizens with direct payments of $1,200 per adult, as well as an additional $500 per dependent child. This amount phases out for those with higher incomes, with reductions beginning at $75,000 AGI per individual, or $150,000 for joint filers, and phasing out entirely at $99,000 for individual filers and $198,000 for joint filters. Most Americans have received their stimulus checks by now, but if you haven’t, don’t worry; you can check the status of your relief check on the IRS website.
Pushing Back Deadlines
Tax deadlines have been the farthest thing from most people’s minds over the last few months. If you haven’t already heard, the deadline for filing your 2019 tax return is now July 15. This is also the new deadline for making contributions to IRAs and HSAs that you wish to deduct on your 2019 return. Please note that deadlines for contributions to workplace savings plans have not changed.
Waiving Withdrawal Penalties for Retirement Plans
Under normal circumstances, you cannot withdraw from your workplace retirement plan or IRA without incurring a 10% early withdrawal penalty. However, this is being waived for qualifying individuals this year. You may now withdraw up to $100,000 total from your retirement accounts in order to cover hardships incurred as a result of COVID-19.
To be eligible for this waiver, you must have a measurable and identifiable hardship that is a direct result of the pandemic. This includes:
- COVID-19 diagnosis
- Being quarantined
- Being placed on furlough
- Getting laid off
- Having your work hours reduced
- Not being able to find childcare so that you can go to work
- Business closure
- Reduced business hours for self-employed individuals
If you do qualify and choose to withdraw from a retirement account, you will be required to pay income tax on your distributions. However, those can be spread out over the next three years. Alternatively, you can also repay the entire withdrawal amount within a three-year period to avoid paying the income tax.
Expanding Sick Time and Family Leave
Paid leave has also been expanded under federal law to allow for more workers to stay home when necessary in these unusual times. Employees must be allowed up to two weeks of paid sick leave at their full rate of pay if they are quarantined, or if they are experiencing COVID-19 symptoms and need to seek diagnosis, with a cap of $511 per day or an aggregate payment of $5,110. They must also be allowed two weeks of leave at two-thirds their standard pay in order to care for a person who is sick, with a cap of $200 per day or an aggregate payment of $2,000.
Additionally, family leave has been expended to allow impacted employees up to ten additional weeks of paid leave—with job protection—at two-thirds their regular pay in order to care for school-aged children whose schools have been closed. Family leave payments are capped at $200 per day or an aggregate payment of $10,000.
Tax Credits for Self-Employed
Self-employed individuals can also receive some relief for sick leave and family leave during the pandemic in the form of a tax credit. The credit provides up to $200 per day or 67% of average daily pay for sick and family leave, as described above. It also provides up to $500 a day for emergency paid sick leave if you are quarantined or receiving testing for COVID-19, or 100% of your average daily income.
These are just some of the highlights of the CARES Act, but we hope that it clears up many questions you may have had about how it directly impacts your financial situation. If you have further questions about tax deadlines, tax credits, or your relief check, please feel free to reach out to us. We are ready and eager to help in any way we can.
Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174