Last Friday, in response to the COVID-19 pandemic, President Trump signed into law The CARES Act, a $2 trillion economic stimulus bill.

This bill, which appears to be the largest ever of its kind, will be studied and analyzed for months to come. 

Every Warren Street client will be impacted in some way.  Accordingly, we are reviewing every client situation to determine what proactive steps you can take to maximize the benefits available within this legislation.  We will provide some highlights here, and will be following up with each of you directly over the coming weeks.  As always, please reach out to us at any time with questions. 

In General

• CHECKS!  : Most Americans can expect to receive rebates from Uncle Sam. Depending on your household income, expect up to $1,200 per adult and $500 per dependent child under age 17. To calculate your payment, the Federal government will look at your 2019 Adjusted Gross Income (AGI) if it is available, or your 2018 AGI if it is not. However, you will receive an extra 2020 tax credit if your 2020 AGI ends up lower than the figure used to calculate your rebate.

• Taxpayers with Adjusted Gross Income (AGI) above certain thresholds start to lose benefits.  The phaseouts start at:

Married Joint:  $150,000

Head of Household:  $112,500

All Other Filers:  $75,000

• This Nerd’s Eye View illustration offers a great overview:

From Michael Kitces at Nerd’s Eye View; reprinted with permission.

• The reported plan is to send the rebates to direct deposit accounts linked to Social Security payments or the most recent tax return on file.  Paper checks will be sent to last known mailing addresses. 

• ****TWO TIPS:
•  If your 2019 income is lower than 2018 and moves you below the phaseout range, file your 2019 tax return ASAP.
•  If you have recently moved, notify the IRS via this form:  Form 8822 (Rev. October 2015)

• Retirement account distributions for coronavirus-related needs: You can tap into your retirement account prior to age 59.5 in 2020 for a coronavirus-related distribution of up to $100,000, without incurring the usual 10% penalty or mandatory 20% Federal withholding. You will still owe income tax on the distributions, but you can prorate the payment of these taxes across 3 years. You also can repay distributions to your account within 3 years to avoid paying income taxes, or to claim a refund on taxes paid.

***If cash flow is a problem right now, please reach out to us and we will help you strategize. 

• Various healthcare-related incentives: For example, certain over-the-counter medical expenses previously disallowed under some healthcare plans now qualify for coverage. Also, Medicare restrictions have been relaxed for telehealth and other services (such as COVID-19 vaccinations, once they become available). Other details apply.

For Retirees (and Retirement Account Beneficiaries)

• RMD relief: Required Minimum Distributions (RMDs) go on a holiday in 2020 for retirees, as well as beneficiaries with inherited retirement accounts. If you have not yet taken your 2020 RMD, don’t! If you have, please be in touch with us to explore potential remedies.

For Charitable Donors

• “Above-the-line” charitable deductions: Deduct up to $300 in 2020 qualified charitable contributions (excluding Donor Advised Funds) if you are taking the standard deduction.
• Donate all of your 2020 AGI: You can effectively eliminate 2020 taxes owed, and then some, by donating up to, or beyond your AGI. If you donate more than your AGI, you can carry forward the excess up to 5 years. Donor Advised Fund contributions are excluded.

For Business Owners (and Certain Not-for-Profits)

• Paycheck Protection Program loans (potentially forgivable): The Small Business Administration (SBA) Paycheck Protection Program is making loans available for qualified businesses and not-for-profits (typically under 500 employees), sole proprietors, and independent contractors. Loans for up to 2.5x monthly payroll, up to $10 million, 2-year maturity, interest rate 1%. Payments are deferred and, if certain employment retention and other requirements are met, the loan may be forgiven.
• Economic Injury Disaster Loans (with forgivable advance): In coordination with your state, SBA disaster assistance also offers Economic Injury Disaster Loans of up to $2 million to qualified small businesses and non-profits, “to help overcome the temporary loss of revenue they are experiencing.” Interest rates are under 4%, with potential repayment terms of up to 30 years. Applicants also are eligible for an advance on the loan of up to $10,000. The advance will not need to be repaid, even if the loan is denied.
• Payroll tax credits and deferrals: For qualified businesses who are not taking a loan.
• Employee retention credit: An additional employee retention credit (as a payroll tax credit), “equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.” Excludes businesses receiving PPP loans, and may exclude those who have taken the EIDL loans.
• Net Operating Loss rules relaxed: Carry back 2018–2020 losses up to five years, on up to 100% of taxable income from these same years.
• Immediate expensing for qualified improvements: Section 168 of the Internal Revenue Code of 1986 is amended to allow immediate expensing rather than multi-year depreciation.
• Dollars set aside for industry-specific relief: Please be in touch for a more detailed discussion if your entity may be eligible for industry-specific relief (e.g., airlines, hospitals and state/local governments).

For Employees/Plan Participants

• Retirement plan loans and distributions: Maximum amount increased to $100,000 on up to the entire vested amount for coronavirus-related loans. Delay repayment up to a year for loans taken from March 27–year-end 2020. Distributions described above in In General.
• Paid sick leave: Paid sick leave benefits for COVID-19 victims are described in the separate, March 18 H.R. 6201 Families First Coronavirus Response Act, and are above and beyond any benefits received through the CARES Act. Whether in your role as an employer or an employee, we’re happy to discuss the details with you upon request.

For Employers/Plan Sponsors

• Relief for funding defined benefit plans: Due date for 2020 funding is extended to Jan. 1, 2021. Also, the funding percentage (AFTAP) can be calculated based on your 2019 status.
• Relief for facilitating pre-retirement plan distributions and expanded loans: As described above for Employees/Plan Participants, employers “may rely on an employee’s certification that the employee satisfies the conditions” to be eligible for relief. The participant is required to self-certify in writing that they or a direct dependent have been diagnosed, or they have been financially impacted by the pandemic. No additional evidence (such as a doctor’s release) is required.  
• Potential extension for filing Form 5500: While the Dept. of Labor (DOL) has not yet granted an extension, the CARES Act permits the DOL to postpone this filing deadline.
• Exclude student loan pay-down compensation: Through year-end, employers can help employees pay off current educational expenses and/or student loan balances, and exclude up to $5,250 of either kind of payment from their income.

For Unemployed/Laid Off Americans

• Increased unemployment compensation: Federal funding increases standard unemployment compensation by $600/week, and coverage is extended 13 weeks.
• Federal funding covers first week of unemployment: The one-week waiting period to start collecting benefits is waived.
• Pandemic unemployment assistance: Unemployment coverage is extended to self-employed individuals for up to 39 weeks. Plus, the Act offers incentives for states to establish “short-time compensation programs” for semi-employed individuals.

For Students (or those with student loans)

• Student loan payments deferred to Sept. 30, 2020:  No interest will accrue either. Important: Voluntary payments will continue unless you explicitly pause them. Plus, the deferral period will still count toward any loan forgiveness program you’re in. So, be sure to pause payments if this applies to you, lest you pay on debt that will ultimately be forgiven.
• Delinquent debt collection suspended through Sept. 30, 2020: Including wage, tax refund, and other Federal benefit garnishments.
• Employer-paid student loan repayments excluded from 2020 income: From the date of the CARES Act enactment through year-end, your employer can pay up to $5,250 toward your student debt or your current education without it counting as taxable income to you.
• Pell Grant relief: There are several clauses that ease Pell Grant limits, while not eliminating them. It would be best if we go over these with you in person if they may apply to you.

For Estates/Beneficiaries

• A break for “non-designated” beneficiaries: 2020 can be ignored when applying the 5-year rule for “non-designated” beneficiaries with inherited retirement accounts. The 5-Year Rule effectively ends up becoming a 6-Year Rule for current non-designated beneficiaries.

You’re now familiar with much of the critical content of the CARES Act! That said, given the complexities involved and unprecedented current conditions, there will undoubtedly be updates, clarifications, additions, system glitches, and other adjustments to these summary points. The results could leave a wide gap between intention and reality.

As such, before proceeding, please consult with us and other appropriate professionals, such as your accountant, and/or estate planning attorney on any details specific to you. Please don’t hesitate to reach out to us with your questions and comments. It’s what we are here for.

Emily Balmages, CFP®, CRTP

Director of Financial Planning, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

If you have questions about any of this or would like to schedule a complimentary review you can Contact Us or call 714-876-6200 to book a free consultation.

DISCLOSURES

Reference Materials:

• DWC News Update, The CARES Act: Federal Coronavirus Relief. March 30, 2020.
• Financial Planning, “Major changes in RMDs and retirement contributions in $2T stimulus plan,” Ed Slott, March 27, 2020.
• H2R CPA, “Cares Act will provide billions of dollars of relief,” March 27, 2020.
• H.R. 748: Coronavirus Aid, Relief, and Economic Security (CARES) Act.
• Nerd’s Eye View, “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic,” Jeffrey Levine, March 27, 2020.
• The Wall Street Journal, “How the Coronavirus Paid Leave Rules Apply to You,” Charity L. Scott, March 27, 2020.
• ThinkAdvisor, “3 Stimulus Bill Provisions Advisors Should Act On Now: Jeff Levine,” Jeff Berman, March 30, 2020.
• ●        U.S. Chamber of Commerce, “Coronavirus Emergency Loans Small Business Guide and Checklist.”
• U.S. Small Business Administration, Paycheck Protection Program and Disaster Assistance.

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.