by Gregory S. Dowell
March 28, 2020
President Trump signed into law the $2 trillion relief package designed to help businesses and individuals in the U.S. make it through the COVID-19 pandemic. Never has there been a larger economic rescue package in our nation’s history.
One of the key elements for individuals is the one-time issuance of stimulus checks, up to a maximum $1,200 per taxpayer and $500 per child, under the age of 17. To qualify, an individual must be a legal resident and not be claimed as a dependent. Qualification is further subjected to an earnings test, with phase outs for single taxpayers with adjusted gross income above $75,000, married couples filing jointly with AGI over $150,000, and heads of household with AGI above $112,500. The IRS will be charged with making these determinations, based on 2019 income taxes or, if the 2019 returns are not yet filed, the 2018 tax return. Some seniors and disabled individuals who don’t need to file income tax returns will also be eligible; in those cases, the IRS will look to the Social Security Administration’s records. Like it or not, the law appears to allow for the system to be “gamed”. The credits are actually an advance on a 2020 tax credit; a credit will be calculated on the 2020 return using the 2019 data, reduced by the advance payment received. Those who hold off filing a 2019 return because their 2018 return would give them a bigger benefit would seem to stand to benefit, as there is no provision in the law forcing them to pay back any such overpayment when they file their 2020 tax returns.
The Treasury Secretary and the IRS have committed to paying the stimulus checks as soon as possible. Those taxpayers who have had refund checks direct-deposited in the past will potentially get their funds in about 3 weeks. Paper checks will be mailed and will lag.
Unemployment benefits will be expanded as well. Federal funds will be added to the State unemployment payments that are being made. Federal funds will be paid in the amount of $600 per week for up to 4 months. On top of that, the regular State unemployment benefits that normally are paid over 26 weeks will be extended an additional 13 weeks.
So when will your stimulus money come? If you’ve used a bank account for direct payments to or refunds from the IRS, your money will be direct-deposited. On Thursday, Treasury Secretary Steven Mnuchin said on CNBC that direct deposits could go out within three weeks. Individuals who don’t have a bank account on file with the IRS will be sent checks in the mail, according to their most recent address on file. That’s likely to take longer. Self-employed individuals, who normally do not qualify for unemployment insurance, will be able to apply. The typical 7-day waiting period the precedes the first unemployment check will also be waived, in an effort to get checks to individuals more quickly.
in an expansion of the Families First Coronavirus Response Act signed by President Trump on March 18th, the new law also addresses sick leave. In businesses with fewer than 500 employees, the law allows up to 12 weeks of family leave (with the first two weeks unpaid) if employees stay home with children whose schools and day care centers have closed because of the pandemic. Workers who were laid off by March 1st but rehired by December 31st will be eligible to the family leave. The family leave pay is calculated at 2/3 of normal pay, capped at $200 per day and an aggregate of $10,000 per worker and a maximum of $1,000 per week. Employers are expected to issue the checks and then get reimbursed by the government.
Employees will also be entitled to 80 hours of paid sick leave at their regular rate of pay. The law caps the pay at $511 on a daily basis, and an aggregate of $5,110 per worker. Part-time workers are also eligible. Eligible workers include those who have been unable to work due to quarantine. Those forced to stay out of work to care for someone with COVID-19 or who has a child whose school or daycare has closed due to the virus are eligible for 2/3 of their normal pay, with a maximum of $200 per day, and an aggregate of $2,000 per worker.
Retirement plans cap eligible loans at $50,000, and that cap has been raised to $100,000. Further, the limitation that loans may not exceed 50% of the 401(k) vested balance has also been waived. The 10% penalty on early withdrawals has been waived on coronavirus-related distributions of up to $100,000, and the amount so withdrawn may be re-contributed to the plan within 3 years. If not re-contributed, the withdrawn amount will be taxed over a 3-year period at ordinary income tax rates. Required minimum distributions for those over age 72 from retirement accounts have also been waived for 2020.
Mortgage relief is also offered. Fannie Mae and Freddie Mac will allow 6 months of deferral and no foreclosures or evictions can take place. Outside of this new law, other banks have also committed to be lenient during the pandemic. Renters gain more protection if they live in buildings that are backed by federal loans.
Relief from student loan payments were also expanded under the stimulus package. Interest will not accrue on federal student loans from April 1st to September 30th, and no payments will be required during that time. However, the Department of Education will treat the loans as if payments were made during this period, thereby reducing student loan debt. Temporarily, private collection agencies will no longer pursue defaulted borrowers.