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Coronavirus and Your Finances: How the CARES Act Could Help You

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What we’ll cover:

The coronavirus pandemic has changed many aspects of daily life, and in addition to worries about our physical health, many of us are also anxious about our financial well-being. 

All this can be a super stressful mix. And although there aren’t any easy answers, there are resources available that could help ease some of the financial pressures you may be facing.

In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act to support individuals and businesses impacted by the coronavirus. Totaling more than $2 trillion, it is the largest economic relief plan in US history. It provides financial help through targeted tax relief, early access to retirement savings, as well as loan and grant programs for small businesses.

We’ve highlighted a few ways the CARES Act could help reduce some of the financial stress you and your pocketbook may be feeling.

The CARES Act could make it easier for you to withdraw savings from qualified retirement accounts

Taxpayers may receive a direct economic impact payment from the IRS

This is the “stimulus check” that you may have seen in the headlines. The IRS officially calls it an “economic impact payment.” So if you see mentions of either, they’re referring to the same thing. 

Here’s how it works:

The federal government will provide a tax rebate of $1,200 to individuals ($2,400 for joint filers) whose adjusted gross income (AGI) is less than or equal to $75,000 ($150,000 for joint filers). Taxpayers with a qualifying child under the age of 17 may be eligible to receive an additional $500 (per child). 

If your AGI is more than the limit, your rebate will drop by $5 for every $100 of income over the limit (or a 5% reduction). So for example, a single filer with no dependents and a $76,000 AGI would likely receive a payment of $1,150 ($1,000 over AGI x 5% = $50 reduction). 

Single filers with an income of more than $99,000 ($198,000 for joint filers) would not receive an economic impact payment. 

Is there anything I need to do to request the payment?

For many eligible taxpayers, no action is needed to initiate the payment process. If you’ve already filed your 2019 federal tax return, the IRS will use that information to determine if you’re eligible and to calculate your stimulus payment. If you haven’t filed your 2019 federal return yet, no worries: the IRS will use your 2018 return instead. 

If you’re expecting a payment, the IRS will send it to you via direct deposit, using the bank account that’s listed on your return. The IRS is working on an alternative payment method for those who have not provided direct deposit information to the IRS. 

If you haven’t heard, the deadline for filing your 2019 federal taxes has been moved from April 15 to July 15, 2020. Despite the three-month extension, the IRS still recommends that you file your return as soon as possible. 

Good to know: Individuals who usually aren’t required to file returns may need to submit a simple tax return to receive the economic impact payment. For more details, visit the IRS website.

You may be able to access your retirement savings penalty-free

The CARES Act could make it easier for you to withdraw savings from qualified retirement accounts (e.g., a 401(k) plan or IRA) penalty-free if you meet certain requirements. 

At a time when many Americans are facing financial uncertainties, the federal government is allowing people to withdraw up to $100,000 from their qualified retirement plans for financial hardships resulting from the coronavirus. The typical 10% early distribution penalty is waived for coronavirus-related distributions in 2020. 

However, the distributions are subject to federal income tax, which can be paid (spread evenly) over a three-year period. Generally, taxpayers have the option to repay (or recontribute) such distributions within three years, which will not be counted towards the annual plan contribution limit. If the distributions are repaid within three years, they will not be subject to federal income tax.

In addition to the hardship withdrawal, if you have a qualified retirement plan that allows you to borrow against the account, such as a 401(k) plan, the CARES Act doubles the general loan limit to $100,000 or 100% of your vested account balance, whichever is lesser.

Generally, to qualify for this assistance, you have to meet one of these conditions:

  • You (your spouse or dependent) have been diagnosed with COVID-19, the novel coronavirus.
  • Due to COVID-19, you are experiencing adverse financial consequences due to being quarantined, furloughed, laid off, reduced work hours or unable to work because you have no access to child care. 
  • Due to COVID-19, you have to reduce hours of operation or close a business that you own.

Good to know: The IRS is expected to provide additional guidance on these retirement-related provisions, which will be made available on the agency’s website. Withdrawals and loans from retirement savings come with many tax considerations. Before making any decisions, it’s a good idea to consult a tax professional or financial advisor to get a complete understanding of any relevant withdrawal and repayment rules.

Required minimum distributions (RMDs) rules for certain retirement plans are waived in 2020

If your retirement plan is subject to RMDs (e.g., a traditional IRA, 401(k) plan or other defined contribution plan), those distribution requirements are temporarily suspended in 2020. In other words, retirees have the option to not take a RMD this year. 

Keep in mind that RMD rules can be complicated, so consult a financial advisor if you have any questions about how this waiver might affect you.

HSAs and FSAs may be used to pay for over-the-counter medications

Thanks to the CARES Act, you may now use the money in your Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) to pay for certain over-the-counter (OTC) medications or medical products.

Typically, these accounts do not cover OTC products unless they are explicitly prescribed by a doctor. The CARES Act has modified this rule by expanding the definition of qualified medical expenses to cover OTC purchases.

Federal student loan payments are suspended through September 30, 2020

If you (or your children) have federal student loan payments due, the CARES Act delivers a bit of a reprieve. The law suspends all principal and interest payments from March 13, 2020 through September 2020. 

Prior to the CARES Act, the Department of Education had announced a 60-day suspension, but now students have a little more flexibility when it comes to their loan payments thanks to the new law. 

Good to know: If you’re able to continue to make your usual payments, you’re still allowed to do so. For more information, visit the Federal Student Aid Office website.

The SECURE Act could provide additional help

The SECURE Act, signed into law in December 2019, brought significant changes to the US retirement system, but it also included some non-retirement related provisions that could provide you or your loved ones with additional financial resources. 

For instance, you may be able to withdraw up to $5,000 from your retirement plans with no penalty to pay for expenses related to the birth or adoption of a child. 

And for those with 529 college savings plans, you can use up to $10,000 from your account to repay student loans.. 

Want to learn more? Check out our article on the SECURE Act here.

Small businesses get some love, too

The CARES Act also has a slate of provisions to help support small businesses that are struggling during the coronavirus pandemic. These include a new forgivable loan program and grant program from the Small Business Administration (SBA) to help businesses access capital at this critical time. You can learn more about relief options available through the SBA here. The law also provides a number of business tax relief measures, including payroll tax deferral, employee retention credits, increases to certain business interest deductions and more

If you’re a small business owner and need help navigating the various financial resources that are available, visit Goldman Sachs’ US Small Business Resource Center. This is where you can find information about the SBA’s Paycheck Protection Program Loans, Economic Injury Disaster Loans and Emergency Economic Injury Grants provided under the CARES Act.

You can also learn about Goldman Sachs’ commitment to help small businesses and communities around the world.

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.