The $2.2 trillion CARES Act was signed into law last Friday. The massive bill is 10% of the United States’ GDP (gross domestic product) and was enacted to help alleviate the economic impact caused by COVID-19. As businesses cease their operations and individuals lose their income, the stimulus package is a welcome help for many individuals and businesses in need.
Assisting individuals is a major focus on the bill. Thirty percent of the stimulus package is geared toward individuals. The bill seeks to provide financial relief in a variety of forms for taxpayers. For those trying to get a grasp on ways in which the bill can assist them, here are five categories to help clarify the seeming complexity.
1. The bill provides additional income for taxpayers.
Each individual income tax filer will receive $1,200 per adult or $2,400 for each couple. An additional $500 is provided for each qualifying child under the age of 17. Payments are subject to income levels. Full amounts are provided to individual income taxpayers who made up to $75,000 of taxable income or couples who made up to $150,000 of taxable income. After these earning levels, the amount decreases until it stops for individuals tax filers who made $99,000 or couples without children that earned $198,000. The amount received is based on 2019 tax returns or 2018 tax returns for those who have yet to file 2019 returns. If you are claimed as a dependent, you are not eligible for a payment.
The bill increases unemployment payments by $600 per week for four months. Both those who are about to apply for unemployment payments and those currently receiving them are eligible for the increase. In addition, employees for not-for-profits and churches and gig economy workers, not usually eligible for unemployment benefits are now eligible during this time. If an employee’s hours have been reduced during this time, they are also eligible for reduced benefits.
2. The bill helps those with student loans.
Employers are encouraged to help employees with student loans. Employers are now able to pay off up to $5,250 of employees’ student loans without triggering any income for the employee. This benefit is reduced by any other qualifying educational assistance already provided by the employer. Additionally, the bill provides a provision where payment and interest on student loans can be suspended up to six months. This provision only includes federal student loans. Private student loans are not eligible.
Individuals with Direct Student Loans from the federal government can suspend their payments through September 2020. Interest is also suspended during this period. Contact your loan servicer for more details.
3. The bill protects individuals from losing their home.
For those who have a federally backed mortgage and are facing financial challenges caused by COVID-19, the CARES Act allows you to suspend payments up to 180 days without incurring late fees. The bill also prevents foreclosures or evictions of those with a federally backed loans for up to 60 days. It should be noted that the borrower must request these relief measures as they are not automatically applied. Those who do not have or are unsure if they have a federally backed mortgage should contact their mortgage holder to see if any relief is available to them.
There is an additional measure put in place to help renters whose financial situation has been impacted by the coronavirus. Landlords with federally backed mortgage on the rental property are not able to evict tenants for 120 days.
4. The bill increases retirement savings account flexibility.
It is rarely wise to dip into retirement savings. However, the bill provides provisions for those needing to access their retirement funds because of financial hardship caused by the coronavirus. For IRAs and defined contribution plans, the 10% early withdrawal penalty is waived for amounts up to $100,000. You also have up to three years to pay taxes on any withdrawals.
Additionally, the bill waives RMD (required minimum distribution) payments for 2020 and increases 401(k) loan amounts from $50,000 to $100,000.
5. The bill incentivizes charitable giving.
Typically, those who choose the standard deduction are not able to receive additional tax benefits for their charitable giving. The CARES Act encourages individuals to continue or increase their generosity during these challenging times by temporarily creating a universal charitable deduction up to $300. This is an “above-the-line” deduction for those who still opt for the standard deduction. For those who itemize, the bill increases the cap on annual contributions from 60% to 100% of adjusted gross income.
The CARES Act provides help and a sense of hope to many individuals and organizations alike. And while we are grateful for such help and hope, it is a reminder that our ultimate help and hope will not come from a government or any form of financial relief, but a Savior named Jesus. So while we should take advantage of the relief our government offers and encourage others to do the same, let’s also direct our hearts and minds to the One who will wipe every tear from every eye and who leads us to a place where death, grief, crying, and pain will be no more. And let’s encourage others to do the same.
Ryan Hutchinson, Executive Vice President at Southeastern Baptist Theological Seminary, contributed to this post. He has served in finance and higher education administration for twenty years. Ryan lives in Wake Forest, North Carolina with his wife Kimberly, and their two children. Ryan serves as an Elder at Open Door Church in Raleigh, North Carolina, and on the Board of The Pillar Church Planting Network.