Financial Planning During a Pandemic: What does the CARES Act Mean for You and Your Goals?

Not only is the world in the middle of an unprecedented health crisis, but you may have noticed your investments lost significant value in the past few weeks, and you or a loved one may have had to close a business or accept reduced wages.  You may be wondering how all of this will affect your short- and long-term financial goals.  The most important thing to remember during times of crisis and turmoil in the financial markets is NOT to panic.  The last thing you want to do is sell an investment when the value of that investment is at an all-time low.  Financial markets have a way of rebounding over the long term and, with the enactment of the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act” on March 27, 2020, the federal government has striven to alleviate some of the financial pain we may be feeling over the short term.  This article covers some of the financial highlights of the CARES Act.

Rebate Checks for Individual Taxpayers.  Eligible individuals, defined as United States residents with adjusted gross income up to $75,000 ($150,000 for joint filers) who are not a dependent of another taxpayer, will receive a “recovery rebate” of $1,200 ($2,400 for joint filers) plus $500 for each dependent child. For eligible individuals with adjusted gross income between $75,000 and $99,000 (between $150,000 and $198,000 for joint filers), the rebate amount will be reduced by $5 for each $100 over the threshold amount.  No action is required by an eligible individual to receive a rebate check.  The IRS will use a taxpayer’s 2019 tax return information, or if not already filed, 2018 tax return information.

Expanded Unemployment Benefits.  Those individuals who would not otherwise be eligible for unemployment benefits, including the self-employed and those seeking part-time work, are now eligible for benefits.  Individuals who are not able to look for work due to COVID-19-related issues, such as quarantine and school and day care closures affecting the individual’s child, are also eligible for unemployment benefits.  In addition to what the eligible individuals will be receiving under applicable state law, the federal government will pay $600 per week through July 31, 2020.  Unemployed individuals will now be able to receive benefits for 39 weeks, up from 26 weeks, and will no longer have to wait one week to receive benefits.

Federal Student Loan Payments Suspended through September 30, 2020.  During this time, no new interest will accrue on federal student loans, and paused payments will still count as “payments” as part of any student loan forgiveness program.  Although it was proposed, the CARES Act does not include any student loan forgiveness. 

Special Rules Relating to Retirement Accounts.  First, an individual may take a coronavirus-related distribution of up to $100,000 from a qualified retirement plan, without the imposition of the 10% penalty on early withdrawals and with the ability to spread the income tax over a three-year period.  To qualify for this tax-preferred distribution, an individual must either (1) be diagnosed with COVID-19, (2) have a spouse or dependent diagnosed with COVID-19, or (3) experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business due to COVID-19, or other factors as determined by the Treasury Secretary.  In addition, in order to avoid requiring withdrawals from retirement plans while investment values are down, the CARES Act waives Required Minimum Distributions for calendar year 2020.  Finally, the maximum allowable retirement plan loan is increased from $50,000 to $100,000, with an extended time for repayment.

Charitable Giving Incentives.  While the deduction for qualified cash gifts to charity is normally limited to 60% of adjusted gross income, donors may elect to apply a new 100% of adjusted gross income limit for the 2020 tax year.  Even those taxpayers who do not itemize their deductions are able to make an “above-the-line” adjustment to income of $300 per taxpayer ($600 for a married couple).  Neither of these tax benefits are available, however, for contributions to donor advised funds.

Employers and Small Businesses.  The CARES Act creates a subset of the Small Business Administration’s 7(a) loan program called the “Paycheck Protection Program,” which is available through June 30, 2020.  Borrowers under this program, who are limited to small businesses with less than 500 employees, can use the loan to fund payroll costs, employee salaries, interest on mortgage obligations, rent and utilities. Borrowers must certify that (1) the uncertainty of current economic circumstances makes a loan necessary to support ongoing operations; (2) funds will be used to retain workers, make payroll, and pay mortgage, rent and utilities; and (3) they have not applied for or received other funding for the same purpose.  Borrowers may even be eligible for loan forgiveness in the amount equal to payroll costs, interest, rent and utilities, with the amount of forgiveness being reduced if the average number of employees or payroll costs decrease during the time the loan is funded.

As this crisis unfolds and the personal and financial ramifications to you and your family become more known, please consider talking to one of Hook Law Center’s Certified Financial Planning™ professionals who can help you make wise decisions during this tumultuous time.

Ask Kit Kat: Safe Travels

Hook Law Center: Kit Kat, what can you tell us about how planners in the western part of the United States are trying to help animals migrate without intersecting with vehicular traffic?

Kit Kat: Well, this is interesting, and I’m so glad to be able to follow up on an article I wrote in August 2019. That article entitled “Bridge under the Interstate” was about efforts in southern California to build a bridge under the LA freeway to give cougars and mountain lions a way to connect with breeding grounds and other areas in their migratory path. Recently, I saw an article in The Washington Post entitled “Safe Passages” which talks about the “Yellowstone to Yukon” initiative, also known as Y2Y, which is building alternatives for wild animals to cross interstates and highways in that geographic area. Beginning in 1993, the aim of the endeavor is to protect a 2,000 mile swath of habitat from Yosemite National Park to the Yukon Territory in Canada. There the animals needing protection are mule deer, elk, and pronghorn (a small, deer like animal).

The desire to help these animals can be defended not only from a humane perspective, but also from a monetary point of view. Each year in Wyoming alone, vehicular accidents with animals cause $50 million worth of damage. The cost of one overpass is about $9 million. Not exactly cheap, but if money has to be spent, it might as well be for a good cause. The first overpass which has been built in Wyoming is known as the Trappers Point overpass, which primarily was aimed at protecting pronghorn. Here is was decided to build an overpass, because pronghorn are wary of tunnels, and would not enter them. They need to be able to see the horizon. It has been a tremendous success—collisions with mule deer have been reduced by 79%, and none were reported with pronghorn.

The desire to protect the animals in this area has been strengthened also by scientists who say that global warming is affecting these animals’ breeding patterns. A study in 2016 revealed that 59% of species will need to periodically migrate in order to maintain their preferred habitats. The animals seem to prefer north-south movement, but elevation also helps in seeking cooler climes.

Now that we know what needs to be done. Legislators like Sen John Barrasso (R-Wyo.) are leading the way in introducing in 2019 a highway funding bill of $287 billion to pay for the new infrastructure. The Nature Conservancy is also involved. They are providing migratory maps of the animals’ routes. Working together, it sounds like a wonderful plan. (Ben Guarino, “Safe Passages,” The Washington Post, March 19, 2020)