COVID-19

Financial Recovery Resources

Current as of June 15, 2020

Hi. I’m Hilary Hendershott, MBA, CFP®. In the wake of the coronavirus pandemic and subsequent CARES Act, it became very clear to me very quickly that ordinary Americans would need help understanding and making use of the various rebates and tax opportunities made available to them. As such, my team and I have worked very hard to offer you this comprehensive Financial Recovery Resources Center. 

As is my habit whenever I publish, whether that be on the podcast I host, Profit Boss® Radio, or in our newsletter, Profit Boss® Weekly, which you can sign up to receive here, my intention is to make things interesting, understandable and most of all, useful! 

Unfortunately we live in a time where you can’t believe everything you read online. My promise to you is that I take content only from the most credible sources, and that most of what I publish is personally vetted by me. For instance, I have already applied for the EIDL Emergency Advance and the PPP loan, which you’ll read more about below. 

Nearly everything I have published here is confirmed either by me or someone I know. 

This comprehensive financial resource is for you as you navigate yourself, your family, your career and your wealth through this very uncertain and unusual time. 

My intention is that you thrive in all aspects of your life. 

To your prosperity,
Hilary

Summary of the $2T CARES Act

The CARES Act is the Coronavirus Aid, Relief and Economy Security Act. It was signed into law on March 27, 2020, by President Trump. It’s a $2 trillion package aimed at combating the economic damage from the coronavirus crisis.

What’s in the CARES Act?
FAQ on CARES Act

 

The Significant Sections of the CARES Act

I. Recovery Rebates (Will I get a CARES Act check?)

I. Recovery Rebates (Will I get a CARES Act check?)

The recovery rebates are refundable tax credits (more about what this means below under “How will this affect my 2020 tax return”). If the government has your address or bank account information, whether because you’re receiving Social Security checks now, or because you filed taxes in 2018 and/or 2019 using your current address, or because you’ve given the IRS your direct deposit information for a tax refund in the past, you’ll receive a check as soon as possible that will later get balanced out against your upcoming tax credit. These payments to taxpayers are intended to supplement for lost income, lessen fears about losing income, and to be spent – circulating money into the economy.

Do I qualify for a CARES Act rebate?

For the CARES Act Calculator to find out how much you are qualified to receive, click the link above and scroll to the middle of the Tax Foundation article.

Will people who are receiving Social Security benefits still receive a rebate check?

Yes, all taxpayers are eligible for the rebate, including those receiving Social Security benefits, subject to the same eligibility rules as other taxpayers. The payment will be sent directly to their bank account associated with those benefits.

What if I receive Supplemental Security Income but not Social Security benefits? Do I qualify for a rebate?

Yes, taxpayers will qualify for the rebate as long as their Adjusted Gross Income is below the rebate thresholds depending on their filing status. If a taxpayer received Supplemental Security Income (SSI) but not Social Security benefits and did not file for taxes in 2018 or 2019, the IRS recommends they file as soon as possible to ensure they receive the rebate. 

How much will I receive?

Individuals with a Social Security Number (SSN) and who are not dependents may receive $1,200 (single filers and heads of household) or $2,400 (joint filers), with an additional rebate of $500 per qualifying child, if they have adjusted gross income (AGI) under $75,000 (single), $150,000 (joint), or $112,500 (heads of household) using 2019 tax return information. (The IRS will use 2018 tax return information if the taxpayer has not yet filed for 2019.) The rebate phases out at $5 for every $100 of income earned above those thresholds. 

For a graphic showing the phaseouts, see this article

How do I get the money?

If you have received a tax refund directly to your bank account in recent years, the IRS will deposit your rebate to that bank account.  If the IRS does not have your bank account information on file, they will mail a check to the address on your most recently filed tax return. If you didn’t file a tax return in 2018 or 2019 yet, the government strongly recommends you do that as soon as possible if you’d like to see your check. 

Unfortunately, if you earned high income in 2018 and/or 2019, but have lost enough income in 2020 to qualify for the rebate, you’ll have to wait until you file your 2020 tax return next year for any relief. It is a flaw in the CARES Act.

Didn’t receive your payment yet – click this link to check on the status of yours: https://sa.www4.irs.gov/irfof-wmsp/notice

How will this affect my 2020 tax return?

This payment is essentially a dollar for dollar tax reduction of your 2020 taxes. However, because the government wants to get it to you early, it is being called a “rebate”. 

In other words, if your CARES payment is $1,200, and your 2020 tax is $10,000, now your 2020 tax will be reduced to $8,800. However, if the government is able to, they’ll get you that $1,200 now, but they won’t pay it to you again when you file taxes next year.

The CARES payment is not taxable to you and will show up on your 2020 tax return as a new special tax credit section.

If, when you file your 2020 tax return your qualification has changed in either of two ways:

  1. you have or adopt a child, or
  2. your income was over the thresholds in 2018/2019 and in 2020 was lower than the threshold, 

…you’ll get the amount of the rebate you’re owed in the form of a higher tax refund or lower tax bill.  On the other end of the spectrum, the IRS won’t take the money away from you if, based upon your 2020 tax return, you no longer qualify for the amount that you previously received.

My interview on So Money with Farnoosh Torabi walks through the most important parts of the CARES Act if you’d like to listen.

II. Expanded Unemployment Insurance

II. Expanded Unemployment Insurance

Summary:
  1. The 1-week waiting period is eliminated: The new law provides federal financing of the first week of unemployment payments for states with one-week waiting periods. It will be up to each individual state to remove existing one-week waiting periods.
  2. The amount you can claim in benefits is increased: The new law provides a $600 weekly payment on top of your state’s unemployment benefits. The length of benefits is 39 weeks, which reflects the regular 26 weeks provided under state programs plus the temporary 13-week expansion provided by the new federal law. 
  3. Expansion of who qualifies for unemployment insurance: You can also claim unemployment payments if your hours have been cut due to COVID-19. And individuals who are self-employed can claim benefits. 
How do I apply for unemployment insurance under CARES?

Click here and select your state to begin the application process.

III. Tax Benefits

III. Tax Benefits

Summary of tax benefits from the CARES Act: 

  1. The filing and payment deadline for 2019 tax returns has been extended from April 15th to July 15, 2020. If you want a refund, you still need to file as soon as possible – they can’t get you your refund until you file the return. This extension of filing deadline includes extending the deadline to contribute to retirement accounts, including IRAs, Roth IRAs and SEP IRAs to that date. You are responsible for earmarking the contribution for the appropriate tax year with your custodian when you make the contribution. 
  2. If you can’t file by July 15, you can still request to file on extension, which gives you until October 15, 2020 to file. 
  3. All Required Minimum Distributions, including from IRAs and Inherited IRAs, are suspended for 2020. 72(t) distributions are not affected by the CARES Act. 
  4. Distributions and loans from 401k plans and IRAs are penalty free in 2020. Also, you can elect to pay the associated income tax over 3 years, and you can even pay yourself back over 3 years if you are able. For more information, click here.
IV. Support for Business Owners

IV. Support for Business Owners

Paycheck Protection Program (PPP):

Small businesses can apply for loans under the “Paycheck Protection Program” that can be partially forgivable if they’re affected by COVID-19. The Paycheck Protection Program is designed to do exactly that: keep people employed. The Small Business Administration will be charged with supervising the program, but the loans will actually be administered by banks and other lenders to speed up the process.

The loans will be available to companies that meet certain requirements. For instance, the loans are designed for companies that have 500 or fewer employees. You may apply for a loan in the amount of 2.5 times your average monthly payroll cost over the past twelve months, with the exception that employee wages over $100,000 are not covered. 

As an example, if you have two employees earning $200,000 each, that costs $33,333.33 per month in wages. You would only be able to count $16,666.66 of that, per month, for the purposes of qualifying for the loan. 

In addition, loan proceeds that you use to pay for payroll, rent, mortgage interest, utilities and employee healthcare insurance will be forgiven, as long as you use at least 75% of the loan amount to pay payroll costs. 

Any remainder that is not forgiven will be amortized over ten years at very low interest rates, so there doesn’t seem to be any reason not to take the maximum loan you qualify for. 

The maximum PPP loan size is $10 million.

To apply, contact your business banker or any SBA lender.

UPDATE AS OF May 1, 2020

The IRS recently released guidance on the PPP and we have summarized it here.  For more detail please see the link below, and definitely consult your tax preparer for individualized advice.

In essence, the new guidance states that if you receive a PPP loan which you use to pay for expenses that make it forgivable, those expenses are no longer tax deductible.

A taxpayer (business owner) who receives a loan through the PPP cannot deduct expenses that are normally deductible under the code, if those expenses were reimbursed by a PPP loan that was then forgiven. The details of the CARES Act allow business owners to receive forgiveness of loan balances if used to pay for the following expenses during the eight-week period beginning on the loan’s origination date:

(1) payroll costs;
(2) any payment of interest on any covered mortgage obligation;
(3) any payment on any covered rent obligation; and
(4) any covered utility payment. Section 1106(i) excludes from gross income any amount forgiven under the PPP.

Here is the financial impact of this new guidance:

Let’s take the example of paying wages. Before this guidance, business owners were told wages would be forgivable. So if you bring in $10,000 of revenue and pay out $10,000 in wages over the 8-weeks, you previously thought that $10,000 was “free money” to you. You would also deduct the $10,000 of wages from your federal tax return (of course you need to factor your state tax in as well, but there are too many states for me to provide that analysis here), leaving you with $10,000 you would not have had before you received the PPP.

Now that you cannot deduct the $10,000 from your tax return, you’d owe approximately 20% in taxes, so you have to pay the IRS about $2,000, leaving you with $8,000 you would not have had before you received the PPP. 

Of course, this example isn’t specific or detailed, I have only included it to show you the general impact of the new guidance. 

For the full article: Expenses reimbursed by Paycheck Protection Program are nondeductible. 

See Section 1106(b) of The CARES Act

UPDATE AS OF June 5, 2020

The Paycheck Protection Program Flexibility Act was signed into law by President Trump on June 5, 2020, making a number of changes to the Paycheck Protection Program that are favorable to small business owners.

Key changes include:

  • An extension of the covered period from June 30, 2020 to December 31, 2020.
  • minimum maturity of five years for new loans.
  • Businesses may spend PPP proceeds for qualifying expenses and receive forgiveness from 8 weeks to 24 weeks.
  • New statutory exemptions for reductions in forgiveness for failing to return to prior headcount.
  • A requirement that at least 60% of PPP loan proceeds be spent on payroll in order to receive (any) forgiveness.
  • The ability for small business owners who have PPP loans forgiven to also benefit from the CARES Act-authorized deferral of the remaining 2020 payroll taxes.

A link to the full text of the bill can be found here.

Jeffrey Levin from Buckingham Wealth Partners explains The Paycheck Protection Program Flexibility Act changes here in a short video.

Economic Injury Disaster Loan (EIDL) and Emergency Advance 

The EIDL is an already existing government program, and the CARES Act has allocated another $10 billion in the CARES Act allocated for the COVID-19 related loans including an emergency cash advance known as the “EIDL Emergency Advance”. 

Features of this program:

  • Only businesses with fewer than 500 employees qualify.
  • Loan amounts are up to $2,000,000. Of your total loan amount, $10,000 either is or can be a “forgivable advance”, meaning you don’t need to pay it back.
  • Loans of $25,000 and less do not require collateral. Up to $200,000 can be approved without a personal guarantee. 
  • The interest rate on the non-forgivable portion is 3.75% (or 2.75% for non-profits) and the loan term can be as long as 30 years. 
  • The COVID-19 EIDL includes an automatic 1-year deferral on repayment, though interest begins to accrue when the loan is disbursed. 
  • You can apply for both the EIDL and the PPP loans, so long as you don’t use the funds for the same expenses. 

Apply for the EIDL here.

Employee Retention Credit: 

A fully refundable tax credit for eligible employers equal to 50 percent of qualified wages (wages paid after 3/12/20 and before 1/1/21) up to $10,000  Therefore, the maximum credit for wages paid to an employee is $5,000. This is designed to further encourage businesses to retain employees. This tax credit is not available if you use the Paycheck Protection Program.

Delay of Payment of Employer Payroll Taxes 

The bill has provided a delay in employer-side 2020 payroll taxes for businesses and self-employed individuals until 2021 and 2022. 

Net Operating Loss Carry-back

As a business owner, you can also carry back 2018–2020 losses up to five years, on up to 100% of taxable income from these same years.

Small Business Guidance & Loan Resources – Small Business Administration
Guide to the CARES Act – SBO

V. Homeowner / Renter Relief

V. Homeowner / Renter Relief

Summary: 

This is really tough. I think Congress meant well, but it’s just really difficult to get in the middle of private transactions such as rental agreements and mortgage loans. There is some help for homeowners with federally backed mortgages, but it mostly comes in the form of eviction relief and payment forbearance, which I’m not a huge fan of. See below for more details on that. 

The only markets Congress has impact over are the federally subsidized markets. Everything else from them under this header came in the form of simply urging private companies to make concessions for people. Definitely contact your lender or landlord if you aren’t a borrower in a federally backed loan or living in a home that has a federally backed mortgage attached to it. 

Details

Per the CARES Act, homeowners with federally backed mortgage loans (including FHA) are eligible for forbearance. If you are renting from an owner who has a federally-backed mortgage or federally-supported multi-family property, the CARES Act provides for a moratorium on evictions from March 27, 2020, through July 25, 2020. 

Landlords of eligible properties are prohibited from filing for eviction or charging any fees for unpaid rent and fees during the moratorium and must issue a notice to tenants to vacate 30 days before an eviction once the moratorium ends.  After this moratorium period, renters will be responsible for making payments.

This protection covers properties that receive federal subsidies such as public housing, Section 8 assistance, USDA rural housing programs, and Low Income Housing Tax Credits, as well as properties that have a mortgage issued or guaranteed by a federal agency (including FHA and USDA), Fannie Mae, or Freddie Mac.

Congress has urged private lenders to come up with voluntary solutions and adjustments for their borrowers. As a result, some mortgage lenders are offering programs where borrowers affected by COVID-19 can defer payments or won’t be subject to late penalties. It’s critical to understand the details of what your lender is offering you and to stay in close communication with them in writing (or documenting all conversations). 

Recommendations

Definitely contact your lender as soon as possible if you think you can’t make your mortgage payments, don’t just stop making payments. Similarly your landlord if you think you can’t pay your rent. Keep in mind, if you’re a renter in a single family home, your landlord likely has to pay their mortgage whether you pay rent or not, so it’s a tough spot. 

While some lenders may offer a temporary ability to forgo payments, if you have a balloon on that additional debt in 2 years or even 5 years you may end up right back in the same position. 

In this case, definitely request what’s called a Loan Modification or “loan mod”. This is where both the NOTE and TERM are adjusted for borrowers who continue to pay. 

Interest deferment is the yellow light or next best option but you’re not making the minimum payment and there may be negative credit implications after the credit protection period has ended. 

Forbearance is the least best and I don’t recommend it because you still will have to make a “balloon” payment at the end of the time period. Also, if you have very little equity in your home now, you risk quickly going under water (more debt than home value) if you do forbearance.

If you contact your lender to say you cannot pay, be prepared to discuss:

  1. Your current employment and income situation
  2. Your expenses and assets
  3. How much you can afford to pay

Consumer Alert – Revised – California Dept. of Business Oversight
What steps mortgage borrowers should take – Bank Rate
Fannie Mae Assistance Options for Homeowners Impacted by COVID-19 – PRNewswire
Fannie Mae Provides Assistance to Help Renters Impacted by COVID-19 Stay in Their Apartments – PRnewswire
Eviction Suspension Relief – FHFA

VI. Estate Planning

VI. Estate Planning

Estate planning is end of life planning, and it needs to be done to ensure your wishes (with your money and belongings) are enacted after you are gone and to make life as easy as possible on the people who survive you. Of course, it is unlikely COVID-19 will cause your demise, but ultimately, we all need to plan for our own mortality. 

It is more foreseeable that you’ll need someone who knows you to make medical decisions for you during the pandemic. There are plenty of people who make use of their Medical Power of Attorney documents before they pass on. 

If you don’t have current estate plan documents in place (wills, powers of attorney, medical directives, and a trust), you can contact a local estate attorney to have them drafted or updated if necessary. If you have them completed, make sure that someone you trust – not just your attorney – has at least an electronic copy of the documents, and that you have your medical directives on-hand in case you have to go to the hospital. 

Strongly recommended: Talk with your family about your wishes in a medical setting should you not be able to speak for yourself. Let them know where your legal documents, including life insurance documents, are kept. Introduce them to your financial advisor and/or estate attorney.

Additional Resources
Click here for a Planning Checklist for a Pandemic – Hermance Law

Feeling Uncertain About Your Finances in the Midst of this Pandemic or Have Questions?

Protect Yourself from Fraud

Protect Yourself from Fraud

Protect Yourself from Fraud

a close up of an animal

The Federal Trade Commission has issued this warning: Scammers follow the headlines, know how to protect yourself. The number of fraudsters on the prowl to take advantage of people, including people on Medicare has significantly increased.

Be aware of the following: 

  1. Don’t click on links from sources you don’t know.
  2. Do your homework when it comes to donations, whether from charities or crowd-funded sites.
  3. Be alert to “investment opportunities.” Every time we experience an economic downturn, criminals and opportunists come out in droves to feed on people’s uncertainty. 
  4. Always be suspicious of outbound calls you receive. If you are giving your SSN or confidential information to someone over the phone, you should be confident you called them and can see that phone number listed on a credible website as a Customer Service number.
  5. Any contacts you receive offering you CARES Act stimulus assistance should raise significant suspicion. 
  6. Be cautious of unsolicited requests for Medicare or Medicaid numbers.
  7. Be suspicious of any unexpected calls or visitors offering COVID-19 tests or supplies. If your personal information is compromised, it may be used in other fraud schemes.
  8. Ignore offers or advertisements for COVID-19 testing or treatments on social media sites.
  9. Consult a physician or other trusted healthcare provider to assess your condition and approve any requests for COVID-19 testing.
  10. Contact National Center for Disaster Fraud Hotline (866) 720-5721 or [email protected] if you suspect COVID-19 fraud.
  11. If you’re unable to pay your bills due as a result of COVID-19, contact your lenders and creditors to find out what options are available to you. Be prepared to discuss:
    1. Your current employment and income situation
    2. Your expenses and assets
    3. How much you can afford to pay

Protect yourself financially from the impact of the coronavirus – CFPB
Fraud Alert – US Dept. Health and Human Services – Office of Inspector General
What should I do when Facing Financial Crisis with Credit Card Debt? – Credit.com

Keep Your Identity Protected

Get Your Copy of the Identity Protection Guide with tips and steps you can take today to safeguard your sensitive personal information.

Stock Market Wisdom

Stock Market Wisdom

a close up of Benjamin Franklin

Stock market values have been falling! This can be very scary for investors, which is natural, but it’s important to understand that the market has recovered from many downturns far worse than this before, and it will recover this time! 

You might also be feeling regret, which is natural! Develop a rule for yourself that you don’t take financial actions when you are either a) afraid or b) overjoyed! Extreme emotion is bad for money. 

Also, it’s natural for human beings to think the same kinds of things are going to happen in the near term future as have happened in the recent past, but that is quite often flat out wrong. 

Of course, it matters what’s in your stock investment accounts. If you don’t have a custom built, well-diversified, global portfolio that is constructed in alignment with your timeline and needs, you definitely need a second opinion right now. But if you do, you should probably just stay the course. 

Here are some resources I put together for you to assuage concerns: 

Excellent Video Blogs from Financial Experts: Check this out! 

Ask Buckingham is an excellent resource for investors wondering how to understand the world we’re now in, and what to do moving forward. 

Everything there is good, and I specifically recommended the following videos:

I find these resources compelling and highly useful for myself and my clients. You can learn more about Buckingham Wealth Partners here.

Reacting Emotionally Hurts Performance

Investors are highly unlikely to successfully time the market, and if they do manage it, it may be a result of luck rather than skill. 

What we know is that a substantial proportion of the total return of stocks over long periods comes from just a handful of days! And since investors are unlikely to be able to identify in advance which days will have strong returns and which will not, the wise course is probably to stay the course during market downturns rather than jumping into and out of stocks. 

Remember: volatility is a normal part of investing!

Click here to see a graphic showing the costly impacts of missing just a few profitable days in the market. On the left, you see the value of $1,000 invested in the S&P 500 index for the 38 years from 1990 through the end of 2018. You’ll see that $1,000 grows to $13,137. Then, you can see that missing just ONE of the most profitable days during that 38 year time period costs you 10.38% of your returns!! 

*Reprinted with permission from Buckingham

US Equity Returns Following Sharp Downturns

Do you know just how quickly the markets typically recover just after sharp downturns? And, nearly every time, within 3-5 years, annual returns are actually higher than the long term average! 

Click here to read the full article.

*reprinted with permission of Dimensional US