Since the COVID-19 quarantine went into effect, you probably are aware that Congress passed a bill called the CARES Act to provide some degree of economic disaster relief.
But you may be asking, “How will the CARES Act affect me?” In this article, you will learn more about what the CARES Act is, and what impact it has on unemployment, taxes, debt, investing, retirement and more.
What is the CARES Act?
First of all, let's start with the basics. "CARES" is an acronym which stands for "Coronavirus Aid, Relief, and Economic Security Act."
After its introduction, the bill was amended and passed on March 25, 2020, and was signed two days later into law.
Included in the CARES Act are relief provisions for businesses, organizations and individuals.
Let's take a look at some of these provisions in different categories so that you can understand how the CARES Act affects you.
How Will the CARES Act Affect Unemployment?
If you were able to file for unemployment because of a job loss during COVID-19, the Federal Pandemic Unemployment Compensation (FPUC) which the CARES Act established allows you to claim $600 in additional benefits each week.
The CARES Act also established the Pandemic Emergency Unemployment Compensation (PEUC). The PEUC is an extension which kicks in past claiming 13 weeks of benefits.
Also, if you are self-employed or similar, and those typically would not be eligible for unemployment insurance, you can apply for Pandemic Unemployment Assistance (PUA), also created by the CARES Act.
Key Point: The CARES Act broadens access to unemployment benefits, increases allotments, and includes an extension.
How Will the CARES Act Affect College Students?
If you are or were a college student, the CARES Act may also help you in several different ways.
If you are currently enrolled, and you need help paying for housing, food, and some other types of expenses, you may be eligible for a cash grant. Whether or not you receive one will be decided by your college.
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If you were engaged in work-study, and cannot work because of the quarantine, the CARES Act provides funding so that your college can pay you.
It is also easier to qualify for federal student aid at this time than it was in the past.
If you owe money on student loans, payment requirements are suspended through September 30, 2020, along with interest on your debt.
Key Point: The CARES Act includes provisions to help students keep up with expenses. It also can help you temporarily defer payments and interest on student loans.
How Will the CARES Act Affect Taxes?
Most people are aware that the CARES Act has provided for stimulus checks to individuals and couples.
Technically, these are tax credits, but you receive them now instead of later (you probably already have received your stimulus).
If you are an eligible individual, you should have received $1,200. If you are married, you should have received a total of $2,400 for you and your spouse. If you have dependents under the age of 17, you should also get $500 for each of them by the end of the year.
In order to encourage charitable donations, the CARES Act also includes a provision to claim a tax credit up to $300 if you make corresponding contributions. The limit for tax-deductible donations also got a boost from 50% to 100% of your AGI.
Key Point: The CARES Act gives eligible taxpayers stimulus payments, and also increases deductions and credits for charitable contributions.
How Will the CARES Act Affect Investment and Retirement?
If you are saving for retirement, the CARES Act impacts IRAs and employer-sponsored retirement plans in a number of ways.
First of all, it is possible under the CARES Act to pull from your retirement accounts. As explained by CNBC:
“The recently passed CARES Act now allows you to borrow up to $100,000 (previous loan limit was $50,000) from your 401(k) and delay repayment for up to one year. After you borrow, you’ll typically have to repay the loan within five years, depending on the terms of your 401(k) plan. Under the CARES Act, loan payments due in 2020 can be delayed for up to one year from the time you take out the loan. However, if you can’t pay back the loan within the time frame designated by your plan, your outstanding balance will be taxed like a withdrawal, and you’ll also have pay a 10% early withdrawal penalty.”
Secondly, are a senior? Then you know that you need to take required minimum distributions (RMDs) from your accounts each year.
But under the CARES Act, you can cancel your RMDs for this year if you prefer. This benefits you in a couple of ways.
First of all, when making these forced withdrawals, you have to pay taxes on them. By avoiding making the withdrawals this year, you can also steer clear of those taxes.
Secondly, you won't be forced to take a loss when you part with some of your investments in order to take RMDs.
Instead, you can wait until next year, and hopefully you will be able to sell your stocks profitably at that time.
Key Point: It is easier to borrow from retirement accounts under the CARES Act. Also, you can cancel your RMDs through 2020, which may help you to avoid investment losses.
Get Answers to Your Questions About the CARES Act
You now have answers to at least some of your questions about the CARES Act. But depending on your personal situation, you may have additional questions about investments, taxes, student loans or other topics.
We can help you get answers to the rest of your CARES Act questions by connecting you with a human financial advisor.
In fact, we can match you with an advisor who has specialized knowledge and experience in financial scenarios just like yours.
The right professional will be able to give you personalize advice tailored to your needs, and will be able to help you make sure that you take the fullest advantage of all the financial relief which you are eligible for through the CARES Act.
To get started, click on "Find Advisors” below.