When the coronavirus (COVID-19) crippled the U.S. in the first quarter of 2020, many Americans weren’t financially prepared for an unprecedented income-producing shift. For many Americans, this unbalance and inability to earn an income shook their households. And rightfully so. According to a recent 2,000-person study conducted by Prudential, 54% of Americans said they are not financially prepared to manage a contagious disease outbreak that requires quarantines and limits their ability to work for several weeks.
The COVID-19 quarantines have caused significant income-deficient results due to temporary business closures. And those households that are fortunate to continue to work may have seen a decrease in work hours; resulting in reduced take-home pay.
What America is currently experiencing has never been exhibited in American history – the limited ability to physically work and earn a paycheck. This prompted a bipartisan response to the crisis – the Coronavirus Aid, Relief and Economic Security (CARES) Act passed the House of Representatives in an effort to provide economic relief to the American public. It was revised to assist Americans with the following:
Cash payments and Unemployment Assistance
- Stimulus checks. All U.S. residents with an adjusted gross income up to $75,000 ($150,000 joint filers) are eligible for a one-time payment up to $1,200 ($2,400 joint filers), plus an additional $500 per child that is under the age of 17.
- This amount is reduced by $5 for every $100 over the income limits – individuals with incomes over $99,000 and $198,000 for joint filers with no children.
- Additional flexibility was granted for state unemployment insurance for many workers impacted by the COVID-19 pandemic. In addition, an extension of unemployment benefits can be extended for 13 weeks from what the filer’s state currently allows (if the filer’s state chooses to do so) through December 31. Individuals are advised to contact their local state unemployment office to learn more about the availability of local benefits.
- Delay in Tax-Filing Requirements. Special tax filing and payment relief was provided by extending the IRS tax deadline date to July 15 from April 15.
- Federally held student loans have payments suspended through September 30 with no interest accruing or penalties during the period of suspension. Collection efforts are also stopped during this window with no need for students to contact the servicer for this protection.
- Mortgage servicers of federally backed mortgages are required to postpone mortgage payments at the request of the borrower that is experiencing financial hardship due to COVID-19. Postponement lasts for 180 with an additional 180 days if Borrower requests a second term.
- Foreclosure is prevented by the servicer of federally backed mortgages for 60 days beginning March 18, 2020.
- The Cares Act provides 120 days of eviction relief for renters residing in federally-backed housing. This requires the rental property must have a government-backed mortgage. States and local municipalities may offer additional renter protection if the Cares Act cannot assist a renter with eviction protection.
- The CARES Act waives the 10% early withdrawal penalty (retroactive to January 1) for certain tax-advantaged retirement account distributions, up to $100,000 for valid COVID-19 related reasons. Participants should contact their plan administrator for eligibility.
- Required Minimum Distributions (RMD) from 401(k) plans and IRAs are suspended.
- 401(k) loan limits have increased to $100,000 from $50,000.
The Cares Act is providing much-needed assistance to many Americans suffering from the financial implications of COVID-19. As an Accredited Financial Counselor (AFC®), it is my job to educate clients on the types of assistance available to them. During my years of practice, I have assisted many clients in the complex process of financial decision-making and guided them in developing successful strategies for achieving their financial goals.
During these trying times, I am proud to announce, and be a part of, a new initiative launched by AFCPE®, the Wells Fargo Foundation, and the Yellow Ribbon Network – a free virtual financial counseling and coaching initiative! AFCPE® certified financial counselors and coaches, including myself, are now offering unbiased and fully confidential virtual financial counseling and coaching to individuals and families who are financially struggling from COVID-19.
About the Author
Lisa Philios, AFC®
Lisa Philios is an Accredited Financial Counselor®, alumni from Berkley College, Magna Cum Laude, and Member of Phi Theta Kappa International Academic Honor Society. Her work has been featured with Military.com; Blue Star Families; The Association for Financial Counseling, Planning and Education; America Saves; Military Saves; USMC Battalion newsletters; FINRA Save and Invest; and Military Avenue.