Coronavirus Stimulus Plan – The CARES Act

Coronavirus Stimulus Plan - The CARES Act

Coronavirus Stimulus Plan – The CARES Act

The coronavirus stimulus plan known as the “CARES Act” is here and it's huge. It passed in the Senate 96-0, was approved in the House, and signed by the President. The cost of the plan is over $2 trillion. That's in addition to what the Federal Reserve is doing via monetary policy. To put that $2 trillion into perspective, the TARP program used during the financial crisis in The Great Recession was $700 billion. While it's hard to imagine, the coronavirus stimulus plan represents roughly 10% of our entire Gross Domestic Product (GDP).

The financial markets reaction to this crisis has been swift and severe. From February 12, 2020 through March 23, 2020 the Dow Jones Industrial Average lost nearly 11,000 points. In percentage terms, that's a 37% decline in about 5 weeks. A decline like that is rare and extremely painful for most investors. With news that the coronavirus stimulus plan is all but a done deal, the stock market is up nearly 20% in 3 days.

The SECURE Act was passed in December 2019 and dramatically changed the laws affecting retirement investing. Now, with the CARES Act, navigating tax, financial, and investing rules will be much harder. Read on for some important changes that could affect you.

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Unemployment Benefits

The coronavirus stimulus plan will significantly increase federal unemployment benefits. The unemployed will receive an additional $600 per week up to four months. This is in addition to state unemployment benefits. There is also a plan to create a pandemic unemployment assistance program for those who aren't typically covered by state and federal unemployment benefits. This will provide assistance to independent contractors, gig workers, and the self-employed.

Cash Payments To Individuals And Families

If your adjusted gross income (AGI) is less than $99,000 for individuals and less than $198,000 for joint filers, you should expect some payment from Uncle Sam. If your AGI is above those amounts, you are out of luck. For individuals earning up to $75,000 there is a $1,200 payment and $500 per child. For joint filers, the amount is $2,400 with $500 per child. If you don't receive your IRS rebates via electronic bank transfer, you might have to wait a bit longer to receive your coronavirus stimulus plan funds via check.

Coronavirus Stimulus Plan & Retirement Funds

Individuals using retirement funds for coronavirus purposes will be exempt from the 10% early withdrawal penalty. This is important because a majority of Americans don't have emergency funds. As a result, a retirement account is sometimes the only place one can turn to cover unforeseen expenses. This waiver of the 10% early withdrawal penalty will be retroactive to January 1, 2020.

Payroll Tax Deferral

If you are an employee and were hoping for a cut or reduction in your Social Security and Medicare taxes, you will likely be disappointed. These taxes are also known as FICA and you see them on every paycheck stub. For a short period during the Great Recession, these payroll taxes were reduced in an effort to put more money in people's pockets. Not this time. This legislation only provides for a deferral of the 6.2% tax for employers and the self-employed. The coronavirus stimulus plan allows for the deferred taxes to be paid back over a two year period from 2021 to 2022.

Relief For Student Loan Borrowers

The Department of Education has provided for suspension of loan payments through September 30. The outstanding balance will accrue no interest and no penalties will be applied. This will provide significant relief for those burdened with large student loan payments

Coronavirus Stimulus Plan – The CARES Act

It is nearly impossible to call market tops and bottoms. The recent move up in stocks is welcomed news, but investors should prepare for more volatility. During the financial crisis from 2008 to 2009, it took several months to find a bottom. There's no way to know if the market sell-off is over. In fact, it's more likely that it's not. While a $2 trillion bailout is a good start, we are certainly not out of the woods. It's impossible to know just how much damage will be done to our economy due to this pandemic. We are still in the early stages of the pandemic as well. More bailouts in the future are possible.

Click here for a more detailed look at the coronavirus stimulus plan or CARES Act. The law is 883 pages and not likely a page turner.

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2020 Financial Planning Cheat Sheet

Your guide to 2020 tax rates, retirement contributions, and Social Security.

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4 Responses to Coronavirus Stimulus Plan – The CARES Act

  1. Noel D McCully March 27, 2020 at 6:35 am #

    Good work Mr. Waldrop

  2. Lisa Nickell March 27, 2020 at 9:38 am #

    thanks for keeping us informed Dave! thanks for your hard work (blood, sweat and tears) throughout this crisis!

    • David Waldrop, CFP® March 27, 2020 at 9:42 am #

      Thanks so much Lisa. We’ll all get through this. I hope you are staying safe.

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