Many veteran and military families are suffering financially right now due to losses of income caused by the COVID-19 pandemic. The purpose of this background paper is to describe financial benefits available to those families included in the federal CARES Act. The objective is to convince families that, because funds to fill their financial gaps have strings and costs attached, they should not dig a financial hole they can’t climb out of at the end of this crisis.
By far, the “cheapest” source of funds is the free money federal and state governments are providing under the Federal CARES Act. These funds are intended to provide both direct and indirect relief to Americans who need to close the gap between income and expenses. For many, COVID-19 made that gap wider.
For the purposes of this discussion, we group CARES Act benefits into four individual “buckets:” direct income relief, indirect income relief, direct expense relief, and indirect expense relief.
Direct Income Relief: In the direct income relief bucket, a couple of CARES Act programs are intended to directly replace income Americans lost as a result of being furloughed or losing their jobs.
- Direct payments to Americans: All Americans with income below certain thresholds will get an automatic and immediate tax rebate.
- Single taxpayers: Single taxpayers whose Adjusted Gross Income is less than $75,000 will receive $1,200, to be phased out for AGI over $75,000 up to $99,000. No payments are available to single taxpayers whose AGI exceeds $99,000.
- Married taxpayers: Married taxpayers whose AGI is less than $150,000 will receive $2,400, to be phased out for AGI over $150,000 up to $198,000. No payments are available to married taxpayers whose AGI exceeds $198,000.
- Dependents: Americans eligible for the Child Tax Credit are also eligible to receive $500 per dependent.
- Checks or direct deposits will be made automatically. If you filed a 2018 tax return last year or a 2019 tax return this year and are eligible, this money will be sent to you automatically.
- Enhanced unemployment payments: Under the Pandemic Unemployment Assistance program, the Federal Government will augment State unemployment insurance by $600 per week for a maximum period of 39 weeks. The law expands unemployment insurance qualification to Americans who lost their income – but didn’t necessarily lose their jobs – as a result of COVID-19. This includes parents who can’t work because they’re taking care of children whose daycare or school closed as a result of the virus.
Indirect Income Relief: In addition to money to be provided by the CARES Act directly to Americans, the Act includes programs that indirectly provide financial relief to Americans.
- SBA Paycheck Protection Program: Under the SBA Paycheck Protection Program, small businesses can apply for loans that will enable them to continue paying their employees. To the extent that they use the money for that purpose, the loans will be forgiven. This is free money for small businesses as long as they use it to pay their employees. If you work for a small business, talk to your employer about taking advantage of this program. If you are an independent contractor or are self-employed, you are also eligible for this program; however, your application period won’t start until Friday, 10 April.
- Borrowing against retirement accounts: The CARES Act also allows Americans with retirement accounts to borrow against them without paying the 10% tax penalty that applies when they are under 59 1/2 years old. Be careful about this benefit because, unlike the programs we’ve already described, there are costs and strings attached. First, the withdrawals are taxable – the tax is payable over a three-year period. Second, taking money out of a retirement account means you’ll lose its tax-deferred growth during the withdrawal period. Third, if you borrow from a retirement account, be sure to return the money when your financial situation stabilizes. The law gives you a three-year period to do that.
Direct Expense Relief: Americans can also close the gap between income and expenses by reducing their expenses. There are CARES Act programs designed to do that directly.
- Tax filing deferral: If you think you will get a refund, file now! If you think you’ll owe money, you can defer that expense until July 15.
- Student loan deferrals: Under the CARES Act, payments on federal student loans – including direct loans, Perkins loans, and Federal Family Education Loans – are automatically suspended from March 13 through September 30, 2020. That means eligible federal loan borrowers do not have to make payments. While loan payments are suspended, interest will not accrue.
- Mortgage forbearance and foreclosure moratorium: The CARES Act provides that lenders and servicers of federally-backed mortgages – including VA mortgages – may not foreclose on mortgages for 60 days starting on 18 March 2020. Borrowers with federally-backed mortgages may also request forbearance – that is, nonpayment of the mortgage – for up to 180 days. To qualify for this relief borrowers must contact their loan servicers. There are no penalties associated with this benefit; the mortgage lender may not add fees, penalties, or additional interest to your account. Contact your mortgage company for more information.
Indirect Expense Relief:
- RMD Relief: Finally, if you’re older than 72 (or if you attained the age 70½ before 2020), the CARES Act allows you to suspend your 2020 Required Minimum Distributions from your retirement accounts. This is expense relief for retirees because it allows them to avoid having to pay the tax on money they withdraw from their retirement accounts. It also helps them avoid liquidating investments in those accounts while investment values are depressed as a result of falling stock and bond markets.
These CARES Act programs are available to help veterans and military families deal with this unprecedented crisis. For more information, please consult your base Personal Financial Managers or the banks or credit unions on your installations. AMBA is proud that our member banks serving on military installations remain open and available to all our military families.