How Does the CARES Act Affect You? What Should You Know?

The coronavirus pandemic doesn’t just affect our physical health—it has impacted the economic and personal finance health of so many in the United States and across the world. In order to provide fast and direct economic assistance for American workers, families and small business, and preserve jobs for our American industries, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Signed into law on March 27th, 2020, the historic $2.2 trillion relief package includes several measures aimed at helping Americans deal with the financial implications of COVID-19.

In addition to providing loans and grants to businesses to deter layoffs, the CARES Act also offers a one-time, tax-free stimulus check to individuals, as well as additional healthcare funding and altered regulations for unemployment insurance, retirement accounts, student loan, and mortgage assistance. Here are the highlights of how the CARES Act can help ease your financial burden during these challenging times.

Impact on Mortgage Loans

If you’ve lost your job or have had your shift hours reduced due to COVID-19 and are worried about falling behind on your mortgage payments, the CARES Act has you covered. Fannie Mae, Freddie Mac, FHA, and USDA Rural Housing lenders are required to approve 6-month forbearance for any borrower whose income has been adversely affected by coronavirus. An additional 6-month forbearance is available but must be approved by the lender for FHA borrowers. Forbearance can be applied to mortgages on single family properties that are owner-occupied, second homes, and investor properties.

Individuals must contact their lenders or servicer to request this forbearance, and only then will payments be frozen for the specified time period. There are no fees during and after the forbearance period, and requests can be made to have missed payments extended onto your payment term.

After the forbearance period, the government-sponsored enterprise (GSE) will modify the loan so you can afford your payments as you recuperate financially over the next few months. You must bring escrow payments up to date within 5 years. Eligible individuals can apply for an “extend mod” which adds the missed payments onto the end of your loan term.

Impact on Student Loans

Whether you’re a student graduating into the worst economic crisis since 2008 with a fresh pile of student debt, or have been paying your student loans for years but are now short to make your payments, the CARES Act provides 6 months of forbearance on student loans. It also prohibits negative credit reporting or involuntary debt collection during the forbearance period. In order to give an extra relief, the Department of Education has waived all interest on student loans for this period. In order to get a forbearance, individuals must contact their loan servicer.

Impact on Credit Scores

Many lenders have developed relief options that give individuals some peace of mind if they are unable to make their regular credit card or loan payments. The CARES Act implemented provisions to protect credit scores from January 30, 2020 through 120 days after the date the COVID-19 national emergency is declared over.

To protect consumers against being reported as delinquent if they utilize these options, the CARES Act requires creditors to adjust how they report accounts that have been modified. Here are two scenarios that you could experience under the CARES Act:

• If your loan is not past due (current) when you make an agreement with your creditor to modify repayment, the creditor needs to report to the credit bureaus that you are current on your loan.
• If your loan is past due (delinquent) when you make an agreement with your creditor, your status will continue to show delinquent until you return to good standing. Once your account is current, then your creditor must report your status as current to the credit bureaus.

Impact on Retirement Accounts

For retirees or those saving for their retirement, the CARES Act has a few provisions to help out during this pandemic. The date for making 2019 contributions to a traditional or Roth IRA has been extended from April 15th to July 15th. Individuals must let servicers know that contribution should be coded for 2019, not 2020, in order to take advantage of this provisions.

Additionally, required minimum distributions (RMDs) will be waived for 2020. This will allow retires who don’t need or want to withdraw retirement funds to avoid these obligations. It also means that retirees won’t be paying taxes on withdrawals that are based strictly on December 31, 2019 account values.

Individuals who are under 59 ½ can take up to a $100,000 coronavirus-related hardship distribution from a 401(k) or other qualified retirement account through 2020 without paying the 10% early withdrawal penalty. Under these provisions, individuals will still have to pay income taxes on any withdrawal or stretch those taxes over three years instead of paying them all in one year. Savers who are older than 59 ½ are also eligible to take advantage of the three-year tax deferral/payback provision.

Impact on Tax Deadlines

If you haven’t filed a federal income tax return yet, the deadline has been extended to July 15 to file. During that deferral period, individuals won’t be subject to interest and penalties. Small businesses and self-employed workers will also have until July 15 to file the first installment of their quarterly estimated taxes. However, procrastination might not be the best move, and if you expect a refund and need the money, why wait to finish filing? While the IRS pushed back deadlines for federal taxes, some state tax deadlines, like Idaho, Mississippi, and Virginia, are earlier.

Impact on Unemployment and Paid Sick Leave

Unemployed workers may receive $600 per week increase to what they normally would receive in state benefits for up to 4 months, until July 31, under the CARES Act. The temporary Pandemic Unemployment Assistance program also offers some benefits to workers who traditionally wouldn’t quality for unemployment, including those who are self-employed or independent contractors. 3.3 million Americans have already filed for unemployment and that number continues to rise, so start the application process as soon as you are eligible to speed up the wait time.

The Families First Coronavirus Response Act provides protection for employees at small to midsize companies and self-employed and gig workers who have coronavirus related absences, including making adjustments to paid-sick leave. These changes include:

• Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because they are quarantined and/or experience COVID-19 symptoms;
• Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine, care for a child whose school or child care provider is closed due to COVID-19, and/or employee is experiencing a similar condition;
• Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee, who has been employed for at least 30 calendar days, is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

Impact on HSAs and FSAs for Over-The-Counter Medications

Typically, Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) do not cover over-the-counter medication unless they are prescribed by a doctor. Thanks to the CARES act, you may now use the money in your HSA or FSA to pay for certain medical products or medication. The CARES Act has expanded the definition of qualified medical expenses to cover OTC purchases during the coronavirus pandemic.

These are just a few measures being offered by the CARES Act to offer relief to Americans who have lost income because of the COVID-19 crisis. If you’re working with a financial advisor, ask for regular updates regarding news that may pertain to you and your current financial plan. At iTHINK Financial, we want to help you with any financial concerns you may have during these trying times and give you the confidence you need to move forward together.