Surviving Financially: Benefits under the CARES Act

Stay-home orders, job loss, businesses closed, teleworking, kids home from school – all these things are now part of life during the Coronavirus Pandemic. More people than ever have applied for unemployment in the last month. This pandemic has dramatically changed our lives. We now need to figure out a way to survive economically during these difficult times. With the implementation of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), new benefits are available to individuals and families to help them get through these uncertain times. However, even with more resources than typical, you need to be prioritizing what is important. Also, it is important to be smart and determine what resources are available to you.

Priorities

Most important, before anything else, is keeping your family safe and healthy. Food, medicine, and shelter are going to be your priorities. While paying all your bills is something you should strive for; if it is not possible, then you want to pick the most important bills first. The CARES Act has not forgiven any debt but does provide some help for those who are currently struggling.

Potential Benefits

While most people have heard about the economic impact payment, aka stimulus checks, there are many additional benefits that individuals may qualify for under the CARES Act. While states offer benefits for unemployment and some states require sick leave, the CARES Act expanded the benefits available to employees, and even contractors and sole proprietors. These benefits can help supplement any savings that you may currently have or other possible resources in your area.

Paid Sick Leave

While guaranteed sick leave is not something usually required, the CARES Act has created a requirement that employers offer up to 80 hours of paid leave, in certain circumstances. Employees will get 80 hours of paid sick leave at full pay, capped at $511.00 per day, or an aggregate $5,110.00 per worker, based on their prior work schedules. Full-time workers will receive the full 80 hours. Part-timer workers will receive a proportionate number of hours for their regular scheduled work. Individuals who cannot work or telework because they are under a medical quarantine, receiving treatment for COVID-19, or suspect they have the illness and/or are ordered to quarantine at home are eligible for these benefits.

Additionally, workers who must stay home to care for someone else who has COVID-19 or is suspected of having it, or who have a child whose school or day care is closed because of coronavirus, are eligible for two-thirds of pay capped at $200.00 per day, or an aggregate $2,00.000 per worker.

Unemployment

At the end of March 2020, over 10 million individuals had filed for unemployment. The number keeps growing every day. Most states are loosening restrictions on unemployment and allowing more people to qualify. Each state has a slightly different application process for unemployment benefits, but most states allow you to file online.

The CARES Act has expanded unemployment to allow many more people to qualify for unemployment if they lost their income because of the virus outbreak. Historically, gig workers like Uber drivers, self-employed people, freelancers and contract workers were not eligible to receive unemployment; however, under the CARES Act most of these individuals should all be eligible for some unemployment benefits if they are unable to work because of COVID-19. In addition to normal state benefits, the federal government will contribute an additional $600.00 per week to those claiming unemployment. This federal benefit lasts for up to four months. Unemployment benefits will also last longer; regular state unemployment usually last 26 weeks, but it the Act expanded the programs up to 39 weeks.

Forbearance on Mortgages

Do not just stop making payments on your mortgage. The CARES Act allows for many individuals to received forbearance on their mortgages; however, a homeowner must submit a request to the mortgage servicer, and the servicer must accept, before any payments should stop. Get into communication with your mortgage servicers early; phone lines may be busy.

Homeowners with federally backed mortgage loans, this includes mortgages under Fannie Mae, Freddie Mac, FHA or VA loans, who are experiencing financial hardship due the Coronavirus, can request forbearance on their payments for up to 180 days. If you are uncertain who has your loan, you can use lookup tools provided by Fannie Mae or Freddie Mac to find out if either of those two government-backed providers own your mortgage. If you have a VA or FHA loan that information will usually be on your statement under type of mortgage

Requests to mortgage servicers

Homeowners must submit a request to their servicer and affirm that they’re experiencing a financial hardship during the crisis. However, this affirmation can be oral and does not have to be a written application. The Homeowner can also request that the servicer extend the forbearance for an additional 180 days after the initial period. Additionally, no foreclosures or evictions from properties with federally backed mortgages can occur during this period.

During any of these forbearances under the CARES Act, normal interest will still accrue. The mortgage company will not reported the skipped payments to a homeowner’s credit. However, mortgage servicers cannot add additional fees, penalties or extra interest to the mortgage during these forbarences.

Even if you do not have a government backed mortgage, your mortgage company may still be willing to work with you. Reach out to your mortgage company and see if they can allow you to skip a couple payments, lower the payment amount, or reduce the interest rate.

Student Loans

The CARES Act, provides automatic suspension of principal and interest payments on federally held student loans through September 30, 2020. These suspended payments will count towards any student loan forgiveness program. While most federal student loans qualify for this forbearance program, there are a few that do not.

Some federal student loans were granted under the Federal Family Education Loan (FFEL) Program loans are owned by commercial lenders, and some Perkins Loans are held by the institution you attended. These loans are not currently eligible for this benefit. Additionally, this benefit also does not apply to private (non-federal) student loans owned by banks, credit unions, schools, or other private entities.

Even if you have federal student loans, make sure to review your account. It is the individual’s responsibility to ensure that the servicer appropriately marked the account.

Involuntary Collection Activity on Student Loans

The CARES Act also suspends involuntary collections, which includes wage garnishment and the reduction of tax refunds or other federal benefits, for qualifying borrowers who are in default. Also, if you qualify for a stimulus check, but previously had tax refunds offset for delinquent student loans, you will still receive your stimulus funds.

Retirement Account Options

Normally, individuals who withdraw funds early from retirement accounts must pay a 10% penalty, plus ordinary income taxes. The age cutoff for when the penalty applies is typically before 59 ½.  The CARES Act, however, provides that “coronavirus-related” distributions of up to $100,000.00 will be allowed, without the typical early withdrawal penalty being applied.

Similarly, the CARES Act provides that any sum withdrawn due to the coronavirus may be re-contributed to a retirement account within three years without being subject to the usual annual contribution caps; basically the withdrawal can be repaid like a loan without the normal structured repayment. If it’s not repaid, the withdrawal will be taxed at ordinary income tax rates over a three-year period.

The CARES Act also allows access to more funds than usual. In addition, the limit for retirement plan loans has been temporarily raised from the normal $50,000.00 to $100,000.00. However, any loans still must not exceed half of a 401(k) participant’s vested account balance.

Meanwhile, required minimum distributions (RMDs)—which are distributions that those over 72 must take from traditional IRAs, SEPs and 401(k) accounts (but not from Roth accounts)— have been waived for 2020. This WAIVER allows participants to limit losses due to stock market volatility at this time.

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients deal with debts and financial struggles for most of her career. She helps clients settle or negotiate debts, along with defending against certain lawsuits, and discharging debts through bankruptcy.  If you have concerns about outstanding debts, making credit card or mortgage payments, or other financial struggles, schedule an appointment with our office.