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Nearly everyone is facing some sort of hardship during the COVID-19 pandemic. Those on the front lines, such as healthcare workers, may be quarantined from their families to avoid transmitting the virus. Small businesses have closed. Independent contractors have lost anchor clients. Entire industries have shut down.
The government has stepped in with a financial aid package, the Coronavirus Aid, Relief and Economic Security (CARES) Act. The $2 trillion package is designed to help small and large businesses, as well as independent contractors and individual taxpayers.
Take a look at our COVID-19 Financial Relief Guide to see what programs can help you through the upcoming economic speed bumps.
The CARES Act seeks to stimulate the economy and give American taxpayers a hand-up in these difficult times, when many workers considered “non-essential” have been laid off. Aid comes in a few different forms.
Each taxpayer will receive $1,200 plus $500 per child in the household. Individuals who make more than $75,000 annually will receive a pro-rated credit, as will those who claim “head of household” and make more than $112,500, and joint filers who make more than $150,000 combined. Individuals who make more than $99,000 annually and joint filers who make more than $198,000 will not receive the credit.
The credit will be based on your 2019 tax return. If you haven’t yet filed for 2019, the IRS will use your 2018 return to determine your credit. The money will be direct deposited into your account if you have an account on file with the IRS where you receive your tax refund each year.
The federal government is offering an additional $600 weekly, beyond your state’s unemployment payments, for the next four months. Some states report unusually long wait times to file for unemployment online. It’s best to try get online early in the morning with a fast, reliable internet connection.
Borrowing against your 401(k), IRA, or other retirement plan may not be the best idea at this time, as most investments have dropped substantially. But if you have to, there’s good news: As a result of the CARES Act, you can borrow up to $100,000 with no tax penalty. The government also waived the 10% penalty on early 401(k) withdrawals up to $100,000. You can re-pay the distributions over the next three years and can also make extra contributions. Check with your accountant since the rules only apply to those who have been directly affected by COVID-19, either medically or financially.
Are you donating to local causes or helping those affected by COVID-19 through an official charitable organization? You can now deduct up to $300 of charitable donations from your Adjusted Gross Income, which can help reduce the tax you owe.
The CARES Act suspends principal and interest payments on Federal Direct and Federal Family Education student loans for a period of six months. Additional interest will not accrue during this time.
If a student has withdrawn their enrollment for the remainder of a semester due to COVID-19, and is not continuing with online learning, that portion of their student loan may be cancelled.
If you are not unemployed but are unable to work because you’re under quarantine, have contracted COVID-19, or have to care for a child due to school or daycare closures, you may be eligible for paid leave through the federal Families First Act.
Different from the Family and Medical Leave Act, which only holds your position if you are out for childcare or medical leave, the Families First Act provides income to employees who are taking time off because of COVID-19. Check with your employer to see if you qualify. Paid Leave under the Families First Act equals 2/3 of the employee’s pay for up to 80 hours, and an additional 10 weeks of paid leave to care for a child who is home due to school or daycare closures as a result of the pandemic.
Understanding what you may be eligible for based on your income level and status as an employee or contractor can be confusing. A tax accountant or financial advisor may be able to help you sort through your options for relief in this tumultuous time.
Solvable is here to connect you with tax professionals who can help you.
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Disclaimer: Solvable is not your CPA. We don’t know your particular situation. The information we’re sharing in this article is just information, not individual advice. Don’t act on anything without working with your CPA or other professional first.