Crisis Averted? Financial Help for Struggling Renters and Landlords
By one estimate, U.S. landlords were owed about $57 billion in unpaid back rent at the beginning of 2021. The average household that fell behind owed about four months of rent, or $5,600. Altogether, more than 10 million U.S. families were facing the possibility of eviction.1
Many landlords, including those who depend on rent payments for retirement income, have experienced financial difficulties in lockstep with their heavily impacted tenants. Although multi-family apartment complexes are often owned by large corporations, about 90% of single-family rentals are owned by small investors who are facing the risk of mortgage default, bankruptcy, or forced property sales.2
Fortunately, the March 2021 federal stimulus bill added almost $22 billion in housing assistance to the $25 billion previously allocated by Congress.3 In many cases, payments are being sent directly to landlords through new or existing local programs on behalf of renters who meet certain eligibility requirements.
Program parameters
Under the Emergency Rental Assistance Program (ERAP), the U.S. Treasury has distributed grants to states, cities, and counties with populations greater than 200,000 to be used for back-due rent and utility bills accrued after March 13, 2020. Eligibility is limited to households that earn less than 80% of the area’s median income, as defined by the Department of Housing and Urban Development.
Applicants must document their incomes, prove they qualified for unemployment benefits or suffered financial hardship due to COVID-19 that impacted their ability to pay rent, and submit unpaid bills or notices that demonstrate they are at risk of becoming homeless.
What can landlords do?
Tenants and landlords generally apply for the funds together, but the application process and guidelines differ from program to program. In some states, landlords may be asked to forgive a percentage of the rental arrears in exchange for larger rent payments.
If you are a landlord, you might reach out to tenants who are behind on rent and encourage them to explore any potential opportunities for financial assistance. Check the websites of your state and local housing agencies to find the status and requirements of various housing programs and how to apply. Of course, many higher-earning households won’t be eligible for help, and in areas with lots of lower-income renters, local programs could run dry quickly.
Evicting tenants can be a painful and expensive process. If you have tenants who fell behind but are trying to catch up, it may be advantageous to work out a payment program instead to help keep them in place.
1) Moody’s Analytics, 2021
2) RealtyTrac, 2021
3) The Wall Street Journal, March 11, 2021
American Families Plan Would Provide Benefits for Some, More Taxes for Others
On April 28, 2021, the White House released a fact sheet for President Biden’s American Families Plan (AFP), which proposes about $1 trillion in investments and $800 billion in tax cuts. There would also be tax increases for those making more than $400,000 per year. Major provisions proposed in the plan are summarized here, including some tax provisions.
Education
The AFP proposes the following:
- Free universal pre-school for all three- and four-year olds.
- Two years of free community college.
- Increased assistance to low-income students by raising the maximum Pell Grant award that pays for college education by about $1,400.
Child care
Low- and middle-income families would pay no more than 7% of their income on child care.
Nutrition
Summer and school meal programs would be expanded for low-income families.
Unemployment insurance
Funds would be provided for unemployment system modernization, equitable access, and fraud prevention. The plan proposes to automatically adjust the length and amount of unemployment insurance benefits depending on economic conditions.
Paid leave
A national comprehensive paid family and medical leave program would be created and scaled in over a 10-year period.
Health insurance
- The American Rescue Plan Act of 2021 (ARPA 2021), enacted in March 2021, provided that persons who bought their own health insurance through a government exchange might qualify for a lower cost through December 31, 2022. The AFP would make that provision permanent.
- The AFP would also lower prescription drug prices by letting Medicare negotiate prices.
- In addition, the AFP would create a public option and the option for people to enroll in Medicare at age 60.
Child tax credit
ARPA 2021 made the following temporary changes to the child tax credit. For 2021, the credit amount increased from $2,000 to $3,000 per qualifying child ($3,600 for qualifying children under age 6), subject to phaseout based on modified adjusted gross income. The legislation also made 17-year-olds eligible as qualifying children in 2021. For most taxpayers, the credit is fully refundable for 2021 if it exceeds tax liability. The Treasury Department is expected to send out periodic advance payments (to be worked out by the Treasury) for up to one-half of the refundable credit during 2021.
The AFP would make permanent the full refundability of the child tax credit, and extend the other child tax credit provisions through 2025. Longer term, the plan would seek to make all these provisions permanent.
Child and dependent care tax credit
ARPA 2021 made the following temporary changes to the child and dependent care tax credit. For 2021, the legislation increased the maximum credit up to $4,000 for one qualifying individual and up to $8,000 for two or more (based on an increased applicable percentage of 50% of costs paid and increased dollar limits). Most taxpayers will not have the applicable percentage reduced (can be reduced from 50% to 20% if AGI exceeds a substantially increased $125,000) in 2021. However, the applicable percentage can now also be reduced from 20% down to 0% if the taxpayer’s AGI exceeds $400,000 in 2021. For most individuals, the credit is fully refundable for 2021 if it exceeds tax liability.
The AFP would make these provisions permanent.
Earned income tax credit
In addition to some other changes to the earned income tax credit (some temporary, some permanent), ARPA 2021 made the following temporary changes to the earned income tax credit for 2021. The legislation generally increased the credit available for individuals with no qualifying children (bringing it closer to the amounts for individuals with one, two, or three or more children which were already much higher). For individuals with no qualifying children, the minimum age at which the credit can be claimed was generally lowered from 25 to 19 (24 for certain full-time students) and the maximum age limit of 64 was eliminated (there are no similar age limits for individuals with qualifying children).
The AFP would make these provisions permanent for individuals with no qualifying children.
Increase in top tax rate on wealthiest taxpayers
The AFP would raise the top income tax rate on individuals back up to 39.6%, applying only to the top one percent. The 39.6% rate would also apply to the capital gains and dividends of households making over $1 million (the top 0.3 percent).
Stepped-up basis
The tax basis of most property is stepped-up (or down) to fair market value when an individual dies. The AFP would eliminate this step-up in basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions). There would be provisions designed with protections for family-owned businesses and farms.
Like-kind exchanges
Current tax law allows real estate investors to defer taxes when they exchange property. The AFP would eliminate the tax deferral on like-kind exchanges for gains greater than $500,000.
American Rescue Plan Act Provides Relief to Individuals and Businesses
On Thursday, March 11, 2021, the American Rescue Plan Act of 2021 (ARPA 2021) was signed into law. This is a $1.9 trillion emergency relief package that includes payments to individuals and funding for federal programs, vaccines and testing, state and local governments, and schools. It is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Major relief provisions are summarized here, including some tax provisions.
Recovery rebates (stimulus checks)
Many individuals will receive another direct payment from the federal government. Technically a 2021 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed (or on 2020 tax returns if filed and processed by the IRS at the time of determination) and sent automatically via check, direct deposit, or debit card to qualifying individuals. To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.
The amount of the recovery rebate is $1,400 ($2,800 if married filing a joint return) plus $1,400 for each dependent. Recovery rebates start to phase out for those with an adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household). Recovery rebates are completely phased out for those with an AGI of $80,000 ($160,000 if married filing a joint return, $120,000 for those filing as head of household).
Unemployment provisions
The legislation extends unemployment benefit assistance:
- An additional $300 weekly benefit to those collecting unemployment benefits, through September 6, 2021.
- An additional 29-week extension of federally funded unemployment benefits for individuals who exhaust their state unemployment benefits.
- Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits (allowing individuals to receive a maximum 79 weeks of benefits)
- Unemployment benefits through September 6, 2021, for many who would not otherwise qualify, including independent contractors and part-time workers.
For 2020, the legislation also makes the first $10,200 (per spouse for joint returns) of unemployment benefits nontaxable if the taxpayer’s modified adjusted gross income is less than $150,000. If a 2020 tax return has already been filed, an amended return may be needed.
Business relief
- The employee retention tax credit has been extended through December 31, 2021. It is available to employers that were significantly impacted by the crisis and is applied to offset Social Security payroll taxes. As in the previous extension, the credit is increased to 70% of qualified wages, up to a certain maximum per quarter.
- The employer tax credits for providing emergency sick and family leave have been extended through September 30, 2021.
- Eligible small businesses can receive targeted economic injury disaster loan advances from the Small Business Administration. The advances are not included in taxable income. Furthermore, no deduction or basis increase is denied, and no tax attribute is reduced by reason of the exclusion from income.
- Eligible restaurants can receive restaurant revitalization grants from the Small Business Administration. The grants are not included in taxable income. Furthermore, no deduction or basis increase is denied, and no tax attribute is reduced by reason of the exclusion from income.
Housing relief
- The legislation allocates additional funds to state and local governments to provide emergency rental and utility assistance through December 31, 2021.
- The legislation allocates funds to help homeowners with mortgage payments and utility bills.
- The legislation also allocates funds to help the homeless.
Health insurance relief
- For those who lost a job and qualify for health insurance under the federal COBRA continuation coverage program, the federal government will generally pay the entire COBRA premium for health insurance from April 1, 2021, through September 30, 2021.
- For 2021, if a taxpayer receives unemployment compensation, the taxpayer is treated as an applicable taxpayer for purposes of the premium tax credit, and the household income of the taxpayer is favorably treated for purposes of determining the amount of the credit.
- Persons who bought their own health insurance through a government exchange may qualify for a lower cost through December 31, 2022.
Student loan tax relief
For student loans forgiven or cancelled between January 1, 2021, and December 31, 2025, discharged amounts are not included in taxable income.
Child tax credit
- For 2021, the credit amount increases from $2,000 to $3,000 per qualifying child ($3,600 for qualifying children under age 6), subject to phaseout based on modified adjusted gross income. The legislation also makes 17-year-olds eligible as qualifying children in 2021.
- For most individuals, the credit is fully refundable for 2021 if it exceeds tax liability.
- The Treasury Department is expected to send out periodic advance payments (to be worked out by the Treasury) for up to one-half of the credit during 2021.
Child and dependent care tax credit
- For 2021, the legislation increases the maximum credit up to $4,000 for one qualifying individual and up to $8,000 for two or more (based on an increased applicable percentage of 50% of costs paid and increased dollar limits).
- Most taxpayers will not have the applicable percentage reduced (can be reduced from 50% to 20% if AGI exceeds a substantially increased $125,000) in 2021. However, the applicable percentage can now also be reduced from 20% down to 0% if the taxpayer’s AGI exceeds $400,000 in 2021.
- For most individuals, the credit is fully refundable for 2021 if it exceeds tax liability.
Earned income tax credit
For 2021 only:
- The legislation generally increases the credit available for individuals with no qualifying children (bringing it closer to the amounts for individuals with one, two, or three or more children which were already much higher).
- For individuals with no qualifying children, the minimum age at which the credit can be claimed is generally lowered from 25 to 19 (24 for certain full-time students) and the maximum age limit of 64 is eliminated (there are no similar age limits for individuals with qualifying children).
- To determine the credit amount, taxpayers can elect to use their 2019 earned income if it is more than their 2021 earned income.
For 2021 and later years:
- Taxpayers otherwise eligible for the credit except that their children do not have Social Security numbers (and were previously prohibited from claiming any credit) can now claim the credit for individuals with no qualifying children.
- The credit is now available to certain separated spouses who do not file a joint tax return.
- The level of investment income at which a taxpayer is disqualified from claiming the credit is increased from $3,650 (as previously indexed for 2021) to $10,000 in 2021 (indexed for inflation in future years).
Social Security and Medicare Face Financial Challenges
Most Americans will eventually receive Social Security and Medicare benefits. Each year, the Trustees of the Social Security and Medicare Trust Funds release lengthy reports to Congress that assess the health of these important programs. The newest reports, released on April 22, 2020, discuss the current financial condition and ongoing financial challenges that both programs face, and project a Social Security cost-of-living adjustment (COLA) for 2021.
How Social Security and Medicare will be affected by the COVID-19 pandemic is still uncertain; the Trustees acknowledge that the estimates and analysis included in the reports do not reflect the potential effects.
Social Security Trust Funds
The Social Security program consists of two parts, each with its own financial account (trust fund) that holds the Social Security payroll taxes that are collected to pay Social Security benefits. Retired workers, their families, and survivors of workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program. The combined programs are referred to as OASDI. Other income (reimbursements from the General Fund of the U.S. Treasury and income tax revenue from benefit taxation) is also deposited in these accounts. Money that is not needed in the current year to pay benefits and administrative costs is invested (by law) in special Treasury bonds that are guaranteed by the U.S. government and earn interest. As a result, the Social Security Trust Funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits.
Note that the Trustees provide certain projections based on the combined OASI and DI (OASDI) Trust Funds. However, these projections are hypothetical, because the trusts are separate, and generally one program’s taxes and reserves cannot be used to fund the other program.
Highlights of Social Security Trustees Report
- Social Security’s total cost is projected to be less than its total income in 2020 and higher than its total income (including interest) in 2021 and all later years. The U.S. Treasury will need to withdraw from trust fund reserves to help pay benefits. The Trustees project that the hypothetical combined trust fund reserves (OASDI) will be depleted in 2035, the same as projected in last year’s report, unless Congress acts.
- Once the hypothetical combined trust fund reserves are depleted in 2035, payroll tax revenue alone should still be sufficient to pay about 79% of scheduled benefits initially, with the percentage falling gradually to 73% by 2094.
- The OASI Trust Fund, when considered separately, is projected to be depleted in 2034, the same as projected in last year’s report. Payroll tax revenue alone would then be sufficient to pay 76% of scheduled benefits.
- The DI Trust Fund is expected to be depleted in 2065, 13 years later than projected in last year’s report. For a second year in a row, the depletion date has changed significantly, reflecting the fact that both benefit applications and the total number of disabled workers currently receiving benefits have been declining over the past few years. Once the DI Trust Fund is depleted, payroll tax revenue alone would be sufficient to pay 92% of scheduled benefits.
- Based on the “intermediate” assumptions in this year’s report, the Social Security Administration is projecting that the cost-of-living adjustment (COLA), which will be announced in the fall of 2020, will be 2.3% (last year’s report projected a COLA of 1.8% and the actual COLA was 1.6%). This COLA would apply to benefits starting in January 2021.
Medicare Trust Funds
There are two Medicare trust funds. The Hospital Insurance (HI) Trust Fund helps pay for hospital care (Medicare Part A costs). The Supplementary Medical Insurance (SMI) Trust Fund comprises two separate accounts, one covering Medicare Part B (which helps pay for physician and outpatient costs) and one covering Medicare Part D (which helps cover the prescription drug benefit).
Highlights of Medicare Trustees Report
- Annual costs for the Medicare HI Trust Fund exceeded tax income each year from 2008 to 2015. There were small fund surpluses in 2016 and 2017. In 2018 and 2019, expenditures exceeded income, and deficits are expected for all later years.
- The HI Trust Fund is projected to be depleted in 2026, the same year as projected in last year’s report. Once the HI Trust Fund is depleted, tax and premium income would still cover 90% of estimated program costs, declining to 78% by 2044 and then gradually increasing to 90% by 2094. The Trustees note that long-range projections of Medicare costs are highly uncertain because the health-care landscape is shifting and the effects are unknown.
Why are Social Security and Medicare Facing Financial Challenges?
Social Security and Medicare are funded primarily through the collection of payroll taxes. Because of demographic and economic factors, including higher retirement rates and lower birth rates, there will be fewer workers per beneficiary over the long term, worsening the strain on the trust funds.
What is Being Done to Address These Challenges?
Both reports continue to urge Congress to address the financial challenges facing these programs soon, so that solutions will be less drastic and may be implemented gradually, lessening the impact on the public. Combining some of the following solutions may also lessen the impact of any one solution.
- Raising the current Social Security payroll tax rate (currently 12.40%). According to this year’s report, an immediate and permanent payroll tax increase of 3.14 percentage points to 15.54% would be necessary to address the long-range revenue shortfall (4.13 percentage points to 16.53% if the increase started in 2035).
- Raising or eliminating the ceiling on wages currently subject to Social Security payroll taxes ($137,700 in 2020).
- Raising the full retirement age beyond the currently scheduled age of 67 (for anyone born in 1960 or later).
- Reducing future benefits. According to this year’s report, to address the long-term revenue shortfall, scheduled benefits would have to be immediately and permanently reduced by about 19% for all current and future beneficiaries, or by about 23% if reductions were applied only to those who initially become eligible for benefits in 2020 or later.
- Changing the benefit formula that is used to calculate benefits.
- Calculating the annual cost-of-living adjustment for benefits differently.
You can view a combined summary of the 2020 Social Security and Medicare Trustees Reports and a full copy of the Social Security report at https://www.ssa.gov/. You can find the full Medicare report at https://www.cms.gov/.
CARES Act: Retirement Plan Relief Provisions
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. This $2 trillion emergency relief package represents a bipartisan effort to assist both individuals and businesses in the ongoing coronavirus pandemic and accompanying economic crisis. The CARES Act provisions for retirement plan relief for individuals under federal tax law are discussed here.
For those seeking access to their retirement funds, these include special provisions for coronavirus-related distributions and loans. For those seeking to preserve their retirement funds, certain required minimum distributions from retirement funds have been suspended.
Coronavirus-related distributions
A 10% penalty tax generally applies to distributions from an employer retirement plan or individual retirement account (IRA) before age 59½ unless an exception applies. Due to the coronavirus pandemic, the penalty tax will not apply to up to $100,000 of coronavirus-related distributions to an individual during 2020. Additionally, income resulting from a coronavirus-related distribution is spread over a three-year period for tax purposes unless an individual elects otherwise. Coronavirus-related distributions can also be paid back to an eligible retirement plan within three years of the day after the distribution was received.
What does “coronavirus related” mean?
For purposes of the distribution and loan rules described here, “coronavirus related” applies to individuals diagnosed with the illness or who have a spouse or dependent diagnosed with the illness, as well as individuals who experience adverse financial consequences as a result of the pandemic. Adverse financial consequences could include quarantines, furloughs, and business closings.
Loans from qualified plans
Qualified plans such as a 401(k) can allow an employee to take out a loan. These loans can generally be repaid over a period of up to five years. They’re also generally limited to the lesser of $50,000 or 50% of the total benefit the employee has a right to receive under the plan. However, for a coronavirus-related loan made between March 27, 2020, and September 22, 2020, the loan limit is increased to $100,000 or 100% of the amount the employee can rightfully receive under the plan (whichever amount is less). In the case of a loan outstanding after March 26, 2020, the due date for any repayment that would normally be due between March 27, 2020, and December 31, 2020, may be delayed by coronavirus-related qualifying individuals for one year, and the delay period is disregarded in determining the five-year period and the term of the loan.
Most required minimum distributions (RMDs) suspended for 2020
RMDs are generally required to start from an employer retirement plan or IRA by April 1 of the year after the plan participant or IRA owner reaches age 70½ (age 72 for those who reach age 70½ after 2019). If an employee continues working after age 70½ (age 72 for those who reach age 70½ after 2019), RMDs from an employer retirement plan maintained by the current employer can be deferred until April 1 of the year after retirement. (RMDs are not required from a Roth IRA during the lifetime of the IRA owner.) RMDs are also generally required to beneficiaries after the death of the plan participant or IRA owner. A 50% penalty applies to an RMD that is not made.
The CARES Act suspends RMDs from IRAs and defined contribution plans (other than Section 457 plans for nongovernmental tax-exempt organizations) for 2020. This waiver includes any RMDs for 2019 with an April 1, 2020, required beginning date that were not taken in 2019. This one-year suspension does not generally affect how post-2020 RMDs are determined.
A recent IRS Notice (2020-23) clarifies the application to RMDs taken between February 1 and May 15. The 60-day rollover rule is waived if rolled over by July 15, 2020. The one-per-year rule still applies to all rollover situations, and inherited IRA RMDs cannot be rolled over.
There may be additional guidance issued in the future. It is not clear why RMDs made in January and after May 15th are not covered. Maybe the one-per-year rule would be modified.
Government Acts to Blunt Financial Impact of Global Pandemic
On March 11, the novel coronavirus (COVID-19) was officially declared a global pandemic by the World Health Organization, and two days later President Trump declared a national emergency.1 The unknowns surrounding a new virus make it difficult to predict the potential human and economic toll, but unprecedented steps are being taken to help slow the spread of the disease and prepare medical facilities to treat a rising number of cases. Businesses are suffering losses as they spend more to help keep workers and customers safe and/or have closed their doors to the public.
The economy — in the United States and globally — has been interrupted as abruptly as our daily routines, and a downturn is looming. This jarring reality triggered the first bear market for U.S. stocks in 11 years.2 Many people are now working from home, but a record number of workers (3.3 million) filed for unemployment in one harrowing week.3
The financial impact of the health crisis is likely to be more severe for some households, businesses, and industries than others. With lives and livelihoods at risk, the Federal Reserve, state governments, and the federal government have responded with a full slate of emergency measures.
Central bank in action
The Federal Reserve moved swiftly in recent weeks to support the U.S. economy and help alleviate stress in the financial markets. On March 3, the Fed dropped the target range for the benchmark federal funds rate by one-half percentage point to 1.00% to 1.25%, stating that the coronavirus posed evolving risks to the economic outlook.4
Following an emergency session on Sunday, March 15, the Fed slashed the rate to near zero (0% to 0.25%) and committed to at least $700 billion in debt purchases. This policy was later expanded to essentially unlimited debt purchases “in amounts needed to support smooth market functioning.” The U.S. central bank is also extending currency swaps with foreign central banks to keep high-demand U.S. dollars flowing freely around the world.5
Citing emergency powers, the Federal Reserve launched a number of lending facilities to keep credit flowing to households and businesses. These operations required permission from the Treasury Secretary and are protected from losses with Treasury funds.6
The Commercial Paper Funding Facility ensures that companies retain access to an important source of short-term credit (IOUs) often used to fund regular expenses including payroll and rent. The Primary Dealer Credit Facility provides funding to financial institutions that trade directly with the Fed and serve as market makers for U.S. Treasuries.7
The Money Market Mutual Fund Liquidity Facility will help ensure that funds can meet investor demand for redemptions. This backstop was originally limited to prime funds, which invest in short-term corporate debt, but was expanded to include funds with municipal debt. A crisis-era lending facility used to support the consumer and business credit market has also been revived.8
Two facilities have been added to support corporate debt markets. One will provide four-year bridge financing to companies with investment-grade ratings, and the other will purchase highly-rated U.S. corporate bonds. A Main Street Business Lending Program for small employers is also in the works.9
Chairman Powell has said the Fed will do everything in its power to help stabilize the markets, so lending programs could be added or expanded.10
Relief on the way
The federal tax filing deadline has been delayed to July 15, so taxpayers have extra time to file their tax returns and make payments without interest or penalties. Many states have decided to match the new federal deadline.11
An initial relief bill passed in early March provided $8.3 billion in emergency healthcare funding. A phase two relief package, the Families First Coronavirus Response Act, includes free coronavirus testing and increased funding for food security programs, Medicaid, and unemployment insurance.12
This bill also provides two weeks of paid sick leave and up to 12 weeks of family and medical leave for workers at companies with 500 or fewer employees who are affected by the virus. This includes those caring for children whose schools are closed. Small and midsize employers will be reimbursed with tax credits for wages paid to affected workers.13
The $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is the most generous stimulus package in U.S. history. Many households will receive cash payments ($1,200 per adult and $500 per child) from the IRS within weeks if their incomes fall under certain thresholds. Unemployment insurance was prolonged from 26 to 39 weeks and will provide an extra $600 per week for four months. This benefit was extended to self-employed individuals, gig workers, and independent contractors who would not have qualified under the old rules.14
A $500 billion lifeline could backstop trillions in bridge loans and offer some direct aid for hard-hit cities, states, and large employers. The government can seek company equity in extreme cases. Another $349 billion will fund loans for small businesses (under 500 employees); eligible employers can borrow up to $10 million for working capital through an existing Small Business Administration program. Many paperwork requirements have been waived, and amounts paid for mortgage interest, rent, utilities, and payrolls could be forgiven if workers are retained.15
The scope of losses may ultimately depend on how quickly the spread of the virus is controlled and effective treatments and/or a vaccine are developed so the economy can reopen. But there is hope that the government policy response will save lives and help mitigate the economic effects.
Although these times are stressful for everyone, it may help to keep in mind that the U.S. economy is much like the people who live here — resourceful and resilient. We have endured shocks and recovered from serious crises before, and we can do so again.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
1) The White House, March 18, 2020
2) Yahoo! Finance, 2020 (data for the period 3/9/2009 to 3/12/2020)
3) The Wall Street Journal, March 26, 2020
4-10) Federal Reserve, March 2020
11) Bloomberg.com, March 20, 2020
12-13) Bloomberg.com, March 18, 2020
14-15) The Wall Street Journal, March 25-26, 2020
CARES Act Provides Relief to Individuals and Businesses
On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. This $2 trillion emergency relief package is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Major relief provisions are summarized here.
Unemployment provisions
The legislation provides for:
- An additional $600 weekly benefit to those collecting unemployment benefits, through July 31, 2020
- An additional 13 weeks of federally funded unemployment benefits, through the end of 2020, for individuals who exhaust their state unemployment benefits
- Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits
- Unemployment benefits through 2020 for many who would not otherwise qualify, including independent contractors and part-time workers
Recovery rebates
Most individuals will receive a direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed (2018 returns in cases where a 2019 return hasn’t been filed) and sent automatically via check or direct deposit to qualifying individuals. To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.
The amount of the recovery rebate is $1,200 ($2,400 if married filing a joint return) plus $500 for each qualifying child under age 17. Recovery rebates are phased out for those with adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household). For those with AGI exceeding the threshold amount, the allowable rebate is reduced by $5 for every $100 in income over the threshold.
While details are still being worked out, the IRS will be coordinating with other federal agencies to facilitate payment determination and distribution. For example, eligible individuals collecting Social Security benefits may not need to file a tax return in order to receive a payment.
Retirement plan provisions
- Required minimum distributions (RMDs) from employer-sponsored retirement plans and IRAs will not apply for the 2020 calendar year; this includes any 2019 RMDs that would otherwise have to be taken in 2020
- The 10% early-distribution penalty tax that would normally apply to distributions made prior to age 59½ (unless an exception applies) is waived for retirement plan distributions of up to $100,000 relating to the coronavirus; special re-contribution rules and income inclusion rules for tax purposes apply as well
- Limits on loans from employer-sponsored retirement plans are expanded, with repayment delays provided
Student loans
- The legislation provides a six-month automatic payment suspension for any student loan held by the federal government; this six-month period ends on September 30, 2020
- Under already existing rules, up to $5,250 in payments made by an employer under an education assistance program could be excluded from an employee’s taxable income; this exclusion is expanded to include eligible student loan repayments an employer makes on an employee’s behalf before January 1, 2021
Business relief
- An employee retention tax credit is now available to employers significantly impacted by the crisis and is applied to offset Social Security payroll taxes; the credit is equal to 50% of qualified wages up to a certain maximum
- Employers may defer paying the employer portion of Social Security payroll taxes through the end of 2020 and may pay the deferred taxes over a two-year period of time; self-employed individuals are able to do the same
- Net operating loss rules expanded
- Deductibility of business interest expanded
- Provisions relating to specified Small Business Administration (SBA) loans increase the federal government guarantee to 100% and allow small businesses to borrow up to $10 million and defer payments for six months to one year; self-employed individuals, independent contractors, and sole proprietors may qualify for loans
Prior legislative relief provisions
Signed into law roughly two weeks prior to the CARES Act, the Families First Coronavirus Response Act (FFCRA) also included relief provisions worth noting:
- Requirement that health plans cover COVID-19 testing at no cost to the patient
- Requirement that employers with fewer than 500 employees generally must provide paid sick leave to employees affected by COVID-19 who meet certain criteria, and paid emergency family and medical leave in other circumstances
- Payroll tax credits allowed for required sick leave as well as family and medical leave paid
There is likely to be a steady stream of guidance forthcoming with details relating to many of these provisions, so stay tuned for more information. We’re here to help and to answer any questions you may have.
New Medicare cards are coming
New Medicare cards are coming
Medicare is mailing new Medicare cards to all people with Medicare now. Find out more about when your card will mail.
View an example of the current card.
10 things to know about your new Medicare card
- Your new card will automatically come to you. You don’t need to do anything as long as your address is up to date. If you need to update your address, visit your mySocial Security account.
- Your new card will have a new Medicare Number that’s unique to you, instead of your Social Security Number. This will help to protect your identity.
- Your Medicare coverage and benefits will stay the same.
- Mailing takes time. Your card may arrive at a different time than your friend’s or neighbor’s.
- Your new card is paper, which is easier for many providers to use and copy.
- Once you get your new Medicare card, destroy your old Medicare card and start using your new card right away.
- If you’re in a Medicare Advantage Plan (like an HMO or PPO), your Medicare Advantage Plan ID card is your main card for Medicare—you should still keep and use it whenever you need care. And, if you have a Medicare drug plan, be sure to keep that card as well. Even if you use one of these other cards, you also may be asked to show your new Medicare card, so keep it with you.
- Doctors, other health care providers and facilities know it’s coming and will ask for your new Medicare card when you need care, so carry it with you.
- Only give your new Medicare Number to doctors, pharmacists, other health care providers, your insurers, or people you trust to work with Medicare on your behalf.
- If you forget your new card, you, your doctor or other health care provider may be able to look up your Medicare Number online.
Watch out for scams
Medicare will never call you uninvited and ask you to give us personal or private information to get your new Medicare Number and card. Scam artists may try to get personal information (like your current Medicare Number) by contacting you about your new card. If someone asks you for your information, for money, or threatens to cancel your health benefits if you don’t share your personal information, hang up and call us at 1-800-MEDICARE (1-800-633-4227). Learn more about the limited situations in which Medicare can call you.
How can I replace my Medicare card?
If you need to replace your card because it’s damaged or lost, sign in to your MyMedicare.gov account to print an official copy of your Medicare card. If you don’t have an account, visit MyMedicare.gov to create one.
If you need to replace your card because you think that someone else is using your number, let us know.
How do I change my name or address?
Medicare uses the name and address you have on file with Social Security. To change your name and/or address, visit your online my Social Security account.
Medicare is managed by the Centers for Medicare & Medicaid Services (CMS). Social Security works with CMS by enrolling people in Medicare.
New Medicare Cards Are Coming
If you receive Medicare, you will be getting a new Medicare card in the mail. To help prevent fraud and fight identity theft, Medicare is removing Social Security Numbers from Medicare cards. Your new card will have a new Medicare Number that’s unique to you.
When are new cards being mailed?
Medicare will be mailing new red, white, and blue paper Medicare cards between April 2018 and April 2019. Card mailings will be staggered, so the timing will depend on your geographical location.
Newly eligible people will begin receiving the new cards starting in April. The following table from the Centers for Medicare & Medicaid Services shows when Medicare will be mailing cards to existing Medicare recipients. You can check the status of card mailings in your area on medicare.gov/newcard.
| Wave | States Included | Cards Mailing |
| 1 | Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, West Virginia | Beginning May 2018 |
| 2 | Alaska, American Samoa, California, Guam, Hawaii, Northern Mariana Islands, Oregon | Beginning May 2018 |
| 3 | Arkansas, Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, North Dakota, Oklahoma, South Dakota, Wisconsin | After June 2018 |
| 4 | Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont | After June 2018 |
| 5 | Alabama, Florida, Georgia, North Carolina, South Carolina | After June 2018 |
| 6 | Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Texas, Utah, Washington, Wyoming | After June 2018 |
| 7 | Kentucky, Louisiana, Michigan, Mississippi, Missouri, Ohio, Puerto Rico, Tennessee, Virgin Islands | After June 2018 |
Some tips on using your new Medicare card
The following tips are from the Medicare website, medicare.gov.
- Your new card will be mailed to you automatically. You don’t need to do anything as long as your address is up-to-date. If you need to update your address, contact Social Security at https://www.ssa.gov/myaccount/ or 1-800-772-1213.
- Once you receive your new Medicare card, destroy your old Medicare card and start using your new card right away.
- Doctors, other health-care providers, and facilities will ask for your new Medicare card when you need care, so carry it with you.
- If you’re in a Medicare Advantage Plan (like an HMO or PPO), your Medicare Advantage Plan ID card is your main card for Medicare — you should still keep and use it whenever you need care. However, you also may be asked to show your new Medicare card, so you should carry this card, too.
- Medicare will never call you uninvited and ask you to give out personal or private information to get your new Medicare Number and card.
- Scam artists may try to get personal information (like your current Medicare Number) by contacting you about your new card. If so, hang up and call 1-800-Medicare.
November 1 Begins Open Enrollment for Health Insurance Marketplaces
Beginning on November 1, 2017, individuals (including their families) may apply for new health insurance or switch to a different health-care plan through a Health Insurance Marketplace under the Affordable Care Act (ACA). The open enrollment period for 2018 health coverage ends on December 15, 2017.
Individuals can use Health Insurance Marketplaces to compare health plans for benefits and price and to select a plan that fits their needs. Individuals have until December 15, 2017, to enroll in or change plans for new coverage to start January 1, 2018. For those who fail to meet the December 15 deadline, the only way to enroll in a Marketplace health plan is by qualifying for a special enrollment period, which is the 60-day period following certain life events that involve a change in family status (for example, marriage or birth of a child) or loss of other health coverage. Job-based plans must provide a special enrollment period of 30 days. The Department of Health and Human Services (HHS) extended the open enrollment period to December 31, 2017 for victims of Hurricanes Irma and Harvey who resided in one of the counties that the Federal Emergency Management Agency (FEMA) declared eligible for individual or public assistance.
Changes to open enrollment
New HHS regulations included changes to the open enrollment period and requirements for individuals looking to purchase health insurance through Health Insurance Marketplaces. Here is a summary of the changes, effective for 2018:
- The open enrollment period for 2018 is cut in half and runs from November 1 through December 15, 2017. Open enrollment during prior years extended from November 1 to January 31.
- Individuals attempting to enroll during special enrollment periods must provide verification through documentation of a qualifying event. Previously, individuals merely had to attest to changing circumstances that made them eligible to apply during special enrollment periods.
- Some states have elected to extend open enrollment in light of the regulation. In these states, which run their own insurance marketplaces, open enrollment begins on November 1 and extends beyond December 15 as follows: California (1/31/2018); Colorado (1/12/2018); District of Columbia (1/31/2018); Massachusetts (1/23/2018); Minnesota (1/14/2018); New York (1/31/2018); Rhode Island (12/31/2017); and Washington (1/15/2018).
Other changes to the ACA
Some of the significant changes made to the ACA by the Trump administration include the following:
- Insurers are now permitted, but not required, to collect unpaid premiums for prior health insurance coverage before enrolling an applicant in a new health plan.
- Under the ACA, health plans are identified as bronze, silver, gold, and platinum based on the amount of coverage offered and the plan cost. For example, a silver plan was designed to cover at least 70% of a typical person’s medical expenses, while a gold plan would cover 80%. Plans could vary by 2%. The new regulation expands the coverage variation, such that a silver plan can cover between 66% and 72% of an individual’s medical costs.
- Employers are exempt from the mandate requiring birth control coverage in health insurance plans based on the employer’s sincerely held religious beliefs or on moral convictions. Employers that do not provide coverage only need to notify their employees of their decision.
- The President has indicated that the federal government will cease making cost-sharing reduction payments to insurers to reimburse them for discounts they give policyholders with incomes under 250% of the federal poverty level. However, attempts to extend funding by congressional action are being considered.
More changes to come?
The situation regarding health care, particularly the ACA, is very fluid and changing. Attempts to repeal and replace the ACA have failed to date. The President, via executive order, has outlined plans to allow access to association health plans, where small businesses and individuals can group together to buy plans across state lines; expand short-term limited duration health insurance not subject to ACA benefit requirements; and expand the use of health reimbursement arrangements (HRAs) by employers to provide workers with tax-free funds to pay for health-care costs, primarily deductibles and copays. Whether and how these proposals come to fruition remains to be seen.
