In this stimulus package, there were some other changes that didn’t get a lot of press but I found to be quite important - this is the Mixed Bag and the last blog of the Stimulus series.
Part 3 Stimulus Bill:
Breaking News - SBA $10k Grant changes to $1,000 per Employee
Charity Contribution Changes!
HSA / FSA use of funds expanded!
Access to Retirement Accounts Penalty-Free IF needed
RMDs waived for 2020
Mortgage Forbearance
BREAKING NEWS - SBA EIDL $10,000 Grant BIG Changes
As expected - guidance continues to change. Here is the latest big update - the $10,000 Grant this will be limited to $1,000 per employee, with a maximum of $10,000. Sole Proprietorship will be considered 1 employee.
The program has received millions of applications in the last three weeks. - It will likely be several weeks before your application is assigned to a case manager so please prepare accordingly.
THE MIXED BAG WITH SOME GOOD NEWS
Charity Contributions - Deduction for those that don’t itemize & limit increased
$300 above the line deduction!
Historically unless you itemized deductions on your tax return (deducted mortgage interest, taxes, etc. on Sch A) you did not get to deduct charitable contributions - Not Anymore! Now for those that don’t itemize (around 90% of taxpayers), you can deduct $300 in charitable donations on your tax return starting in 2020. Has to be in cash to a 501(c)3 charity. Giving and getting to save taxes - WIN-WIN.
AGI Limit on Charitable Contributions Increased to 100%
Historically if you itemize you could only deduct up to 60% of your AGI (adjusted gross income on your tax return) in charitable deductions - now you can completely wipe out your entire tax liability by donating 100% of your income (AGI) to charity. This is for 2020 only.
HSAs & FSAs can now be used for over the counter medications INCLUDING menstrual-related products
You can now use your HSA & FSA to buy tampons, pads & Tylenol! Ladies, the CARES Act now recognizes menstrual care products as medical care! Who would have thought? So feel free to use your HSA or FSA funds to buy your tampons or pads. Also, now you can use your FSA & HSA funds for over the counter medication as well (this does not include most vitamins and herbal remedies as they are not considered drugs or medication by the FDA). Think Tylenol, Advil Claritin to name a few OTC drugs. This is a permanent change and starts retroactively from Jan 1, 2020!
Townsend Tip:
Low on cash but have funds in your HSA or FSA. Use them for the above. That means you have more money to use towards other expenses because it has not been taxed so that is like 30-40% more money you now have for OTC medications and menstrual products!
HDHP (high deductible health plans) & TeleMedicine!
Historically, if an HDHP waives the deductible for any services other than Preventive Care it is not considered an HDHP and employees can not have access to an HSA (you need to be in an HDHP to have an HSA). The good news with what is going on - for 2020 & 2021, an HDHP can offer cost-free telehealth services to plan members before the annual deductible is satisfied and not lose HDHP status! It is carrier-specific so check first but there is a good chance if you need to use Telemedicine and have an HDHP your costs could be completely covered!
Required Minimum Distributions (RMDs) are Waived in 2020
Normally if you are over age 72 (Secure Act changed it from age 70.5 to 72) or if you inherited an IRA you have to take a distribution from your retirement account (unless it’s a Roth) every year, however not this year!
RMDs are waived in 2020. Applies to 401(k)s, traditional IRAs, SEP & SIMPLE IRAs and beneficiary IRAs
LAST RESORTS - THESE ARE OPTIONS BUT HIGHLY ADVISED AS LAST RESORTS
$100,000 penalty-free from retirement accounts
If your income has been reduced or you have been unable to work due to this virus or you, your spouse or child were diagnosed with COVID-19 - distributions in 2020 from IRAs, employer-sponsored retirement plans (401(k)s, Simple IRAs up to $100,000 will be exempt from the 10% penalty for withdrawal before age 59 ½. It will still count as taxable income.
Important notes on this:
Still will owe tax, but can spread it over 3 years - 2020, 2021 & 2022. Mandatory withholding won’t apply like it normally does.
Have 3 years to pay it back into your retirement account to receive a refund for any tax paid on the distribution!
Townsend Tip:
If you have to use this route I would try to pay it back as much as you can once this is all over with. Please have this be your last resort. Only use this if you really need the funds, not to just get to your retirement funds. Don’t get me started on the beautiful thing of compounding money and I don’t want you to miss out on the 8th wonder of the world. :)
Loan Amount Increased to $100,000 on Employer Retirement Accounts - 401(k)s for example
Normally you can only borrow $50,000 or up to 50% of your vested account balance. For 2020 you can take out a maximum $100,000 loan up to 100% of your vested account balance if you meet the definition as outlined. Payments owed on the loan can be delayed for up to one year. IRAs do not allow loans.
Townsend Tip:
If you do this please be aware of all the risks. If you get laid off or leave your employer the loan can become due in full and additionally you miss out on market growth. Fully research this and speak to your 401(k) provider before resorting to this.
Federally Backed Mortgage Loans - Payment Forbearance
You can request loan forbearance on mortgage payments (without penalties, fees or interest) for at least 180 days (6 months). Multi-family borrowers may request a similar forbearance for up to 30 days. Foreclosures on similar mortgage loans are prohibited for at least 60 days and evictions from properties related to several federal programs are also prohibited for a 120 day period.
Townsend Tip:
Wanted to provide context as to why Mortgage Payment Forbearance should be a last resort. I spoke with a mortgage broker who I trust, Kyle Sebestyen, about how this is working. He said these missed payments are being handled differently by each mortgage company. It is not clear how the payments are going to be made up - Either they are all going to be due at once when you come out of forbearance (that could be one MASSIVE mortgage payment if you are not prepared), increase your monthly payment to make up for the missed amount or a Loan Modification, which could have a negative impact to your credit. If you are looking to refinance or purchase later this year he advised to not go into Forbearance as this will have a negative impact. Also, don’t forget about your escrow account. In your payment, there are funds that go towards property taxes and home insurance. Just want you to have your eyes wide open if you take this route.
CONCLUSION
Lots and lots of info here. If it feels overwhelming, take it piece by piece and know I’m here to help!
To end things on a positive note - here is a little bit of good news worth sharing:
Car Accidents are Down! Allstate Insurance announced clients will receive a 15% credit on their monthly auto premium in April & May calling it a Shelter in Place Payback since most people aren’t driving as much! Geico has said they are going to follow. I’m hoping other insurance companies will follow as well so look out for that!
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I hope these blogs have been helpful.
A heartfelt thank you to all of you that have reached out with questions and placed your trust in me when it comes to financial concerns and planning. Whether you or someone you know is looking for trustworthy financial guidance during this time - please reach out - it's my mission to help.
