Today, I'm going to share with you the top 10 legal ways to take financial advantage ang get free money from the CARES Act that was signed into law. You've probably heard of the stimulus checks that are coming at some point, but have you also heard of the other nine ways that you can take financial advantage of the stimulus plan that was recently signed into law? Basically this means free money, right? You get what I'm saying?
The CARES Act is short for the Coronavirus Aid, Relief, and Economic Security Act that was signed into law on March 27th. It provides for up to $2 trillion of economic stimulus into the U.S. economy, and this is in the form of help for individuals, businesses and hospitals. What we're going to focus on today are the benefits that are going to be directly applicable to you as an individual and you as a business.
The Paycheck Protection Program
All right, the first program I want to talk about is called the Paycheck Protection Program or PPP. This is basically a loan that you can get from the small business administration through one of your local banks. When you apply, you can use those funds if you've been affected by the coronavirus. The purpose of this program is to assist businesses so that they don't have to lay off workers during this coronavirus outbreak. You can use money from the program to pay for things like payroll expenses, rent payments, continuation of health care benefits, employee compensation for those workers making less than a hundred thousand dollars, mortgage interest obligations, utilities, and interest on debt service obligations that were incurred prior to the coronavirus outbreak.
The amount of loan that you qualify for is equal to two and a half times your monthly average payroll obligation for the 12 months preceding the application. And you must've been in business on February 15th, 2020, with employees that you paid payroll and taxes on. Here's the big benefit of this program. If you are approved under this program, the debt service obligations, in other words, the payment on those loans, can be deferred for up to one year. And if you use the money for approved expenses in the eight weeks following the origination date of the loan, those funds can actually be forgiven entirely. So let's take as an example, you paid yourself through your online business, a salary of $5,000 a month during the 12 months prior to applying for this benefit, then you would be entitled to a loan of $12,500, and assuming you use that money to pay you a payroll moving forward in the eight weeks after you received the funds, then that loan would be completely forgiven. It's basically free money, right?
Economic Injury Disaster Loans
All right. The next program I want to talk about are the Economic Injury Disaster Loans. You apply for this program directly through the SBA. And basically what this program does is it expands the eligibility to include businesses with less than 500 employees, which includes solo practitioners and independent contractors. Here's the cool thing about this program, the applicants can request an advance of $10,000 against that loan. That $10,000 does not need to be paid back even if your loan is never actually approved. Now, here are a couple of things that the CARES Act does with regard to this program. Number one, it waives the personal guarantee obligation that was normally in place with these type of loans, provided they're up to $200,000. It also waives the requirement that your business must have been in existence for at least one year prior to the application for the loan. However, you did need to be an operation as of January 31st, 2020. So if you are just now thinking about, I'm going to start my business now and try and apply for this, that's not necessarily going to work.
Unemployment Benefits
All right, this next benefit is going to affect a lot of you, and this is actually a huge benefit, and it's where most of you may be able to get some relief. And this is Unemployment Compensation. I know what you're wondering. You're thinking, wait a minute. How would I qualify for unemployment? This doesn't make any sense. But there is a new program, it's called Pandemic Emergency Unemployment Compensation. This law expands the eligibility requirements for workers who've been affected by COVID-19. So if you're self-employed, if you're a gig worker, which means you do work for like Lyft or Uber, or are an Instacart person or something like that, then you could qualify for benefits under this program. Also, if you were previously on unemployment and your benefits have run out, you can apply for an extension through this program.
Now here's the deal. These benefits are administered by your state and you need to apply through your state unemployment office. Usually you can do that online, but there's been a lot of applications recently, and so there may be delays in the processing and things like that. So I highly recommend that if this is something that you think you might qualify for, you need to get on and do this immediately. But here's the big kicker with this program. It provides an additional $600 in federal benefits provided you meet the standard for the unemployment under your state law. Which most people will if they're applying for this program, because the pandemic emergency unemployment compensation is basically affecting anyone who they previously were working, or maybe their hours were reduced, or they were furloughed, or they were laid off.
They just can't work as much, or the income has stopped coming in as a result of the Coronavirus pandemic. The only requirement here is that you must be able and available to work unless you're unable to do so because of a coronavirus illness, a movement restriction or quarantine. In other words, if you're stuck at home, because there was a stay-at-home order in your state and you can't move about to try and look for a job, then you don't necessarily need to be looking for a job right now and you're still going to qualify for unemployment benefits. This is a huge benefit and this extra $600 is going to be paid out on benefits unless the law changes or they expand it. They're going to be paid out on benefits through the end of July of 2020.
Stimulus Checks
All right, you already know about the stimulus checks. These are basically $1,200 per individual if your income was less than $75,000 as of your last tax return, which typically for most people is going to be 2018, could be 2019. Or if your joint income is less than $150,000 if you're a married couple, then you're going to be eligible for a $1,200 payment per individual. So if you're a married couple, you're going to get $2,400. You also are going to get $500 per child that was on your tax return. So if you're a married couple filing jointly, your income was under $150,000 and you got three kids, then you're looking at a $3,700 check. Now the big issue with this is my understanding is, it's going to take quite some time for these checks to come out. The first people to get the checks are going to be the people who have already filed their tax returns for 2019, who have their refunds direct deposited.
Then for those people, for the people that have already filed, the IRS is going to take the lowest income people first and send out the checks to them, direct deposit the checks to them, and then after all those have been done, they're going to send out checks to everybody else. And then it's just going to take some time and they can do a certain number of checks per week. And obviously there's going to be physical restrictions to that, how many they can actually print and send out. There's a lot of people in this country that are going to be getting these checks, so be patient. It's probably going to take some time, but your check will come and it's going to happen automatically provided you do not exceed those income thresholds.
Mortgage Forbearance
The next benefit you want to think about is called the Mortgage Forbearance Benefit, and basically for certain types of federal loans, you can qualify for mortgage forbearance, and that's automatic. The thing with this is you just have to ask for it. You can't just stop paying your loan. Don't do that. You have to call your mortgage company or apply online and tell them you need some forbearance. What a forbearance is, is that you will not have any payments for the next 90 days or 120 days or however long it is for your program. The biggest issue with these is how the mortgage company is going to handle your payments at the end of the forbearance period. Now I called my mortgage company about this to see how they were handling it, and what they told me is that at the end of the forbearance period, which was going to be 90 days, that all those payments would automatically be due.
Well, that defeats the whole point of the program, so obviously I'm not doing that, but you need to be careful. If they're going to say, okay, in four months, you're going to have four mortgage payments due, that's a problem. I wouldn't do that if you can help it. If your mortgage lender is inclined to add those payments onto the end of the loan, or do a loan modification and just capitalize those payments into the principal of the loan, that would be a better way to do it. Your payment's going to go up a little bit, but basically you're going to be amortizing those payments over the course of the next, however long you have left on the loan, as opposed to having them all due at once in month four. And again, if this is something you're looking into, I would highly recommend you contact your mortgage lender first, before you just stop paying. Don't just stop paying, that's a problem. Contact them first.
Rent Forbearance
Which leads us into the next issue, which is rent payments. Now, if you're renting, there has been a moratorium on evictions for a period of time. Now this is only going to apply to landlords that have certain types of federal loans like HUD loans or Freddie Mac or Fannie Mae types of loans. It may not necessarily apply to everyone. So there's 120 day moratorium on evictions because they don't want people being displaced because of the coronavirus pandemic. If you're having issues, paying your rent, my recommendation, again, just like with your mortgage lender, contact your landlord, see what you can work out with them, and it's possible that they may say, listen, hey, we just got a forbearance on our mortgage for this property, so we'll go ahead and we won't charge you rent for the next couple of months.
That would be great. That'd be a nice thing to do. Don't know if that's going to happen or not, but you just want to talk to them provided you keep communication open. Hopefully you're not going to have any problems, but again, there is a 120 day moratorium on evictions. And not only that, I don't know about you, but where I'm at, our county has basically shut the courts down until the end of May. So you can't even go to court for a hearing until June at this point anyway. So that's what you're going to do in terms of rent payments.
Increased Charitable Deductions
All right. So there is a charitable deduction benefit under this, the CARES Act. And basically what it says is if you take the standard deduction on your taxes, which currently is $12,400, if you're single or $24,800 for married filing joint, you can take that deduction still, but you can also deduct an additional $300 in charitable contributions if you made charitable contributions during this period. That is for the tax year 2020. And basically that means you can deduct both of these things. You can deduct the standard deduction and you can take the additional $300. Previously, if you're taking the standard deduction, you did not get to itemize anything, but now they put those together. Cool benefit. Not going to save a lot in taxes, but hey, every little bit helps, right?
Changes to the Health Savings Accounts
The HSA, there's been some changes to the health savings accounts. This is huge. Basically, they combined all the benefits that you get from retirement plans, with the benefits you get from Roths, and kind of stick them into one because you get to take all the money you put into your HSA, which currently is, let's see, $3,550 per year if you're single or $7,100 per year if you're filing joint.
Now you have to have a qualifying plan, which the high deductible plans are actually fairly low, but that's the subject of a whole another video. But basically that money you put into the HSA can now grow tax-free, just like if it was in a retirement plan and you get to deduct that on your taxes. Here's the cool thing. You can take the money out of the HSA, tax-free and penalty-free, if you use it for approved medical expenses, what are called QMEs or Qualified Medical Expenses. Now previously, before the CARES Act, you could only use that for doctor's visits and different things like that and there were a bunch of other things that you could use that money for related to your medical care, but you could only use it for prescriptions that were written by a doctor.
Now, the CARES Act has changed that and said that if you want to purchase over the counter medication, you can use your HSA to do so. Also you can now use the HSA to purchase menstrual products if you're a female and those are something you use, well, then you can also use the HSA to purchase those products as well. Big benefit. So if you've got an HSA, this is big. If you don't have an HSA, sign up for one. I use Fidelity. I know there's other programs out there, here is the link to where you can sign up for an HSA.
Now, a couple other things with regards to this benefit, number one, the expanded expenses that you can use for the HSA for 2020, it goes retroactive to January 1st. Also, you have until July 15th to make your contribution for 2019. So if you have not opened one up right now, let's say if you're single, you can put the contribution limit for 2019, I think was $3,500 if I'm not mistaken and $7,000 for a family, it has gone up for 2020, but you have until July 15th to put that money in for last year, and then you can still put it in for 2020 through a year from April 15th, whenever taxes are going to be due in 2021. So you have until the filing deadline to make those contributions.
Retirement Withdrawals
The next one is withdrawals from 401ks, and I kind of want to put a little disclaimer next to this one, because although this is a benefit and this is huge, I think that this should be a last resort for most people. Because right now, as you know, the stock market is basically in the and this is a terrible time to withdraw money from your retirement funds. And I think just any time is a terrible time to withdraw money from your retirement funds, but right now is an especially bad time. But under the CARES Act, you can withdraw up to a hundred thousand dollars from your retirement plan penalty free. Not tax free, penalty free, which normally would be subject to a 10% penalty, if you have been adversely affected by COVID-19. Now the taxes that would be owed on that withdrawal can be paid out over a three-year period. You can basically pay that money back to your retirement plan over a three-year period and avoid paying taxes. Now, again, I don't necessarily recommend this because it's a terrible time to withdraw money from your retirement, but the benefit is available.
Another thing I should say about this, if you work for an employer, I don't know what the old caps were on your 401k loans, but now you can take up to a hundred thousand dollars or the value of your 401k out as a loan if you need that money, and you can delay your payment for up to a year in addition. So again, good benefits, but not necessarily something I would recommend you do. And there's another little provision of the law that kind of goes along with what I'm saying about not taking these distributions. They've actually waived RMDs, which are required minimum distributions for people that are over a certain age. So when you hit age 70 and a half, you have to start taking required minimum distributions each year from your retirement. They've actually said that this year you do not need to take those distributions from people that are age 70 and a half, and from other people that have, maybe you have an inherited IRA or something like that, that you have to take an RMD. You don't have to take those distributions this year and I think that's because the market is so low they know they don't want people taking all their money out of the market right now, when it's at a lower level than typical.
Student Loan Deductions
The next benefit, this is kind of big, especially if you're self-employed, I haven't quite figured out exactly how this is going to work yet, but I think this is actually pretty cool. As an employer, you can pay up to $5,250 to an employee to help them repay their student loans. Here's the kicker, you can deduct that payment to the employee, but the employee does not have to include that payment as taxable income on their tax return. So that's pretty cool. You get to deduct something and they don't have to pay the tax. That is not the way the IRS normally treats these types of things. So this is a really cool benefit. Now that could be for student loan repayment, or it could be for educational expenses, such as tuition, reimbursement, books, supplies, things like that. So this is a really cool little benefit that is brand new, just another perk. So if you're working for somebody, check with your employer, see if this is something they're going to offer.
Here's another video that might be helpful to you. Have a good day folks, take care.
