With the passing of the Economic Stimulus Package, there are a lot of questions about the details. CPA Greg Antipoff and Financial Planner Pat Kenny joined us on Real Estate Radio and again for One Community Conversations to answer some of the most asked questions they are getting about the stimulus package.

Keep reading to learn more about what the stimulus package means for individuals and small businesses. For more, listen to the conversation we had on Real Estate Radio and watch the One Community Conversation.  

 

Can you break down the top bullet points that we know so far?

Part of the package is what they’re calling Recovery Rebates for individuals. This is $1,200 to each adult, or $2,400 if you are married, plus an additional $500 for each child you have. 

There’s no minimum income to qualify for this, however, there is what’s called a phase-out. If you earn above a certain income threshold, your check will be reduced. Here is a break down:

• Single individuals making less than $75,000 and married couples making less than $150,000 will receive the full rebate. 
• Individuals making between $75,000 and $100,000 and married couples making between $150,000 and $200,000 will receive a portion of the rebate.
• Individuals making over $100,000 and couples making over $200,000 will not receive a rebate. 

 

Is this a one-time payment?

As of right now, with this law, this is a one-time payment. For the folks who are out of work right now, this is some sort of relief for them. For others who are currently working who also still get this, it’s a little bit more of a stimulus because they may take this money and then go redeploy it into the market, whether that’s consumer goods, or you know, paying it forward through some of these gift certificate programs.

 

So will some people will receive a check, despite the fact that they are not laid off? 

Correct. I think that’s where it’s a balance between a relief and a stimulus. Some people really need this money right now they’re in dire straits for it, and so this is relief for them. On the other end, the people who don’t necessarily need it, because they are working, this is an opportunity to stimulate the market and pay it forward to those who are in a different situation right now.

 

What do people have to do to get the stimulus check?

What the bill says is that they’re going to evaluate this based on your 2019 tax return. In the absence of that, they’re going to look at your 2018 tax return. Here’s how we currently understand it: if you’ve supplied the IRS with your bank account information, either because you’ve you owed and you paid electronically or you were due a refund and you had that direct deposit, they’re going to use that bank account information to deliver you these payments. 

We don’t know what the timeframe is, though. They would like to do it in three weeks. Who knows how fast that’s going to actually happen. 

In the absence of a 2019 or 2018 tax return, I don’t know how they’re going to reach out to taxpayers. 

 

What is the Federal Tax deadline for 2019?

The Federal Tax deadline both to file your tax returns for individuals and businesses, as well as to pay has been moved to July 15. You don’t have to file or pay until then, and there’s no extension required for the July 15 deadline.

 

What will the tax implications be for people who would be getting this stimulus bump? For both those $1,200 checks and the SBA loans. Will that be due in 2021?

So we’ll look at this for actually three different categories:

1.  If you get the SBA loan and it’s forgiven, that will not be included as taxable income to the business. The portion that is forgiven will not be considered income to you. 
2. For the individuals receiving the stimulus checks: those will also not be included in your income for income tax purposes. So you will not pay income tax on that. 
3. Now in the third category, the unemployed who are collecting unemployment, those unemployment payments are subject to income tax, just as if you would be getting a paycheck. So my tip there is there’s a box you check when you’re filling it out asking if you’d like them to withhold taxes from your unemployment payment. I would highly encourage you to do that. Or at least know that that money is going to be taxable. If you need every dollar you can get right now, just know down the road there is going to be a tax liability there.

 

What is the stimulus package for small business owners?

There’s a program that has been included in this bill, where it’s essentially a paycheck replacement provision of the loan. They are calling it the Payroll Protection Program. In essence, if you’re an employer who has 500 employees or less, you can qualify for this program. 

Now it’s initially going to be considered a loan. What you’re able to do, you’re able to go out and get two and a half times what your average monthly payroll amount is. You’re able to go out as a small business owner and get that loan. 

The idea here is that the employer and the employee already have a relationship. So we want to get the money in the hands of the employees who are out of work. What this does is it gives a loan to these small businesses. 

If small businesses keep those employees for an eight week period right now, at the end of that period, they can apply and have this loan completely forgiven. It essentially turns into a grant, which is nice for two reasons. One is it keeps the employees paid which keeps them able to survive. It keeps money flowing in the market. But the other thing is for the business owner, and allows them to have the money to do that. And because it’s a grant, they are not going to be subject to income tax on that money. With this, if you continue to pay your employees, continue to pay your rent or mortgage interest and utilities, and the amount you spend on those things during that eight week period will be forgiven and turned into a grant.

 

We saw last week, 3.3 million people filed unemployment in a week, which was a record in the history of our unemployment system. So is this to keep people off of unemployment and have the business owners use these grants to keep people employed as we move through this?

That’s, definitely part of it. And the other is that the employer already has that relationship with the employee. For the government to try to reach out to each individual and determine what their salary was, there’s a lot of investigation that has to go on there. So it’s just more efficient. 

 

Is more money being added to unemployment as part of the stimulus package on top of the $1,200 stimulus check?

Yes, that’s correct. The federal government is coming in and in significantly boosting the funds that are in the unemployment coffers because the unemployment coffers were not built for something like this, they will run out of money. 

The federal government, as part of this law that passed, is allowing an additional $600 per week for unemployment for a period of four months. So essentially, a lot of people going on unemployment right now will get to collect essentially the full amount of what they were earning before they were unemployed. 

And likewise, for the first time ever, self-employed folks and gig economy workers who may be out of work now will also qualify for unemployment. That’s something that’s never happened before.

 

What else is wrapped into this stimulus package outside of individuals and small businesses getting checks? Can you talk about what is happening with mortgage loans and student loans?

A couple of things I’ll touch on in terms of housing. If you are unemployed right now, your number one job right now is to get on the phone with your creditors. Look at all the unnecessary spending all those recurring charges you have going on – you’re probably not going to want to get rid of Netflix right now – but everything else can probably go. 

With any of the federally backed mortgages, you can request up to a 360-day forbearance. If you are truly unemployed right now get on the phone if you have one of those federally backed loans. 

Student loan payments have been suspended for six months. For a lot of people, that’s a huge chunk of money. If you’re unemployed, you don’t have to pay and it’s not earning interest right now. If you are able to pay it, it’s a great way to accelerate that debt reduction process right now because you’re making that normal $500 payment on that student loan, it’s going to go a lot farther right now than it typically would.

 

Are these loan payments deferred or is there going to be a lump sum that is owed at the end of six months?

What I’m reading on the federally backed loans (Fannie Mae, Freddie Mac, HUD, the VA loans). It’s saying that no additional fees, interest or penalties can be assessed for the forbearance. So during that time, there shouldn’t be an assessment. 

Now the advice I’ve been giving for people who don’t have a federally backed loan, get on the phone with them. Some of them are playing ball and some of them aren’t. Some are saying Yes, we’ll give you three months. But come July you’re going to have you know, three months’ worth of payments to pay. But yes, some are being a little bit more lenient right now. 

For more on this conversation, watch this episode of One Community Conversations: