CARES Act: Rebates, Health Coverage, Homeownership and More
Review provisions that include recovery rebates, expansion of qualified HSA uses and tenant protection.
Passed on March 27, 2020, the CARES Act provides an estimated $2 trillion in fiscal stimulus to combat the economic impact of COVID-19 and provides the healthcare industry the financial support, equipment and protection it needs to combat the virus.
Below, review some of the major provisions in the CARES Act aimed at providing relief to individuals.
The act provides payments to taxpayers (subject to income limits) in the way of a credit of $1,200 per individual and $2,400 per married couple filing jointly. There is also a $500 credit per qualifying child under the age of 17. The payment is reduced by 5% of the individual’s adjusted gross income over $75,000 ($112,500 for head of household; $150,000 for joint filers). The payment will fully phase out when income reaches $99,000 for single filers, $146,500 for head of households with one child and $198,000 for joint filers. Individuals who have no income, as well as those whose income comes from non-taxable sources, also qualify for the advance payment.
The eligibility for the payment is based on the taxpayer’s 2019 tax return. If the return has not been filed, eligibility is based off of the 2018 tax return. For most Americans, the credit will arrive in April 2020 through direct deposit, while others may receive a check in the mail.
Expansion of health coverage
Under the CARES Act, over-the-counter (OTC) medications and menstrual care products will now be considered qualified medical expenses for medical savings accounts such as health savings accounts (HSAs), Archer medical savings accounts (MSAs) and flexible spending accounts (FSAs). In the past, OTC medicines required a prescription to be an eligible expense.
HSAs will now cover telehealth and remote care services pre-deductible for plan years that begin on or before December 31, 2021. Generally, HSAs would only cover preventive care before the deductible is met but cannot pay for non-preventive services until the deductible has been met.
If or when a COVID-19 vaccine comes available, it will be free to those on Medicare. Medicare Part D recipients must be given the ability to have a 90-day supply of medication prescribed and filled during the COVID-19 emergency period.
Forbearance of mortgage payments
If your mortgage is backed by the federal government, this provision allows you to suspend payments for up to 12 months (initial 180 days with an option to extend an additional 180 days). To request forbearance on your federally backed mortgage, contact your mortgage company. You must affirm that you are experiencing hardships during the COVID-19 pandemic. No further documentation is required. You may halt the forbearance at any time.
During any forbearance period, you may not be charged penalties, interests or fees that would not have been charged if you had made your payments on time and in full. Additionally, you will not be reported to credit bureaus for late or missed payments provided you are in a forbearance program. This applies through July 25, 2020, or 120 days after the end of the emergency program, whichever is later.
The CARES Act provides important protections for tenants during the coronavirus outbreak. It places a federal moratorium on eviction of tenants for non-payment of rent while also prohibiting landlords from charging fees, penalties or other charges to the tenant related to nonpayment of rent. Furthermore, landlords may not evict a tenant after the moratorium expires except on 30-days’ notice. The moratorium on evictions went into effect on March 27, 2020, and lasts for 120 days. The federal moratorium pertains to “covered dwellings” or rental properties that receive any federal assistance, which include:
- Dwellings that participate in the Covered Housing Program of the Violence Against Women Act
- Dwellings that participate in the Rural Housing Voucher Program
- Dwellings that have a federally backed mortgage loan
- Dwellings that have a federally backed multi-family mortgage loan
Landlords should know or have access to whether their properties would fall under one of these categories.
Many states and municipalities are also imposing their own restrictions. If those moratoria are less strict, the federal moratorium would apply.
Relief for student loan borrowers
There are a lot of provisions for individuals affected by COVID-19, including financial aid repayments, work study grants, temporary relief for student loan borrowers, exclusions of federal direct loans and Pell Grants for student who can’t complete the semester due to qualifying emergency, and modification of institutional grants.
Required payments on federal student loans have been suspended through September 30, 2020. During this time, no interest will accrue on this debt. Note while required payments are suspended, voluntary payments are not prohibited. Unfortunately, that means automatic payments will continue unless individuals take proactive measures to contact their loan provider and pause payments.
Over the next six months, borrowers will still have the opportunity to continue paying down the principal on their loans, should they choose to do so. The Department of Education has already set federal student loan interest rates at 0% for a 60-day period beginning March 20, 2020.
Some other considerations for student loan borrowers include:
- If you can continue to pay student debt, it might make sense to take advantage of the 0% rate.
- Use the funds you would have applied toward the student loan to pay down high interest debt, such as credit cards.
- Save the payments you would have made to create or replenish an emergency savings account. Ideally, an emergency fund will cover three to six months of expenses.
- Employers may provide a student loan repayment benefit to employees on a tax-free basis. The provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before January 1, 2021. If this applies to you, take advantage of the tax-free payment.
Your financial advisor and tax professional can provide more information about how the CARES Act affects you directly.
Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.