This week, Josh & Austin are continuing to record from home (so please forgive any audio flaws). In this episode, they will explain many of the provisions in the recently passed CARES Act (Coronavirus Aid, Relief, and Economic Security Act) and what that means for you and your financial situation. Listen in to learn how much your stimulus check could be and when you can expect to see it! At least for the next couple episodes, the Coronavirus will continue to be the topic of discussion for The Invested Dads!
Links & Resources
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Free Guide: 8 Timeless Principles of Investing
Main Talking Points
[0:48] – What’s Happening Globally and Locally with the Coronavirus?
[3:18] – The CARES Act (Coronavirus Aid, Relief, and Economic Security Act)
[5:02] – How Much Money Are You Getting From the CARES Act and When?
[13:54] – How Does the CARES Act Affect Your Retirement Accounts?
[19:09] – Qualified Charitable Contributions (QCCs)
[20:57] – Unemployment Benefits from the CARES Act & Pandemic Unemployment Insurance
[24:09] – Dad Joke of the Week!
[24:36] – How Are Small Businesses & Self-Employed Affected by the CARES Act?
[33:14] – “Economic Injury Disaster Loan” for Small Businesses via the CARES Act
[37:42] – Federal Student Loan Changes
[39:51] – Healthcare Impacts & The Cost of a Vaccine
[44:06] – Eight Timeless Principles of Investing
[44:56] – Check Out “Bear Market Brews” Thursday’s at 4 pm!
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
Chick-fil-A, getting my life going here. All right, here we go.
All right. Hey, hey, hey, welcome back to the Invested Dads Podcast. Today, Josh and I still working from home in light of COVID-19 and our stay at home order. So please forgive any audio imperfections we have, but we are going to be talking about the CARES Act and to see how that might impact you. So Josh, let’s see how things are going around the States.
[0:48] – What’s Happening Globally and Locally with the Coronavirus?
Josh Robb:
Yeah, Austin. What are we seeing with the coronavirus first? This whole CARES Act is a result of the US seeing a very big impact on the economy from the coronavirus. So what’s happening around the world and here in the US with the coronavirus and this CARES Act?
Austin Wilson:
It’s definitely spreading rather quickly. If you think about it, around the world, there’s around 875,000 cases if you’re … so we’re recording this on April 1st in the morning. So that’s the latest data we have is about 875,000 global cases with around 44,000 deaths. Specifically in the US, things have changed very, very drastically over the last week. We now have around 190,000 cases with 4,100 deaths almost. So we have more than doubled in the last week and we are now really the epicenter of where this is breaking out the most around the world. If you think about it, this started in China and China has 80 some thousand cases and now we’ve more than doubled that. Now there’s a lot of speculation as to these numbers. And the truth of the matter is that we are testing like crazy amount and obviously our cases that are going to go up if we’re testing a bunch. So we would anticipate that this is going to go up for a while and continue to increase.
But on April 1st we see that the markets are down three or 4%, because last night on the 31st president Trump said in a briefing that we should really prepare for a rough couple weeks with around 100,000 to 240,000 deaths in the US possible from this virus. So we’re definitely seeing an impact and things are growing very, very quickly. And yeah, like you said, it is impacting the economy in a very, very real way and very quickly.
Josh Robb:
Yeah, I think as more and more governors and States get on this self-quarantining, we hope to see this slow down. But the other piece of it is, we’re coming out with these new tests that allow you to get a result in five minutes. And so the more we test, the more cases we’re going to find. Now, thankfully they’re not all severe. And although we see the number of cases growing, still our overall death rate is relatively low compared to other nations. So that’s a positive and also hopefully keeping too much strain on our overall health care. But the idea there is though, the more we test, the more we’ll find how widespread this virus really is.
[3:18] – The CARES Act (Coronavirus Aid, Relief, and Economic Security Act)
Austin Wilson:
Yeah, that’s true. So last week we had a bill signed into law. So first it went through the Senate, then it went through the house and then President Trump signed it on I think Friday.
Josh Robb:
Friday night. Yup.
Austin Wilson:
Yeah. So Josh, tell us a little bit about that bill.
Josh Robb:
Yeah. First it’s called the Coronavirus Aid, Relief, and Economic Security Act which-
Austin Wilson:
Hold on, before we get into that, I think that they came up with the name before the acronym and it just happens to be perfect.
Josh Robb:
No, because it’s the CARES Act if you take all those fun words they put together to get the CARES Act.
Austin Wilson:
C-A-R-E-S. CARES Act.
Josh Robb:
Yup. And I always wonder how much time is spent on that naming. Is there a subcommittee that just says, we need a name for this bill so that everybody is pretty excited about how cool we are at naming it to make it-
Austin Wilson:
Right. Tax payer dollars hard at work, coming up with a name.
Josh Robb:
How much time was spent on that? But I know how much time we spent on naming our podcast and that’s even more important than how you name a bill I think. So who knows…
Austin Wilson:
Yeah.
Josh Robb:
So we’re going to walk through this CARES Act though. It came out Friday. They’re still … actually when they released the CARES Act, a lot of this had yet to be determined by, because there’s the IRS, the Small Business Administration, there’s a lot of organizations that have a part of this that have jobs now they have to do. And so there was a lot of broad stuff in here. So we’re giving you the most recent information we have, but things may be changed or adjusted because there is a lot of unknowns here. And so we’re going to try to highlight the things we think makes the most sense for you. The things that have the most impact on you. And the first one is, when am I going to get my money?
[5:02] – How Much Money Are You Getting From the CARES Act and When?
Austin Wilson:
That’s right. Yeah. Cash money in your pockets. That’s a real thing that we haven’t seen since what? 2008 or 2009 during the financial crisis, something similar happened. But this time, it is very, very broad. So the government is really trying to stimulate, I wouldn’t even say stimulate. The government is trying to get the economy to limp by while most of it is shutdown. So the way that they are doing this is through spending vast amounts of money, giving people money to really go out and continue to live and get the things they need without getting into tough financial situations.
So this, call it like a recovery rebate, is estimated to reach over 90% of taxpayers. And how that figure came is that the government really wanted it to be A, really easy to administer and have very, very simple calculations. But B, also have an impact as much of people in a favorable way as possible. So first of all, individuals, adults will receive $1,200 each and $2,400 or two adults there for married couples with an additional $500 per child. So really I’m sure that’s under 18.
Josh Robb:
No, it’s actually under 17.
Austin Wilson:
Under 17?
Josh Robb:
Yeah, there’s two different ways that they track these, but this one’s not 17 and under, it’s actually under 17. They have a special … for certain tax provisions, that’s the cutoff point for minors is under 17.
Austin Wilson:
Well that muddies the waters a little bit. So your children under 17, $500. The real kicker is that the income limits, the thresholds where this gets kind of phased out, they’re quite high. So that means, like I said, most people in America should qualify for this. So the income limits are $75,000 for individuals or $150,000 for those who are married filing jointly. So really two times that, or if you’re married filing as head of household, that income limit is $112,000.
Josh Robb:
Yup. And so that’s the cap, but they realize there are people that make more than that, that still may have some impact from this whole economic shutdown from the self-quarantining. And so they have this gradual scale where you’ll have reduced amount of this rebate. And it’s a 2020 tax rebate really is what it is, but you’re getting it ahead of time. But they say, for every $100 of income you have over whatever the threshold that you’re tracking, you lose $5 of this recovery check. And so you can see it progress downward until it finally gets to zero. And so if you have kids, that adds more to it and it gives you more room to have income before you’re all the way to zero it out. So it’s a sliding scale for most people.
Austin Wilson:
Yeah. And I think the rule of thumb, and I think I heard this, so quote if I’m wrong Josh, but I think it phases out for an individual as an example, it phases out up to 100,000. So it’ll tier down up to $100,000 and then you wait, then it’s nothing.
Josh Robb:
Yes. Relatively, there’s charts and stuff out there that show you that scale and it really varies based on, if you have a kid, so then you get another $500 and that just pushes it a little bit farther out because then that’s 500 more dollars so you get an extra couple of scale to get some sort of paycheck.
Austin Wilson:
Exactly.
Josh Robb:
So there’s all different variations there. But there is the ability that even if I do make a little more than that, it’s not like if you make $75,001 I get nothing. They do scale it down from there.
Austin Wilson:
Yeah. So, Josh, when can listeners expect to have their money received and how’s that going to come?
Josh Robb:
Tomorrow.
Austin Wilson:
Tomorrow?
Josh Robb:
I said, because we’re recording the podcast. Who knows when you’re going to listen to it? It could be tomorrow. But the actual word is, they say is “as soon as possible.” Meaning they do not know. They’re estimating possibly within three weeks, the first people will start receiving their checks.
Austin Wilson:
From when it was passed.
Josh Robb:
From when it was passed. So we’re almost a weekend, so maybe two more weeks. The reason for that unknown is there’s a lot of different variables there. So how are you going to get paid? You can have a check sent to you or you can have it electronically deposited into a bank account. A lot of that determines how have you gotten any other payments from the government in the past. So let’s say you’re receiving Social Security. Who, by the way, they’re still eligible to get this, even though they have no earned income. As long as they’re filing a tax… a tax form, they will be eligible as long as they stay under those income thresholds.
And so if you get your Social Security check directly deposited into bank account, that’s how the IRS will send this money. If you have it sent by check, that’s how they’ll do it. And so however you had your refund or any kind of payment from the government last done, that’s what they’ll use. Now, and they’re going off of, by the way, your 2019 tax return if you filed it. Now, they extended that filing date. So some people may not have filed their 2019 tax return yet. So if they don’t have a 2019 tax return, they go off your 2018 tax return. And then if you haven’t filed a 2018 tax return, because there are some people with income where they don’t have to file, then you’re going to need a file—and there are certain tax forms out there where you can just file to just pretty much show that you have no reason to file—you need some way of getting it connected there.
But the idea is, whatever your last way of getting the refund or the check is how they’re going to do it. If they don’t have either of those two but they know you’re eligible for one, your last known address is where they’re going to send it to. So if you haven’t filed in the last few years and you moved, you better find a way to let the IRS know that so they’re sending in the right spot.
Austin Wilson:
And I think it’s probably worth pointing out that the government fully anticipates the vast majority of these checks are going … not check, I’m not going to say checks, it’s not even a check. The vast majority of this money is going to be electronic transfers straight to your bank account because that’s how most people file their taxes. And that is the quickest way as the government’s mandate here is to get you your money as quickly as possible. That’s by far the quickest way to do that. And it’s actually, it can be weeks extended weeks if not months if you have to get a physical check that you’ll be waiting on this potentially a little longer.
So the government is actually putting together a website where if you’re someone who has not set up these electronic transfers or whatever tax refunds, you’ll be able to put in your banking information so the government can give you your money electronically instead of on a paper check to expedite the process. So I think these are things that we’re all going to know more as they come. But I think by the time another month rolls around, the vast majority of Americans are going to have this in their posession.
Josh Robb:
Yeah. Hopefully by the end of April, the majority of people will have received this help by that by the end of April. Now I would-
Austin Wilson:
So Josh-
Josh Robb:
Yeah, go ahead.
Austin Wilson:
What if your income was higher in 2019 but you’d be below that level in 2020. How’s that work?
Josh Robb:
Yeah, since they’re actually classifying this as a 2020 tax credit refund, however you want to look at it, the 2019 income, if it is, let’s say you’re a single guy and you made 120,000 so you don’t get anything. But this year because of a change of job or who knows what, you only made 60,000 so you would actually qualify for the full amount. The IRS says they will make you write on the 2020 tax return and you’ll actually get that amount, the $1,200 when you file your 2020 taxes, that’ll be part of your tax return. And so it’s for 2020, but the only way that they are … not the only way, the way they set the CARES Act up was they’re looking at your 2019 or 2018. So they do know some people will qualify, but based on what they’re looking at, not qualify. And so they found a way to make sure that they in the end get it.
Now, the opposite though, let’s say you did qualify last year, but this year you make more than you should, they’re not going to take it back. They’re actually going to let you keep it. So if you get the amount, it’s yours, you keep it. If you were supposed to, they’ll make sure you get it at least by the time you file your taxes next year. Now, if you don’t qualify last year and you don’t qualify this year, well, you don’t get it. You make too much money.
[13:54] – How Does the CARES Act Affect Your Retirement Accounts?
Austin Wilson:
So something that I’m sure a lot of listeners are wondering about is how this affects their retirement. So Josh, would you go into a little bit of detail on to how this is going to impact retirement accounts and things like that?
Josh Robb:
Yeah, the biggest thing that they did was they suspended RMDs, required minimum distributions for 2020, and they just moved the age to 72. If you’re 72, you have these required distributions out of 401K or IRA accounts. Each year, based on the 12/31 value, they calculate how much is required to be distributed out of that account throughout that year. Now what happens, so let’s say this happened this last year, 2019 was a great year. The stocks were up at what, 30%. So you had a very high ending value. Then within the first couple months of the year, all of a sudden we’re down 30%. So now you have to withdrawal a higher distribution from a lower portfolio value, which puts a lot of strain on retirees. And so what the IRS or what the government said is no RMDs this year.
Now, some people may have already started taking the required distribution because we are now in the fourth month of the year. So they said if it’s already taken out, it’s already out. You can’t put it back in unless you fall into certain things. One is there’s a 60-day rollover window for distributions out of IRAs. You could potentially reclassify it and roll it back in, but you’ll need to talk to a financial advisor or tax preparer to make sure that works for you. For inherited IRAs, if you have an old inherited IRA prior to last year, you have required distributions out of that no matter what your age is. Those IRA distributions are also suspended for the year. If you’ve taken it out, there is no rollover option. It’s too late, it’s already out.
But they have suspended all required distributions for the year, which is nice. It takes a little burden off of people who may not need the money, but were forced to take it out.
Austin Wilson:
Got you.
Josh Robb:
The other thing they did is they are allowing you this year to withdraw up to $100,000 from a IRA or 401K and that 100,000 is the total amount whether you take it out of different accounts or different plan types, it’s a total cumulative, not per account. But you have to meet one of these requirements for it to count. You have to or your spouse have been diagnosed with COVID-19. You have experienced adverse financial consequences from being quarantined, laid off, or had your hours reduced. You’re unable to work because you have to stay home with your kid or you owned a small business that either closed or significantly reduced your hours. The IRS left it open that there may be other things on a per case basis, but those are the big ones.
If you qualify for that, your withdrawal up to $100,000 will be penalty-free. Meaning, if you’re under the 59 and a half, there is a 10% penalty on withdrawals. This is waived and there’s no mandatory withholding for 401K. Sometimes they limit how much you can do and they’re required to withhold 20% on any distributions that’s removed. You have to … or you don’t have to. You can, if you want, repay this withdrawal within three years, so you can actually put the money back in over the next three years. So if you need it, but then you’re able to … because your company’s recovered or whatever, your income is picked back up, you could actually put it back into your 401K, which is a great thing if you’re just needed as a temporary kind of stop gap for your finances.
Austin Wilson:
Exactly.
Josh Robb:
From the tax standpoint, this is still taxable income distribution. So if you take 100,000 out, you have 100,000 of taxable income for that year. They did not remove the tax piece of it. But they do allow you by default to spread that over three years. So you actually pay a third of it each year on taxes or if you want to, you can elect to pay it all in 2020 if you think you have a significant lower tax bill this year. But by default it’s spread out over three years to pay the taxes. So it’s nice, it leaves it a little bit, but you still will owe taxes on that distribution.
Austin Wilson:
Got you. So you’d mentioned 401Ks and between your retirement accounts, you can take out up to $100,000 as a loan. Say you had only been working there a year and you only vested X%, can you take out your full amount or can you take out only the part that is vested?
Josh Robb:
That 100,000 I’ve just talked about actually isn’t a loan. I may have said that once. It’s actually just a withdrawal.
Austin Wilson:
Got you.
Josh Robb:
401Ks though, if your plan allows it, you can also do a loan. And they’ve actually changed some of the rules on that as well. So a 401K, if your plan allows for loans and now allow you to take up to a 100,000 of a loan, they used to I think be 50,000. They also allow you to take 100% of your vested balance up to that amount. So let’s say you just started working and you have 8,000 in your 401K, you could take up to a 100% of that amount, $8,000 if it’s fully vested, and you’re allowed to delay repayments. So it’s a loan. So you actually have to pay this back up to a year. You can delay it for a year. So this is just a loan out of 401Ks if your plan allows it. So they just made it a little bit more flexible on that end. But your plan has to allow for loans for this to work.
[19:09] – Qualified Charitable Contributions (QCCs)
Austin Wilson:
So next, let’s talk about … a big key word in the financial planning world is qualified charitable distributions or QCDs. That’s a very common word we talk about. But let’s talk about a new one. Let’s talk about QCCs Josh.
Josh Robb:
Yeah. The IRS and the government in general loves things to be confusing. So let’s take something very close to something else and name it so that people get really confused.
Austin Wilson:
One letter.
Josh Robb:
Yes. So qualified charitable contribution, this is this new thing. Just for this year, they allow you up to $300 if you do give to charity, has to be cash, cannot go to a donor advised fund, it has to go directly to a 501(c)(3), so a nonprofit, it has to go there. If you do, you can actually get this deduction on your tax return, even if you don’t itemize. So normally in order to get the charitable deduction, you have to itemize. This is a kind of above the line, above the itemized deductions. If you take the standard deduction, you can get this additional $300 deduction, which is nice.
Austin Wilson:
So really this just takes $300 of your taxable income down.
Josh Robb:
Yes. And so it’s nice that it’s there for you. You don’t have to itemize to get it, which most people don’t itemize anymore because of the higher standard deduction. Now, if you do itemize, the one thing they did do for you is they allow you to take up to 100% of your AGI in cash donations to the above 501(c)(3)s, no donor advised funds instead of, I think it was 80% before. So if you don’t need your income and you just want to give it away, you can do 100% of it this year. So that’s a positive.
[20:57] – Unemployment Benefits From the CARES Act & Pandemic Unemployment Insurance
Austin Wilson:
So one not so … so obviously what we have been talking about thus far is about you getting money in your pocket. And that is a very helpful thing that is going to help a lot of people in this tough time. There’s no doubt that we have an employment situation now where a lot of businesses are closed, a lot of businesses are sending people home or laying people off and thus unemployment benefits are going to be an increasingly vital part of our economy for the next … who knows how long when this is behind us. So there are some changes to unemployment benefits as well. And those are really that the regular unemployment benefits have been extended 13 weeks.
That’s really good. So that’s just in addition to what was already in place plus, and here is the kicker, you get an extra $600 per week for up to four months and mind you that the average weekly pay on unemployment was $372 a week. So that’s crazy increase of unemployment benefits and the dollars that these people who are filing for employment are going to receive. And really that $600 a week, that’s like an additional weeks worth of pay at $15 an hour. 40 hours a week, $15 an hour is 600 bucks. That’s like an additional weeks worth of pay on top of your other unemployment and that’s a pretty substantial amount of money that’s going to be helping people out during this time.
And another change is you used to have to wait a week to apply for unemployment after you were laid off or whatever. You can now apply right away and be eligible for those benefits right away. So that’s going to expedite the process, which is huge, which is awesome. So it’s going to be a very different situation than we’ve ever seen and it’s going to hopefully help the economy get by a little bit better than it would have had they left things how it was. So Josh, I heard a term called Pandemic Unemployment Insurance. What does that mean?
Josh Robb:
Yeah, the PUI.
Austin Wilson:
Another acronym.
Josh Robb:
Yeah. The idea there is, to apply for unemployment insurance, you got to lose your job. You got to work for somebody to be fired or laid off. And for those people who don’t fit in that category for instance, a small business owner, no one lays them off or fires them, so they’re usually not eligible for unemployment.
And so this allows, this Pandemic Unemployment Insurance allows those who are not normally covered by unemployment to qualify now to receive some sort of unemployment income during that timeframe. And the idea there is, there’s a lot of the government mandating businesses closed. So a small business owner for instance, may lose all revenue, not from their own doing or their business failing, but because of a mandate by the government. So they’re understanding this and saying, okay, we’re causing part of this problem for a reason. And so we’re going to provide you with this unemployment opportunity that you wouldn’t normally qualify for.
Austin Wilson:
And that’s something we’re going to talk about here shortly is the small business impact and the benefits that small businesses can get some help from the government during this time as well. But first, Josh-
Josh Robb:
Yes.
[24:09] – Dad Joke of the Week!
Austin Wilson:
… I have something for you. And I know these are a lot harder to do across the interweb but I’m going to give you a dad joke of the week and I want you to think about it. It’s a really good one. Dad joke of the week. Josh, what do you call a cow that doesn’t have any legs?
Josh Robb:
A cow without legs. I don’t know, what do you call a cow without legs?
Austin Wilson:
Ground beef.
Josh Robb:
Ground beef. I love it. I love it.
[24:36] – How Are Small Businesses & Self-Employed Affected by the CARES Act?
Austin Wilson:
And that was the dad joke of the week, everyone. But now we are back to your regularly scheduled program where we are going to talk about small businesses and really the Paycheck Protection Program provisions of the CARES Act. So Josh, talk about that. Talk about how small businesses can be helped along in this really top economic time for them.
Josh Robb:
When it comes to small businesses, there’s a lot of different types and there’s a lot of different structures. So they’ve provided a couple of different ways of helping out small businesses. The first one is the Paycheck Protection Program. And so that allows small businesses to really avoid that laying off of employees by providing this loan where they can provide the paychecks for all their employees. And so I’m going to just walk through, and again, these details are changing. Some of this just actually came out yesterday with some more information on how it’s going to work, but starting April 3rd, so that’s what? This Friday, April 3rd small businesses and sole proprietorships can start applying for this protection program. April 10th, independent contractors and self-employed can start applying for this as well.
And so the way this is set up is the Small Business Administration or the SBA is backing this program. They’re fully guaranteeing these loans, but the loans themselves will normally be coming from a local bank. And so they’re the ones kind of backstopping this and saying to the bank, hey, if they aren’t able to repay, you will make it whole. Don’t worry about it. Make sure you’re loaning this out. These loans are for two years, they have a max or an interest rate set at 0.5%. Now, in the original CARES Act, they said the max was 4% but they’ve since come out with some more guidance saying they’re going to really just set it at 0.5% so if you think about that-
Austin Wilson:
That’s very low.
Josh Robb:
… a business loan at 0.5% for two years and there’s no payments due for the first six months. That’s crazy. To qualify, you have to have less than 500 employees. There’s some caveats to that. So let’s say you look at something like a McDonald’s franchise and you say, well, is that the whole organization or is that each one? They’ve come out with ruling saying it’s per location. So if you have multiple locations, they look at it per location. There’s some other caveats there on if you have more than 500 but within your industry they’ve made a different number than you qualify based on whatever that number is. So in general it’s less than 500 employees. You also have to do a good faith certification that this loan is necessary due to COVID-19.
Meaning you’re not just out there trying to get some money without a need for it because there is a set amount of dollars and we think this will be a pretty popular loan forgiveness program. And I’ll talk about why there is a piece of that that’s forgivable. I think there’s like 350 billion set aside for this, but there’s a lot of small businesses out there, so they think this would be very popular. So they want those to go to those that need it.
How it’s calculated though, it’s crazy. So they take your average payroll over last year and look at the average monthly payroll and then you get 2.5 times that average payroll. And that’s got to be your loan amount. If you use it for payroll, for any of your employees that make under $100,000 compensation, health insurance, salaries, rent, utilities, all those normal costs that are fixed costs, your loan will be fully forgivable for any of those costs within the first eight weeks. So that’s crazy.
Austin Wilson:
That is crazy.
Josh Robb:
So you get this money with a super low interest rate. But even with that super low interest rate, if you use it in the first eight weeks for payroll, health insurance, salaries, rent, utilities, it’s fully forgivable. It doesn’t show out as additional income for your business, and there’s no interest or no cost. There’s no fees for getting the set up. There’s no prepayment fees, there’s no paying off early fees, there’s nothing. It’s crazy.
Austin Wilson:
Wow.
Josh Robb:
Now, there are some caveats to it. You have to have the same number of employees from February 15th through June 30th that equals either the same amount that there was last year over that same time period or from January through February 15th. So in other words, they don’t want you getting this loan firing half your people and then pocketing the difference. And so they’re tracking that to make sure you have the same number employees at the end of this time on June 30th and then you keep it throughout that timeframe. You’re not firing or reducing people.
Also, you can’t have any employees see their compensation reduced greater than 25% during that time either. So you can’t also cut their pay down more than 25%. But they’re really saying, if you’re going to take this money, this is for payroll of your employees to keep things the same, to keep things going.
Austin Wilson:
This is encouraging businesses to retain employees during this time, right?
Josh Robb:
Sure, yeah. Giving them the opportunity if they don’t have the revenue source to continue to pay their employees.
Austin Wilson:
Yeah. So businesses are greatly encouraged to maintain and retain and pay their employees during this time. Now, we just talked about unemployment insurance, and how that is greatly favorable more than it used to be for someone to claim that. So I guess if you’re an employer, it very much benefits you to maintain paying your employees, keep them on the payroll during this time because it’s very cheap to, there’s almost no cost if any. Right?
Josh Robb:
Correct.
Austin Wilson:
But as an employee, there’s a tension because obviously it’s good to have a job, it’s good to continue to get paid, but the unemployment situation has gotten so much better that they may make more money being unemployed than they would have staying on the payroll.
Josh Robb:
Yeah. The biggest difference between those two though as well is insurance, health insurance. If I stay employed and my company offers health insurance, which is one of the things that is part of that forgivable is health insurance program, group health insurance. If I go on unemployment, I have to, usually you use like Cobra or something sort of-
Austin Wilson:
Which is very expensive.
Josh Robb:
You pay 110% or something like that of the full insurance cost that your company was paying. So I think if you asked the government which one they would prefer, they would prefer small businesses to go after this Paycheck Protection Program and keep employees instead of laying them off, having them apply for and get unemployment and then hopefully rehiring them down the road. I think it would rather they stay employed and that’s why they’re offering this type of program with very little requirements.
You do not have to go through the credit checks and all that crazy stuff that you normally do for these type of loans. It’s available, with really just that good faith certification. You do have to provide some, like obviously they got to know your payroll, so you got to provide last year’s payroll so they can get that two and a half percent calculation or two and a half times calculation. But the idea there though is, in general you’re pretty much saying, “Hey, we’re making it as easy as possible to keep employees. Please, please do that.”
On top of that, there’s the employee retention credit. So this is a credit for the business owners or the business itself. You get a credit against the company payroll taxes. So 50% of the wages paid to each employee with a max of $10,000 a month per employee. So if they make more than that, it doesn’t count, but 50% of the wages paid, you get this payroll tax credit, you qualify if you either partially or fully suspend operations or you have a quarter with where you see a 50% or less revenue than you have the same quarter last year. So in general, if you’ve seen a big disruption, they’re giving you a credit for if you do continue to pay your wages to your employees. This is good for just this year or during this year if your revenue gets back up to 80% or above what you were last year, then they’ll stop this credit. But in general, again, they’re saying, we understand there’s costs involved to having employees. We’re going to do all we can to reduce those costs or eliminate them if possible.
The other thing they do is payroll taxes. You can actually defer your payroll taxes as the employer and you’ll owe half of it at the end of next year and then the other half in the end of 2022. You still have to pay them, but you don’t have to pay any payroll taxes this year. You just defer to the end of next year and then the end of the year after.
Austin Wilson:
So this is really freeing up cash in companies pockets or accounts or whatever to fund their operations where they would be using that for taxes at this point.
Josh Robb:
Yeah. And that also applies to self-employed people because self-employed have to pay both sides of the payroll tax. Right?
Austin Wilson:
Right.
Josh Robb:
And so they still have to pay theirs, but the employer’s side can also be deferred. So there’s a lot there that is very nice and it makes a lot of sense.
[33:14] – “Economic Injury Disaster Loan” for Small Businesses via the CARES Act
Austin Wilson:
Josh, I’ve heard of something called an EIDL, an E-I-D-L. That is, I believe stands for Economic Injury Disaster Loan. Can you tell us a little bit about that and how that impacts the CARES Act?
Josh Robb:
Yup. And this is again, the Small Business Administration. There’s loans that are available for a disaster. And this one has now been classified along that to enable this. So there’s a lot that’s similar to the Paycheck Protection Program. This is a loan to the small business. It can actually be a 30 year loan with again, a max of 4% interest rate. It may be lower for that as well. I haven’t seen as much guidance on that yet, and they can get up to $2 million on this loan. No collateral is required. You can request actually a grant of $10,000 once you’ve applied within three days and they’ll send it to you.
And even if you’re denied, you do not have to pay that grant back as long as you use it for a lot of those things above. The payroll, health insurance, salaries, rent, utilities, those type of things. And so again, this is a small business loan, usually will come from a local bank. There’s applications out there, but the idea is just, here’s a … let’s say I don’t have employees so much that that paycheck protection makes sense, but I do have costs for my business. That’s where this loan may make more sense and I can actually get a $10,000 grant ahead of time that is again, forgivable if I use it for those things.
And so let’s say I just have a small business, but I have an office. So I have rent, I have utilities and those are all the costs, but my revenue’s gone. This is the type of loan that they’re looking for. And again, with no collateral, nothing put up yet. Now if you default on it, they’ll actually come after you start grabbing things, but you don’t have to provide collateral ahead of time for it. So I will say all these things, there’s a lot out there for small business owners, whether you have employees or self-employed or whatever, please talk to your local bank. This is where the funding comes through anyways. Talk to local bank, get their opinion on what makes sense for you. Talk to your CPA if you have one or your financial advisor say, okay, based on my situation, which one makes the most sense? What do I qualify for? What are the rules? What do I have to keep an eye on?
Austin Wilson:
Yeah, for sure.
Josh Robb:
I did see one of the big recommendations was open up a second bank account within your company or however you manage your finances where this loan will go to, one or the other. That way it’s very easy for you to prove what you use the expenses for.
Austin Wilson:
Exactly.
Josh Robb:
Because in the end, you’d hate to have to pay back or be penalized just because you can’t prove what those expenses were for. So if you drop it all in, so let’s say you get that $10,000 grant, if I dropped that in a separate bank account and I can show every withdrawal came out of there and what it was used for, okay, here’s my bill for my electricity, here’s my gas bill, here’s my phone bill, here’s my internet bill, here’s my payroll tax, all that. It’s so easy to prove and then it’d be easy when it comes time to getting that grant forgiven that you’ll be able to show what actually was used for. So that is what they do recommend.
Austin Wilson:
So how does this affect small businesses operating at a loss?
Josh Robb:
There’s the net operating loss, which is a way of carrying forward losses. So if I have losses, and a lot of times you see real estate uses because there’s a big depreciation that you can actually show losses on your tax returns, but they may be more than what your actual income is. You can carry those losses forward and offset income in future years. You can actually go backwards as well and redo or reduce income from prior uses as well. So this net operating loss or NOL is, you’re actually able to go back five years now, they’ve extended how many years back you can go. And this applies for 2018 through 2020 meaning any of those years you had net operating losses, you can go backwards five years. So from 2018 you can actually go all the way back to 2013 and apply this net operating loss backwards.
There’s also an unlimited carry forward for future years. They also allow you to offset 100% of taxable income with your net operating loss. The whole purpose of this is, this is a loss that you’re going to use to offset income. And so they really want to just say, okay, how can we quickly get you tax relief or tax refunds as soon as possible for people? And so this allows you to really offset taxes and expenses quicker by going backwards and getting refunds from prior use because now you can offset more income or going forward saying, okay, I have less obligations so I don’t have to worry about setting aside as much quarterly estimates, those types of things.
[37:42] – Federal Student Loan Changes
Austin Wilson:
Right. I think another huge piece of the CARES Act for younger people specifically is student loans. So a lot of younger people hold student loans, specifically federal student loans that they use to pay for college or whatever. And a lot of that is a lot, there’s a lot of debt out there and a lot of their income goes towards that every month. One provision for the CARES Act is that federal student loan payments can be deferred until 9/30 of this year. So until really the fourth quarter, where the loans during that time will not accrue interest, which is really, really nice. And I think that that is a huge thing for younger people who have the student loans outstanding where they can free up a little bit of that money that they were spending every month on paying down their student loans just to live and to get by on. So that’s one thing that’s going to help out.
I think that one thing to remember is that while this is part of the CARES Act, it’s not automatic. So like if you have student loan, you have to go in and manually stop the payments during this time or else it will just continue to be paid and it’ll be out of your account. So that’s something to really consider if that’s something that you have during this situation as well.
Josh Robb:
Yeah, and that’s a big thing is this does not happen automatically. So if you’re making payments for federal loans, according the the CARES Act, you have to go in and actually stop the payments. They’ll continue to withdraw. Those will be considered voluntary payments because there is no interest accruing during this time, which would be beneficial if you can. But if there is a need for cash, this is one way that you can stop these payments without a penalty or any interest accruing.
Austin Wilson:
Yeah, exactly. And like you said, if you are paying those payments, not because you have to, but because interest is being not accrued during this time, that’s going to go on 100% go towards the principal on those loans during this period, which is actually beneficial if you can swing it.
Josh Robb:
Yup. And the other thing is if you’re in that debt collection because of on payments, they’re suspending that as well. They’re really trying to say those are probably people that are in the worst situation if they are already behind in payments and now they’re probably without jobs or struggling to make those payments, we’re going to stop all debt collection as well.
[39:51] – Healthcare Impacts & The Cost of a Vaccine
Austin Wilson:
Right. So Josh, how does the CARES Act impact healthcare and people’s benefits around that?
Josh Robb:
I’m assuming they just threw some of these in just because they’ve been waiting for the CARES Act to do this. But HSAs, the health savings accounts, if you have a high deductible health plan, you can have an HSA along with it. Drop money in, it grows tax free, it’s a tax deduction. It’s a great account to have. You can now buy over the counter medicine with your HSA and it counts. Also all feminine products now are included, I believe, as a qualified HSA purchase. Now, they did come out and say, if you’re on Medicare, anybody on Medicare, when they do come out with a vaccine, it will be of no cost for Medicare people which is great.
Austin Wilson:
Based on the information we have now, they have a lot of … even Johnson & Johnson this week has a front runner for vaccine that’s going to be going to trial soon. But actual vaccine for the mass public is not going to still be until early next year. So yeah, Medicare people who have that, they will be able to get that vaccine at no cost. I would imagine, and I would be surprised if it is not the case, but I would imagine that anyone with health insurance is going to be able to have that vaccine at little to no cost to them as well.
Josh Robb:
Yeah. And if you think about the flu shots that are out now as a preventative, most insurance companies allow that as there’s a no cost, no deductible type of thing because they understand the benefit of, if I can get that vaccine and not go through the treatments, it’s cheaper for the insurance company in general. So yeah, I would agree with you. I think a lot of people will follow suit from a company standpoint and for insurance.
Austin Wilson:
And another interesting piece of the CARES Act is that telehealth is covered by high deductible health plans. So telehealth is really where you can get on like, I think Teladoc is one of the famous brands of this. But you can pretty much see a doctor from your webcam on your computer, and a lot of them you don’t even know how to do that. You can just chat with them and talk to them. And this is a way that is, it’s right now very beneficial because people aren’t crowding into doctor’s offices for little things and it’s keeping people safer that way. It’s also cheaper. So these are things that are being caught or being covered now by high deductible health plans and this is probably something that is going to continue to grow and really come out of this whole situation as a more acceptable way to see a doctor, thanks to the CARES Act.
Josh Robb:
Yeah. And even our local doctor, the one that my family uses, they are now offering those types of services, for me to still talk to my local doctor. I don’t even have to go to a doctor I don’t even know. I can talk to my local doctor and do this via phone call or a Skype, those types of things. And it allows them to not be overwhelmed within their office and avoid possible contamination of this COVID virus if someone comes in with it and then I’m there with my little kid or something. I don’t want to be exposed nor do I want my kid to be exposed. It’s a nice thing, and I think in the future, like you said, this is a technology that’s available that once it’s been adopted, I don’t know why you wouldn’t continue to use it as an option.
Austin Wilson:
Exactly. And there’s going to be trickling effects of all kinds of industries that are being changed through this really challenging time that we’re in where pretty much almost anyone who can is working from home. That’s going to become a lot different. And I’m hearing leaders in companies and everyone talk about on the news how, wow, companies are really going to consider if they need that huge office building that costs millions of millions of dollars or if they could continue to use some of the technology that we’ve been forced to use to work from home to have smaller offices and stuff like that. So there’s going to be some trickling effects to what we’re experiencing now and it’s going to change business for sure.
Josh Robb:
Yeah, and one thing I want to point out, I don’t think I mentioned it much, but a lot of these programs like the paycheck protection and small business, a lot of these also apply to nonprofits and other organizations. So they’re really opening the door understanding that, if you’re a local nonprofit, all of a sudden your donations and your balance sheets have changed dramatically. If people are losing their jobs, they’re probably not donating as much. And so these grants and these different programs are available for not only for profit businesses but nonprofit businesses.
[44:06] – Eight Timeless Principles of Investing
Austin Wilson:
Absolutely. So as always, thanks for being here. We are just thankful that you guys are listening in in this very interesting, very challenging time around the world. So thank you for listening. Thank you for being here. As always, check out our free gift to you on our website. It is a brief list of eight principles of timeless investing and these are overarching principles that will keep you on track, especially when things are choppy and rough and not necessarily the most fun in the markets as they are lately. So check that out. It’s on our website.
Josh Robb:
And also if you like our podcast, the one today about the CARES Act, or any of our other ones, please make sure you subscribe to us. If you have any thoughts or want to hear a topic or any questions, please feel free to email us to hello at theinvesteddads.com. Share this episode with all your friends, especially, this is a lot of information. If you can think of somebody out there who may need to know this, please share this episode with them.
[44:56] – Check Out “Bear Market Brews” Thursday’s at 4 pm!
Josh Robb:
And also tonight, the Bear Market Brews Austin does a … what would you call this? A online-
Austin Wilson:
It’s a webinar.
Josh Robb:
Online hangout. Yeah, but it’s not a webinar. It’s not boring.
Austin Wilson:
It’s an online happy hour, yeah virtual happy hour.
Josh Robb:
Online happy hour, there you go. And so check it out tonight. Bear Market Brews, we have information on our website about that. You can also go to hzcapital.com/bmb, that’s the company we work for. And so Austin and Adam and Tony, the two founders of the firm get together, talk, hang out, walk through some of the stuff going on, like the CARES Act, and try to keep it light and fun. So check that out tonight. It’s live, and if you don’t catch it live, there’s always a replay as well for that.
Austin Wilson:
And remember, just be smart and use this time. Think of others. Don’t touch your face and wash your hands. Thanks for being here guys.
Josh Robb:
And don’t tough other people’s faces.
Austin Wilson:
Don’t touch other people’s faces. Yeah, Josh, that’s why we’re on webcam here.
Josh Robb:
It reminds me of that, you can pick your friends, you can pick your nose, but you can’t pick your friend’s nose. Now’s the worst time to do that.
Austin Wilson:
Also don’t pick your own nose because that could get virus in your nose.
Josh Robb:
Touching your face. All right. Thank you guys.
Austin Wilson:
Thanks, bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast.
There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for a loss of principal. There is no assurance that any investment plan or strategy will be successful.
