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Planning During A Financial Crisis

Planning During a Financial Crisis

    Posted by on May 29, 2020
    11 min read

Many of our clients and friends of the firm have expressed concern about the security of their children’s jobs and futures. The children – and grandchildren – range from college-aged students and young professionals to new parents and those who find themselves part of the sandwich generation. In this new era of COVID-19, access to accurate information is critical in order to understand all the options available. The components listed below summarize regulatory changes that may impact the financial well-being of a family member. Please let us know if you have questions or if we may help.

Co-authored by Bob Wolfe, Associate Wealth Advisor.

Planning Considerations

Through the CARE Act, the federal government will be sending stimulus checks to qualifying individuals. The checks are meant to help Americans stem the tide of rising unemployment and upcoming bills until other government aid can be provided. Unlike unemployment insurance, if you have filed a tax return, you will not need to apply to receive your benefit. However, who will receive a check and how much can you expect to receive? Read on to find out.

Who Will Receive Stimulus Checks?
Individuals who have a Social Security number, have previously filed a tax return, and not claimed as a dependent on another taxpayer’s return will receive a cash benefit if they fall within the income thresholds (see below).

How Much You Can Expect to Receive
The amount you receive will depend on your filing status, previous earnings history, and dependents.

For taxpayers that previously filed as Single, you may receive a maximum benefit of $1,200. However, if your Adjusted Gross Income (AGI) is above $75,000, the amount will be reduced. For every $100 you earn over $75,000, your benefit will be reduced by $5. Thus, if you earn more than $99,000, you will not receive any benefit.

Married couples filing jointly may receive a max benefit of $2,400. Benefits will be reduced with an AGI above $150,000. Thus, if you earn more than $198,000, you will not receive any benefit.

Head of Households may receive a max benefit of $1,200. Benefits will be reduced with an AGI above $112,500. Thus, if you earn more than $136,500, you will not receive any benefit.

Married couples and Head of Households will also receive an extra $500 for every dependent claimed under the age of 17.

The benefits will not be taxable.

Adjusted Gross Income
Your AGI is a calculation of your gross income minus certain adjustments. Your gross income factors in wages/business income, dividends, capital gains, alimony, etc. Adjustments include items such as student loan interest, IRA contributions, alimony payments, etc.

You can find your AGI on line 8b (for 2019 returns) or line 7 (for 2018 returns).

Which Tax Year Will My AGI Be Based On?
Your AGI will be based on your 2019 tax return, if filed. If you have not filed yet, your 2018 will be reviewed to establish eligibility.

Consider filing your 2019 return ASAP if you: 1) did not file in 2018 or 2) have lower income in 2019 compared to 2018. If you are concerned about having funds to pay the federal tax liability that becomes due, the IRS allows you to defer payment until July 15th.

Receiving Your Benefit
An initial wave of taxpayers have already received their stimulus benefit. If you haven’t received one, the waiting period will depend on how you are expected to receive your benefit. If you have previously received a refund from the IRS through direct deposit, the benefit will automatically be deposited to the same bank account sooner rather than later.

If the IRS does not have your direct deposit information, your benefit will be sent as a check through the mail. With this method, you may not receive the check until late June.

Is There Any Way to Receive My Benefit Earlier?
You will receive your benefit much earlier if the IRS has your direct deposit information (from previous tax filings). The IRS has a created a webpage (Economic Impact Payments) that individuals can log onto. From there, you will be able to access a “Get My Payment” application that will allow you to provide your direct deposit info and keep tabs on the status of your benefit.

Losing your job is one of the scariest life events to go through. Luckily, both states and the Federal Government has taken steps to help individuals continue paying for their day-to-day living expenses while they begin a job search.

Unemployment Insurance is a joint federal-state program to provide cash benefits to eligible workers who have become unemployed. Though the states follow a federal guideline, each state administers its own unemployment program and may have its own qualifications.

Qualifying for Unemployment Insurance
To qualify, you must:

    • Have lost your job “through no fault of their own”
      • Such as an employer’s lack of work (furlough) or layoff due to downsizing. You do not qualify if you were terminated due to misconduct or voluntary quit
      • The CARE Act extends benefits to those who are self-employed (gig workers, contractors, freelancers) and possibly part-time workers
    • Ready, willing, able, and actively seeking work
    • Meet earning requirements during “Base Period” – First 4 quarters of the last 5 quarters

      Source: New York State Department of Labor
      Some states also have an “Alternate Base Period” if you do qualify under the basic version.
    • New Jersey
      • Must have earned at least $200/week during 20+ weeks OR
      • Earned at least $10,000 total
      • There are distinct eligibility requirements for special cases (teachers, corporate officers, business owners, etc). If this applies to you, be sure to visit the New Jersey Department of Labor website
    • New York
      • Must have worked and paid wages in two calendar quarters (job must be covered by unemployment insurance) AND
      • Paid at least $2,600 in one calendar quarter AND
      • Total wages paid must be at least 1.5x amount paid in highest earning quarter. Exception: If your highest earning quarter wage was $11,088+, you must have been paid at least $5,544 total in other three quarters of base period

How Much Can I Expect to Receive?
Unemployment Insurance is not meant to replace your paycheck and typically covers approximately 45% of lost income. Each state uses your past earnings to determine your benefit amount. Some states use your highest-paid quarter while others look at your annual earnings. A maximum weekly benefit also exists, meaning high wage earners will receive capped benefits.

Most states have a calculator you can use to estimate your benefits. Simply search “[Your state] unemployment benefit calculator.”

The CAREs Act also provides an extra $600/week in emergency federal compensation. Those who qualify for state unemployment insurance will also qualify for the additional federal compensation. While self-employed workers can receive both state and federal benefits, they will be subject to different calculations. Part-time workers can also receive both state and federal benefits.

How Long Your Benefits Will Last?
The CARE Act will extend state unemployment benefits from a maximum of 26 weeks to 39 weeks. The emergency federal compensation will continue until July 31, 2020.

Filing a Claim to Receive Benefits
You should file a claim in the state that you were employed in. You will want to prepare various documentation (Social Security Number, employer information, etc.) before beginning the application process. Each state has different requirements, so be sure to double check what’s needed for your own.

New Jersey Residents:

    • Can apply online or by phone. Online application is generally a smoother process. Step-by-step instructions for each are provided on the NJ Department of Labor unemployment website
    • All applications filed during the week will be backdated to the Sunday of the week in which they are filed. For example, if you apply on a Tuesday and are approved, you will still receive a full week’s worth of benefits rather than a pro-rated amount.
    • Online applications should be filed corresponding with the last 4 digits of SSN. If between:
      • 0000 and 2500, access the application from 8 AM to 10 AM
      • 2501 and 5000, from 10 AM to 12 PM
      • 5001 and 7500, from 12 PM and 2 PM
      • 7501 and 9999, from 2 PM and 4 PM
      • If you miss your designated window, access from 4 PM to 7 PM
      • Regardless of claim time, your payment is processed overnight
    • For phone applications the Call Center you dial into depends on your location:
      • North New Jersey: 201-601-4100
      • Central New Jersey: 732-761-2020
      • South New Jersey: 856-507-2340

New York Residents:

    • Can apply online or by phone (1-888-209-8124). Online application is generally a smoother process. Step-by-step instructions for each are provided on the NY Department of Labor unemployment website
    • NY applications will also be backdated to Sunday
    • NY has waived the typical 7-day waiting period for benefits
    • Claims should be filed corresponding with your last name:
      • A-F, file on Monday
      • G – N, file on Tuesday
      • O – Z, file on Wednesday
      • If you miss your filing day, you can still file on Thursday, Friday, or Saturday and your payments won’t be delayed.

If you’ve been furloughed or are now unemployed, do you know how you’ll get healthcare coverage? One of the realities of health care in the United States is that coverage is often tied to employment. The Census Bureau estimates that over 50% of the population rely on their employers for insurance. As unemployment continues to rise, it’s important to understand the alternative options are available to you.  We’ve outlined COBRA, Medicaid and CHIP options for how you can continue to get healthcare coverage amid the economic crisis resulting from the COVID-19 outbreak.

Consolidated Omnibus Budget Reconciliation Act (COBRA)
The COBRA Act allows most employees and their families to have access to their employer’s group health coverage should they suffer through a serious life event. In circumstances where your employment has been terminated or work hours are reduced, you, your spouse, and your dependents can purchase the same health coverage for a maximum period of 18 months. If you rely on your spouse for health coverage and your spouse dies, the period extends to 36 months. After a job loss, a special enrollment period is opened for 60 days and you must enroll within this timeframe.

There are a couple caveats to understand with COBRA. The first is it can be costly – your employer may require that you pay up to 102% of the full annual cost. To be clear, most employees pay only a portion of the total cost with their employer covering the rest. If enrolled, you’ll have to pay the full amount (employee + employer) and an extra 2%. Though expensive, the positive is that you can maintain your current network of doctors/health care professionals.

The second caveat is that not all health plans are covered by COBRA. Typically, employers that have less than 20 employees (both part-time and full-time) are exempt as well as plans sponsored by the Federal Government or by churches/related organizations.

Medicaid & CHIP
Medicaid is the most generous healthcare welfare program currently available in the country, and as a result its requirements are the most stringent. For most services, there are no out-of-pocket costs ranging from hospital stays and doctor visits to prescription drugs. Most hospitals accept Medicaid; however, doctors can choose not to participate. It is designed for lower-income individuals, but the rules vary state by state. In order to qualify, you must have income less than 138% of the federal poverty level ($17,236 per individual or $23,335 per couple). Those individuals who are not covered due to exceeding income limits that have children, their children may be eligible for the Children’s Health Insurance Program (CHIP). If you find you may be eligible, you can apply at any time by filling out an application online at Health Insurance Marketplace or going direct to your state’s Medicaid agency.

Obamacare/Affordable Care Act
Open annual enrollment starts in the fall, but if you lose health insurance coverage you are immediately eligible for coverage under the Affordable Care Act (ACA) for a 60-day period. The ACA does not exclude certain health conditions and provides a subsidy towards premium payments. You will be required to report your Adjusted Gross Income, which must be no more than 400% of the federal poverty level ($51,040 per individual or $67,640 per couple). Should your income deviate throughout the year and you earn above what you say you earned, you may be required to pay back a portion or all of your subsidy come tax time or visa-versa. This expected vs actual income is reconciled by filing Form 8962 with your taxes. These plans generally have high deductibles with low premiums.

Healthcare Coverage with Short-Term Plans
A last resort that should be considered carefully is a Short-Term plan. As of 2018, the federal government announced that individual plan buyers who are unable or unwilling to use the ACA can purchase Short-Term plans. However, the availability varies on a state-by-state basis and are prohibited in both New Jersey and New York.

If you are in a state that allows for these plans, it’s recommended you thoroughly research the options as they are often not fully comprehensive.

The CARES Act passed on March 27th gives a much-needed temporary relief for federal student loan borrowers, and there is a lot to get excited about if you qualify. While it does not reduce overall loan cost, it does “kick the can” down the road for when you are better able to pay.

The main provisions regarding student loan borrowers are as follows:

    • Suspended payments (forbearance) for six months through September 30, 2020
    • These six months count towards loan forgiveness programs (Income Driven Repayment & Public Service Loan Forgiveness)
    • No interest will accrue during this time
    • Employers who contribute to employees’ student loans receive a tax break
    • Those borrowers currently in default will be able to count their six months of payment suspension towards loan rehabilitation
    • There will be no federal collection from alternative payment sources including tax refunds and wage garnishment

Loans that Qualify
Most types of federal loans qualify with the exception of Department of Health loans and Federal Family Education Loans (FFEL), this legislation excludes Private Loans. FFEL loans were generally borrowed prior to 2010 when private institutions were allowed to lend. If you have FFEL loans or a Department of Health Loan, you have the option to consolidate them with your other Direct Federal loans to have them qualify. Defaulted loans may be Consolidated or Rehabilitated, the latter avoiding a sting to your credit report but having far more onerous requirements. The act helps avoid six months towards the nine months of qualified payments for rehabilitation.

Continued Payments
If you are eventually going for forgiveness and are on an Income Driven Plan, it makes little sense to continue to make payments given that it will not change future payments and will pay more to a loan which you will receive forgiveness down the line. If you have funds available to pay down the loans and are not seeking forgiveness (on standard repayment), you would benefit by applying it to the loan principal which should automatically be happening. Moving forward if you have the capacity, you can provide instructions for future payments above the required amount such as indicating they should be applied to the highest interest rate loan principal first. If you have found payments are being made without your intention, contact your servicer right away.

Relief past September
One of the many benefits of federal loan programs are Income Driven Repayment (IDR) plans which is where much of the complication starts to come into play. Effectively a number of plans have amassed over time with their own criteria and eligibility but these plans will cap payments to 10-20% of your Adjusted Gross Income depending on the plan and whatever balance leftover would be forgiven and taxable as income after 20-25 years (not to be confused with Public Service Loan Forgiveness which is 10 years and not taxable). Seeking long term forgiveness generally does not make sense unless student debt is in excess of 1.5 times income for the foreseeable future, but given recent events this could really be IDR payment plans’ time to shine if you foresee difficulties paying at the end of the six-month period. This is because should your income have dropped throughout the year, you may recertify your income to reflect your decreased wages resulting in as little as a $0 monthly student loan payment.

Private loans inherently have less protections than federal. If you have difficulty with paying your private loans it is best to contact your servicer. Every loan has a “Master Promissory Note” or MPN that dictates any repayment provisions within the loan which is different for each bank.

Income Driven Repayment Plans
Generally speaking, Pay As You Earn (PAYE) & Revised Pay As You Earn (REPAYE) are the most preferable at this time. The main differences between PAYE and REPAYE is that REPAYE will always take into account a spouse’s income, does not have a capped payment, and 50% of unpaid interest is subsidized if payments don’t cover the interest. REPAYE generally makes the most sense if at some point you would like to refinance and pay the loans off after benefiting from the subsidy payments. It is important to note that specific loans are excluded from these programs but you may notice that some loan types are eligible once consolidated. You can do so by logging into studentaid.gov after determining which payment plan you would like to enlist in and clicking on the “Consolidate my loans” section. Towards the end of this process it will request a repayment plan you would like to get on.

Note: If you currently believe you are on track towards forgiveness, consolidation may restart the clock towards qualified payments.

Getting on an Income Driven Repayment Plan
If you found a loan you are currently eligible for and find you may have difficulties after the forbearance period, you likely will benefit from tying your income to payments. You can do this by logging on to studentaid.gov, and navigating to the “Manage Loans” tab and the “Apply for an Income-Driven Repayment Plan.” From here you will be able to get established on a plan, or update your income to recalculate your IDR payments.

While new regulations never fail to add to the complexity of our student loans, they provide much needed flexibility to student loan borrowers. Take this time to understand your situation and ensure that your student loans don’t get ahead of you.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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