In Washington, D.C., one of the city’s largest streets connects monetary policymakers at the Federal Reserve with their fiscal counterparts in Congress. It’s a telling metaphor for the shared race both teams seem to be on: buffeting the economic fallout from the coronavirus.
Officials at the Fed haven’t sat still, with the U.S. central bank slashing rates to zero in a surprise meeting March 15 and implementing 11 different emergency lending facilities to keep money flowing freely throughout the economy. The rest has been left up to Congress.
President Donald Trump on March 18 signed a $100 billion-plus emergency virus relief bill, which established paid and family sick leave policies and expanded unemployment insurance — all of which have the potential to impact your wallet. It comes less than two weeks after Trump signed the first $8.3 billion response package into law on March 6.
But lawmakers in Washington dropped a bazooka on March 27: a third economic relief plan totaling more than $2 trillion. The Coronavirus Aid, Relief and Economic Security (CARES) Act is the largest fiscal care package in modern American history. The Senate followed it up on Tuesday with a fourth round of aid.
“The Federal Reserve only has so many tools in its toolbox. They are powerful, but they are not a panacea,” says Mark Hamrick, Bankrate’s senior economic analyst and Washington bureau chief. “This is why attention has been laser-focused on Congress and the Trump administration as we look for a fiscal response. In a variety of forms, these measures are intended to address the solvency of both individuals and businesses. The fear is, without such measures, the economy will experience an even more severe and prolonged contraction.”
With the news cycle moving at a breakneck pace, it can be hard to wrap your head around all of the economic proposals that have the potential to impact your wallet. Here’s a breakdown of seven measures, along with where they currently stand — plus how they could help backstop your finances against an ailing economy and where they may fall short, according to experts.
1. Send checks of $1,200 or more to many Americans (enacted)
Implemented through CARES Act
Next steps: Distributing checks through direct deposit and U.S. mail, with last payment going out in September
As part of the massive $2 trillion-plus relief package, lawmakers are sending individuals direct checks to many Americans in low- and middle-class income categories. Treasury Secretary Steven Mnuchin estimates that more than 80 million Americans will have received payments by April 22.
How much someone receives is based on their annual adjustable gross income (AGI), which is earnings after top-line deductions. Individuals making up to $75,000 a year will receive the full $1,200 relief payment, while couples making up to $150,000 receive $2,400. Both groups receive an additional $500 per child under age 17.
After that, payments are phased out to individuals who make more than $75,000 annually, with the lump sum tapering off by $5 per every $100 over the threshold. An individual making $80,000 a year, for example, would receive a $950 payment. Individuals who make more than $99,000 and couples who bring in $198,000 annually won’t receive a check at all. Checks are based on income during the 2019 tax year, if they’ve already been filed. If not, they’d be based on a 2018 filing.
If you have a bank account on file with the IRS, you’ll receive your stimulus payment through a direct deposit. Other Americans, however, will receive paper checks by mail, a process that will take much longer, with the first payment starting April 24 and the last round going out Sept. 11. Here’s how to track your stimulus payment.
The idea behind giving Americans checks is to quickly circulate money back into the economy faster than a tax cut. It also comes with less restrictions, with Americans being able to use it however they choose. But a Bankrate survey from March found that the payments won’t be enough to cure Americans of their financial hardship. Nearly a third of those expecting a check say the cash won’t sustain their financial well-being for an entire month, including 8 percent who say it won’t be enough to help at all.
2. Established a “Paycheck Protection” program
Implemented through CARES Act
Next steps: Signing into law fourth bill that replenishes program
Through the CARES Act, Congress earmarked $349 billion worth of funds that would ultimately end up in the hands of small businesses. Known as the “Paycheck Protection Program,” the funds are administered through the Small Business Administration and are deemed forgivable, so as long as firms use the cash to keep employees on their payroll and pay them for eight weeks.
Though the provisions won’t provide Americans with money directly, the funds will still play an important role in preventing more people from losing their jobs and income. But the money ran out quickly, drying up on April 16 after around 1.7 million loans were distributed.
That could soon be changing. The Senate on Tuesday passed a fourth bipartisan bill totaling $484 billion, which allocated more than $300 billion toward replenishing the program.
3. Suspend student loan payments, interest accrual postponed until September (enacted)
Implemented through CARES Act
The CARES Act helped take some of the burden off of the millions of Americans with student loan debt by suspending payments until Sept. 30, and even better, stopping interest from accruing. Given that this is automatic, you shouldn’t have to contact your loan servicer unless you have questions. Those on automatic payments should find that those have been temporarily postponed.
This doesn’t, however, apply for private student loans, though some lenders and servicers may be able to work out a payment plan if you’re facing hardship because of the pandemic.
If you’re still financially able to make your monthly payments, you could make headway on what you owe. You may be able to successfully decrease the life of your loan if you pay a substantial amount of your principal amount off over this period.
4. Allow up to $100K to be withdrawn from retirement accounts penalty-free
Implemented through CARES Act
If you’ve faced financial hardship and have a 401(k) or IRA, you can now tap into those retirement accounts, thanks to the CARES Act.
Individuals can take up to $100,000 — or 100 percent of their vested account balance if it’s less than that amount — from their retirement accounts through “hardship distributions” from now until December 31, 2020, all without the typical 10 percent early withdrawal penalty.
It can be a helpful tool for consumers who aren’t able to tap into an emergency fund but still want to avoid taking out a loan, which could have a potentially high interest rate and make repayment difficult. You’ll still, however, need to pay income taxes on that money, but can do so over a three-year period. You can also pay back all or a portion of what you owe without it being counted against the maximum annual contribution limit.
“Definitely the benefit of dipping into your retirement savings is that the person who you owe this money to is yourself,” says Edward Gottfried, a retirement expert at Betterment for Business. . “It opens up some flexibility for Americans who have been lucky enough to be employed by a company that has a 401(k), to be able to use that 401k if they have an immediate hardship or need.”
Consumers will need to provide some sort of proof with their employer that they’ve faced hardship from the virus. Hardship can be for reasons such as contracting the disease itself or caring for a family member with the disease, though specific documentation isn’t required at this time, Gottfried says.
But you may want to proceed with caution before withdrawing. First make sure your plan allows for hardship withdrawals, then consider taking funds out in installments to prevent withdrawing too much. The more you take out, the longer it could take your account to recover what was withdrawn.
“You can take $1 out now and repay that $1 in three years, but if the market went up 25 percent, it would be worth $1.25. What you are repaying yourself is less than what it would’ve been worth,” Gottfried says. “Think about taking out as much as you need right now, knowing you can always take out a little bit more as you need to.”
Separate from relaxed emergency withdrawals, the CARES Act also suspended required minimum distributions (RMDs) from savings vehicles such as a 401(k), IRA and 403(b)s. That gives retirees’ accounts a chance to pick back up, amid some volatile and severe market swings.
5. Delay the tax deadline to July 15 from April 15 (enacted)
Implemented through national emergency declaration
The IRS is extending its tax deadline to July 15 from April 15 to help individuals who have felt the economic woes of the coronavirus. Individuals won’t be charged any interest, fees or penalties, and the executive order includes both filing and making payments.
Bill Hoagland, senior vice president at the Bipartisan Policy Center, says it’s not a move to be underestimated. As he sees it, having that delayed payment could potentially pad wallets with a few extra dollars for those who owe money for 2019.
“Quite frankly, for anyone that owes taxes, that could be the most beneficial in the short term as opposed to them getting a thousand dollars,” says Hoagland, who specializes in analyzing economic and fiscal policy at the think tank.
6. Establish paid sick leave policies for individuals, families (enacted)
Implemented March 18 in second relief bill
The second coronavirus relief bill created new measures supporting individuals who need to take time off work — either to recover from an illness or to care for an ill family member. Under these new provisions, individuals can take a two-week sick leave or a three-month leave to care for a child out of school or daycare. Sickness includes not just those who are infected but those who are quarantined with possible infection, according to the bill.
It’s an update to the Family and Medical Leave Act of 1993, Hoagland says.
There are, however, some restrictions. The new provision applies only to firms with less than 500 employees. With the caveat, it will likely exclude a lot of people, judging from Labor Department data. Nearly half (or 48 percent) of workers in the private sector have jobs at firms with 500 or more employees.
Paid leave also isn’t guaranteed to emergency responders or health care providers, given that their presence is needed to fight the outbreak. Meanwhile, firms with fewer than 50 employees can also be exempted if the Department of Labor deems that the measures would “jeopardize the viability of the business.”
Some large employers have chosen to provide leave with pay. Large companies like Walmart said that they would give their employees sick leave. Other retailers, such as Old Navy, announced that they will continue to pay employees, even though they’ve temporarily shuttered to halt the spread of the virus.
Still, 11 percent of private-industry workers at firms with more than 500 employees do not have access to paid sick leave, according to the Department of Labor.
When it comes to pay, individuals may see their income drop as a result. Those on sick leave would be paid no more than $511 each day, while those who are caring for a family member would be paid up to $200 each day, according to the bill.
5. Expand unemployment insurance
Implemented March 18 in second relief bill
Expanded March 27 in CARES Act
Congress’ second coronavirus relief plan provides $1 billion to expand unemployment insurance. Half of that amount is reserved for building out staff to administer and process unemployment insurance applications, as an unprecedented uptick in applicants overwhelms the system. The other half is as an emergency grant for states that experience at least a 10 percent jump in unemployment.
That would be based on jobless claims, meaning states wouldn’t have to wait several months for the Labor Department’s broader monthly jobs report to release, says Michele Evermore, senior policy analyst at the National Employment Law Project who specializes in unemployment insurance.
Applications for unemployment insurance have posted back-to-back historic surges, with about 22 million Americans over the past five weeks. That likely means the unemployment rate is around 18 percent, after holding at 50-year lows just a month ago. States hit hard with skyrocketing claims include Pennsylvania, Michigan and Rhode Island, as well as the sites of original outbreaks such as New York and California.
The CARES Act expanded unemployment insurance for up to four months, while also offering individuals an additional $600 each week. Eligibility requirements are also now expanding, allowing gig economy workers and freelancers to apply for benefits. They were originally excluded.
Where the proposals may fall short
Much of the current debate so far has centered around the effectiveness and implementation of sending hundreds of millions of American a check.
Some critics have argued that capping income requirements could potentially exclude individuals living paycheck-to-paycheck in larger metropolitan areas with higher costs of living. Meanwhile, determining who gets a check based off of tax returns from even just a year back might not take into account who has lost their job in response to the outbreak.
The decision to “means-test” checks is important for appeasing officials who might be worried about budgets and deficits, but it does come with complications, according to Bob Greenstein, founder and president of the Center for Budget and Policy Priorities, a nonpartisan Washington think tank.
“Let’s say you have someone making $100,000 a year who is still working remotely,” Greenstein says. “Getting them a check isn’t going to lead to that much additional purchasing. Compare that to an unemployed worker who made $35,000 a year and has been laid off and has no income at all, every dollar you give that person is likely going to go back into the economy.”
Some lawmakers have proposed sending Americans more direct payments, if the outbreak worsens. Meanwhile, other policy analysts have argued that the second bill’s leave policies didn’t do enough to protect employees at larger corporations.
Regardless of the action, a policy response is going to be important, Bankrate’s Hamrick says. Many Americans were living from paycheck-to-paycheck before the outbreak, according to a Bankrate survey from May. The current environment will only exacerbate the thorny consumer finance problem.
“Between unemployment aid, direct cash assistance and loans, the idea is to help Americans keep current on their bills and keep food on their tables,” Hamrick says. “Ideally, if businesses both large and small can avoid more wide-scale layoffs, workers can avoid the worst-case scenario in terms of the economic fallout from the global pandemic.”
What you should do in the meantime
Experts aren’t so sure how soon the U.S. economy’s return to normal will be. Even if shelter-in-place orders are lifted, there’s a chance that some businesses may close before that happens, leaving more out of work. Meanwhile, other consumers might be too worried about leaving their homes without more widespread testing or a vaccine.
“We face the prospect of an economic downturn that could easily be deeper and more serious than the Great Recession,” Greenstein says. “We need to think big and act boldly to meet the crisis and keep the economy from suffering [from] what could otherwise be its most severe setbacks in decades.”
Experts also say an economic response won’t stave off that recession. As long as businesses are shut down, there won’t be anywhere substantial to spend the money that Americans do have.
“If you’re sequestered away and supposed to stay hunkered down in your house, you’re not going out to your restaurants,” Hoagland says. “At the end of the day, what will really cure this recession will be a clear understanding that we’ve got this virus under control and who knows when that will be.”
As the U.S. economy enters uncharted territory, it’s important to place a priority on your personal finances as best as you can. Separate what you need to do into a short- and long-term scenario, Hamrick says. That includes saving for emergencies and retirement, as well as paying down debt.
For your emergency savings, consider opening a high-yield savings account, which still offers a rate that beats the market average. It’s also a good idea to stay up to date on programs at the state and federal level aimed at reducing financial hardship.
“The president has likened the current situation to a wartime footing,” Hamrick says. “At some point, we will emerge from both these health and economic crises as we have from every other challenging period in our nation’s history.”