On August 8, 2020, President Trump released a set of executive orders related to coronavirus financial relief. These came after months of deliberations in Congress failed to result in any concrete plans to provide financial relief to Americans (surprise surprise) after the expiration of many of the CARES Act benefits in late July.
Some of the most relevant orders include:
- $400/week supplemental unemployment payments
- Payroll tax holiday from Sept 1 – Dec 31 to Americans earning less than $100k
- Extension of federal student loan payment relief through Dec 31
- Extension of eviction protections
Regardless of how we feel about President Trump in general, I wanted to explain how these executive order will affect your finances. Right now is stressful, and honestly, a lot of this stuff is confusing. My aim is to clear up what we know so far about the executive orders and how you should change your behavior as a result.
$400 Per Week Supplemental Unemployment Payments
This one is probably the most straightforward of all of them. If you’re currently receiving unemployment, you will continue to receive your state’s regular unemployment benefit, plus an extra $400 per week.
For example, let’s say you’re getting $450 per week from the state (that’s the max in California). With the supplemental unemployment payments through Trump’s order, you’ll get a total of $850 per week in this case.
It’s hard to say how long the extended unemployment benefits will go on for. According to Forbes, the expanded benefits will last until the fund runs out of money or December 6, whichever comes first. But given the fact that we really don’t know when this covid bs will be over, there’s a possibility it’ll be extended. Or maybe Congress will actually come to an agreement by then, who knows.
Should you take advantage of the $400 per week supplemental unemployment payments?
If you’re unemployed, absolutely. If you apply for your state’s unemployment benefits, the extra $400 per week will automatically be added to your payments. Even if you make $1 from your state’s unemployment benefits, you’ll still get the full $400.
Just remember, unemployment benefits will run out eventually, so I advise to continue looking for a job if you’re able to work.
Payroll Tax Deferral
This one was the one I was most confused about. Before I break it down, note that this deferral will only be applied to people with incomes less than $4k biweekly, about $100k per year. So let’s dive in…
What’s a payroll tax deferral?
A payroll tax deferral means you won’t have to pay your payroll taxes (7.65% of your taxable income) until later.
Let’s talk about an example. Say you make $1000 per week. Usually, somewhere around 6.2% of your taxable income, in this case $62, will be automatically taken out and paid to the government and you never see it. With the payroll tax deferral, you’ll be keeping that $62 every week. That means an extra $248 in your pocket every month. And this is supposed to go on from September through December, so you could in this example have an extra $992 in your pocket by Dec 31. Not bad, you think.
Will we have to pay back the deferred payroll taxes?
The first question that came to my mind when I read about the payroll tax deferral was “uhhh…does that mean we have to pay it back eventually?”
After some research, I found that at this point, we will have to pay it back.
Okay wait, so that’s potentially over $1000 you could owe the government in a lump sum when this is all said and done. Do you have an extra $1000 lying around?? I hope you do, but that’s beside the point right now.
The executive order does say the government will “explore avenues” to forgive these payroll taxes in the future, but that’s NOT guaranteed!
Payroll tax deferral: proceed with caution
As of now, I haven’t been able to find information on whether or not the payroll deferral will automatically be applied or if you have to somehow opt-in to the program.
I am going to assume the payroll deferral is automatic for now.
Just to be safe, do the below calculation to ensure you’ll have enough money in your account to pay back the payroll tax if you have to in the future.
Your pre-tax monthly salary * 4 * .062 = savings needed
Make sure you keep that amount in your savings until we have further information. Otherwise, you might be in for an unpleasant surprise when tax season comes around.
Extension of Federal Student Loan Payment Relief
This one is pretty straightforward, and it’s the same policy that’s been in place since the CARES Act was put into place in late March.
- You aren’t required to make any federal student loan payments through Dec 31
- You will not accrue interest on the loans through Dec 31
This does NOT mean:
- Your student loans are forgiven forever
- A portion of your loans will be forgiven
- You don’t need to make payments on your private loans
- Your private loans are not accruing interest
- You shouldn’t be paying off your loans during this time
If you’re really struggling financially, this executive order is great news. Even if you’re doing alright with money and still planning to make payments, not accruing interest right now is sweeeet.
Cool! So I Should Pause My Loan Payments Til December, Right?
That’s a no from me dawg.
I’ll explain. If you’re really, really struggling financially right now, yes, you can pause your payments.
If you’re not struggling, or if you’re struggling because you haven’t been able to control your spending (no judgement, we all have quarantine buys), I would highly encourage you to continue making student loan payments.
Student loans suck, and no one likes having them. The sooner you can pay them back, the sooner you’ll taste the sweet taste of extra money in your pocket every month. So if you have the means to continue paying your student loans right now, keep doing it. Putting it off for the next 4 months is only going to extend the amount of time you’re in debt for, and that sucks.
Plus, if you’re the kind of person who tends to spend money when you have it, your money is probably going to go somewhere you will end up deciding would have been better off going to your loans. And no one likes that feeling.
Extension of Eviction Protections
Readers…this one is DICEY.
The executive order says the US will “minimize, to the greatest extent possible,” evictions and foreclosures during covid-19.
Cool. I like the sentiment, but really, I would advise against not paying your rent/mortgage right now. Or ever.
You’ll Have to Pay Eventually
If you don’t pay your rent/mortgage now, you’re going to have to pay it sometime. The CARES Act protected against late fees, but I don’t see any language in the new executive order that offers the same protections.
For example, where I live, there’s a $50/week late fee. So if I don’t pay my rent for 3 months and decide to pay it later, I’ll end up paying an extra $1000 on top of the extra rent money I owe.
Again, not sure if late fees will be waived with this order as well, but I definitely don’t want to find out the hard way.
Just Because the Federal Government Says They’ll Protect You Doesn’t Mean It Will
Just because the new executive order says you can’t be evicted or foreclosed on doesn’t mean the government actually has the means to enforce it. You could still be kicked out of your place illegally. Would you be willing to spend the time, money, and energy to fight the person or company who kicked you out in court?
So please, please, if you have the means to pay your rent/mortgage right now, please do. You can also look into federal, state, or local assistance programs that may be able to help you pay your rent or mortgage.
And there you have it. This is all information as of August 8, and I will try to update as necessary.
Also, please note that President Trump has signed this executive order, but we don’t know yet whether he has the means to enforce it, either. There’s a lot of promises in it, and some states may not be able to keep up with the demands. Stay tuned.