#10: The CARES Act - What Doctors Need to Know and Care About

Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now let's get on with the show. Hey, everyone. Hope you're having a great week in spite of all the challenges. If you haven't heard it enough, I just want to say thank you for doing all that you're doing, essentially risking your lives during this whole pandemic, trying to do my part to bring any information that I can to you that will enhance what's going on for you in terms of your life. One of the things that I wanted to talk about today was the CARES act, the Coronavirus Aid, Relief and Economic Security Act. There's been much said about it, and you might have heard some rumors as to some checks that are going up for some people and some loans that are out there. And I think there's been a lot of confusion as well as misinformation. And so, to the best of my ability, I'm going to share with you what I know and what I think physicians should ultimately care about when it comes to the CARES act and how they can take advantage of the opportunities and the benefits. Yes, this does apply to physicians. It applies to everybody in the country. I mean, it's a $2 trillion bill, and it's allocated to individuals, to small and big businesses, as well as governments, healthcare, education. I mean, everyone ultimately benefits from this in some way. But it really helps to understand how you do and how you can apply for some of these things. Just want to start out by stating that I am not a tax or financial professional. Then you should definitely consult one before making any decisions on your own personal situation. So the first topic I want to talk about are these individual checks and these stimulus checks. This is something that I've never seen happen before, but I guess it's happened before in the past. But the government is essentially sending out checks as a stimulus. It's essentially a rebate check on your 2020 taxes, but in essence, it's just basically free cash. Not everyone gets it, however, so only certain people qualify. And I know that some people have heard, you know, do I qualify or not? Or they're wondering, here are the details. So it's basically a $1,200 check. If you are an individual and you have an adjusted gross income less than $75,000, then you're eligible to get that $1,200 check. If you file jointly and you have an adjusted gross income of twice that threshold or so, $150,000, you're going to receive a $2,400 check. $2,400. And for each kid and each child that you have under 17 that is your dependent, you will receive an additional $500. So for, let's just say a couple that has an adjusted gross income of $120,000 and they have two kids, they received a $2,400 check as well as two $500 checks. So a total of $3,400. Now, there is a phase out, meaning that above that, it doesn't mean that you're completely non eligible. It just means that there are some above thresholds where it starts to phase out in terms of how much you get. So you can still receive a partial check. Basically, for every $1,000 of adjusted gross income above those thresholds that I mentioned, you receive about $50 less. So to make it really clear, if you're single without children, your adjusted gross income is greater than $99,000, then you're not eligible anymore. If you're a married couple and your adjusted gross income is greater than $198,000, which is twice that, $99,000, then you'll be totally phased out and not receive anything. The adjusted gross income that they use to qualify you for this is based on your 2019 tax returns, but if you haven't filed yet, it's based on your 2018 tax returns. So for this, it's important to know what your adjusted gross income is on your 2018 tax returns and what it could be on your 2019 tax returns. You can be strategic about it, right. And decide what you put forward to the government to basically qualify for this check or not. Now, we've talked about something called real estate professional status in the past, which helps you essentially offset some of your adjusted gross income using depreciation for real estate properties. And, and if that is something that you are utilizing at this point and it helps drop your adjusted gross income below those thresholds, guess what? You're gonna get a check. So it's important to know what your own numbers are and how to ultimately utilize the benefits that you have to try to get you under that limit to receive some of those checks. Cause, yes, physicians are affected by this as well. I know plenty of physicians who have practices who are currently shut down during this period. I know that some of them are transitioning over to telemedicine. But. But it's still, it's been a challenge, especially for those of you who have payroll. Next, I want to talk about withdrawal from retirement accounts. Now, there have been two major changes that people need to know. Number one, has to do with withdrawing money from your ira. Now, in the past, if you want to take an early withdrawal, you had to pay a 10% early withdrawal penalty. Not only do you take the 10% early withdrawal penalty, but you are responsible for the taxes when it comes out. Right. And that's tax at your ordinary income tax. That hasn't changed. The thing that has changed is the amount that you can take. You could take up to $100,000 from your IRA without that penalty in place, you're still responsible for those taxes, but you actually have three years to pay off that tax. So you could spread it out over the next three years. So in 2021, 2022, 2023, you could pay those taxes off in pieces. Now, if you decide, okay, I don't need that money or I don't need all of it, you just want to have like a cash reserve just in case you can actually put it back over the next three years and that'll minimize your tax burden. Now you can also access money from your 401k, 403b or 457b and prior. And previous to this whole pandemic event, you could actually take a loan against it. And you could take a loan of up to about $50,000 or 50% of your account balance, whichever one is less. Well, now those limits have been increased. Now it's a hundred ,ousand dollars or 100% of your account balance. And previously you could take it off for 60 days, but then you had to return it, otherwise you would have to pay taxes on it. Well, now you actually have three years to pay back the loan without having to pay any taxes on it. So depending on your retirement accounts are structured, you could potentially like putting these two things together. You could actually take out about $200,000 from your retirement accounts if you really needed that cash for whatever reason. Right. Let's say you didn't want to take a loan like some of these other loans that we're going to talk about later, or you don't want to sell some of your other assets. Right. You could take $200,000 individually. As a couple, you could take up to $400,000. Now, of course, that's assuming that you have that amount in your account to begin with, but that is a benefit that can be available to you. They say it's available for people that are affected by the coronavirus. Either you got it, your family got it, or somehow you were financially impacted by it. And my guess is that pretty much everybody is. Now for most of you, the downside to this is that a lot of your money in your retirement accounts is probably not sitting in cash. It's probably sitting in some sort of public equities like a stock or a mutual fund. So you would have to actually sell it to get that cash to be able to withdraw it. Now there's a downside to that, right, which is you sell it, then ultimately you're kind of giving up that tax protected growth that you could have in the future. Now if the stock market happens to take another tumble, then you're probably going to be happy that you sold when you sold. But most likely over the long term, it's probably in your best interest to keep it there unless you actually need that cash. Now you've probably heard quite a bit about these mortgage benefits. Like if you're experiencing financial hardship, you can ask your lender, especially if you have a federally backed residential loan like from Fannie or Freddie Mae, you can ask for forbearance on it doesn't mean that you won't have to pay it in the future. It's just delayed. So these lenders can grant some sort of request that you have it extended or forbearance for up to 180 days without any sort of extra fees, interest or penalties. You just have to literally call your bank and talk to them about their forbearance program. Now there's some questions. If you're a landlord and you have a federally backed multifamily loan, whether there's some forbearance and it sounds like there are some options for you, there's a 30 day forbearance which can be extended another 60 days, especially under certain conditions. So it's one of these things where you should reach out to your lender, talk to them about this. Now that the CARES act is out and everyone's had a chance to read that and see if they're willing to do forbearance for you. Now again, you're going to have to pay this later. But I can understand as a landlord you don't know if anybody's going to pay rent. I mean, right now as I'm recording this, it is April 1st, so this is kind of the key moment, whether people are wondering whether people will actually pay, pay their rent or not. This is the first month and the rent due after this nation went on shutdown. So we'll see what happens. But if tenants don't pay, the landlords will have difficulty paying off their mortgage as well. So I have a feeling that a lot of these banks are going to be willing to work with landlords on this as well, because the last thing they want to do is essentially do any sort of default or foreclosure during this time. Now, one of the most interesting parts of this CARES act to me is, in my opinion, are the small business loans that are available for people. These are available to small business owners and sole proprietors. And does this apply to doctors? I know people are wondering whether it applies to you. Now, if you have your own practice, you're an independent contractor. I mean, essentially, if you receive a K1 or a 1099, and you'll know if you do, this applies to you, that's absolutely for sure. And there have been questions in our Facebook group whether you're an employed Doctor with a W2. Does this apply to you? And unfortunately it doesn't. But just know that some of these other options are available for you to pull cash, whether from your retirement accounts and this sort of thing. But if you do happen to have some sort of side hustle, which we talked about at length, or have some other source of income, like a K1 or 1099, yes, it's possible for you to take advantage of some of these loans as well. Now, there are two major loans to consider and talk about here. There's a Small Business Association Economic Injury Disaster Loan, otherwise known as eidl. And there's something known as the Paycheck Protection Program. Some people call it a triple P or the PPP loan. These are two different types of loans with different terms, different benefits, and ultimately it's different for every person. Which one might work out best for you? What's the purpose of these loans? Well, the government wants to make sure that small businesses don't absolutely shut down during this period. They want you to maintain your payroll, not have to lay workers off. Really continue operating as best as possible. Otherwise, that could lead to a total economic meltdown. We know that small businesses are the backbone of the economy, especially in America. Now, these loans come from different places. Just so you know, the EIDL loan comes specifically from the sba. They're the actual lenders for this. The government is the lender for that loan. And the triple P loans, they're from private lenders or banks that have been approved by the sba. Like, so these big banks, I'm sure, like bank of America, Chase, Wells Fargo, maybe some of you in your smaller lenders might be eligible. So it's some, it's worth talking to your lender where you have a relationship and see if they're eligible for some of these loans. Now, at the time when I'm recording this, these loans aren't available yet, and a lot of these lenders are just figuring out how to make it happen. So if you haven't already, I would at least start that conversation in case it's something that you want to pursue. Now, deciding which one of these loans is better for you, your business, it totally depends. So it's important to talk about both. And I'm just going to kind of run through the quick highlights of these loans and see if any of these resonate with you and see if it makes sense. The economic injury disaster loan, you apply for it directly on the SBA.gov website. Honestly, the application, I did it myself, takes about 20 minutes. And the reason it takes 20 minutes is that you have to track down a few numbers like your, your gross income or net income for the year and that sort of thing. But here are the highlights. This loan, again, it's from the SBA. The loan amount can be up to $2 million. And who's eligible? If you're a small business, less than 500 employees, or you're some sort of private nonprofit, you're an independent contractor or sole proprietor. This you can qualify for this loan. Now, if the loan happens to be more than $200,000, you have to have a personal guarantee on it. And if the loan is more than 25k, they're going to ask you for some sort of collateral. The interest on this loan is great. It's 3.75% for businesses, and they have to automatically give you a deferral of principal or interest up to a year. And you can use this for pretty much a whole host of things. Just basic operating expenses, payroll, equipment, rent, and that sort of thing. The most interesting part of this whole loan is something called the emergency grant. Now, that's potentially available to you as a small business owner, and it comes in the form of a $10,000 forgivable loan. And that can be used for immediate operating costs, like some of the things we mentioned, like sick leave, your payroll, any sort of fixed debts or accounts payable. Now, the thing is, there's a limited supply of this. So I've heard that it is a first come, first served option. They will run out quickly. So it's in your best interest if you're hearing this at this point and haven't applied for it and you're interested in it, you probably should apply for it. It may be even too late at this point, but it's worth trying for because maybe everyone won't necessarily qualify for it. Now, if you have a 1099, you're a sole proprietor, you're a doctor again, independent contractor, per diem and that sort of thing. Honestly, this seems like a no brainer for you to go out and see if you can get the emergency grant from this, the 10K forgivable loan, as well as see if you have an option for the eidl. The. Just to clarify, you can get the grant and you can decide not to take the loan. The other question that some people have is that if you apply for this and you get the grant, can you also apply for that other program, the Triple P or the paycheck protection program? And the answer that we've gotten from the SBA website and the government states that yes, you can apply to both. And then ultimately, if you're given the option to take one of these loans, you can decide which one you want to take. So let's talk about the paycheck protection program here real quick without boring you. Here are the highlights. The amount that you can actually take is up to 2.5 times your average monthly payroll and that goes up to $10 million. And who's eligible? Again, if you're a small business, less than 500 employees, sole proprietors, self employed, independent contractors. So basically, if you're a physician, you run your own practice, or you get 1099, you are eligible. And again, it's provided through a SBA approved lender like a bank. There are no personal guarantees, there's no collateral, and the interest is capped at 4%. And the cool part about this one is that there's a loan forgiveness for eight weeks of operating costs from the moment your loan starts for that next eight weeks. If you use that loan for payroll, mortgage, interest, you pay for rent, all those things will ultimately be forgiven. And the cool thing is there's an automatic deferral of your principal and interest payments for six to 12 months. Now, there's a stipulation in this program for your payroll, you can pay for someone, an employee, up to $100,000 in terms of their salary. So the question was that if somebody makes more than $100,000, are they ineligible? No, you can actually just pay them up to 100,000. That's what ultimately gets calculated and that's what they will cover as part of this paycheck protection program. There are some things in this bill for healthcare in general, and it's good to hear. I mean, hospitals will be getting about $100 billion for responding to the coronavirus. There's another $11 billion designated for, really diagnostics, treatment and vaccines as part of the act. There was a lot about telemedicine that we've heard quite a bit about, that standards were going to be relaxed in some way to make it easier to not only get credentialed, but also to utilize telemedicine to treat patients. Now, if you heard one of my previous podcasts with Dr. Sai Ngori, the telemedicine and the adoption of it has been increasing every single year. Well, because this pandemic, it's now exploded. And I have a feeling medicine's never going to go back quite the same way now that they've relaxed these standards and that you're able to see these patients and do these basic standard checkups over these video teleconference telemedicine platforms. I mean, who's going to want to come in especially for these simple, basic checks? And so I think things are going to change quite a bit. Now, as part of this package, $16 billion was also signed to really increase the availability of equipment like ventilators, which we all know at this point we're going to be extremely short on. And so they try to help us ramp up production of that as well as other PPE like masks. And my hope is that it comes as soon as possible. Now, I know a lot of you who are listening to this still have significant amount of student loans. I mean, the average is $200,000 for the average physician coming out. But we all know many physicians, if you're not one of them, that has way more than that. Well, the cool thing is now all loan and interest payments for a federally owned student loan or federally backed student loan, those payments are now deferred through September 30, 2020. Now, I know a lot of people have been asking, oh, man, I already refinanced my loan with a private lender, so does it apply to me? So, honestly, it doesn't. But I've heard of situations where private lenders, people have talked to private lenders and they've been able to offer some sort of forbearance to them based on economic hardship, if you can prove it. Now, again, these lenders are not looking to close on you or put you in default. Everyone at this time, I think, understands the financial hardships that are coming with this pandemic, even for doctors. So it doesn't hurt you to reach out to them. So you can see there's a lot in this act that can apply to physicians, whether you are a W2 employee, whether you own your own practice, whether you are a per diem physician. And so it's in your best interest to learn about all these things. I've written a blog post on it as well, but we're talking about it now. Get the conversation going. Talk to your cpa, talk to your financial advisor, talk to any sort of financial professional who can help guide you in terms of figuring out what works best for your situation. And I would do that sooner rather than later. There is a huge budget for this and I mentioned $2 trillion for this overall package. But again, there will be a situation where a lot of people that want this are not going to be able to get it because all the money has been used up. There is a time component to this. I think there is an element of first come, first served. So if this is something you're interested, I would get on it quick. At least figure it out. Talk to anybody at a bank that you might have a relationship with just to kind of get the process going. Talk to your cpa, talk to other physicians who are doing this as well so you can learn from them. Now, I know a lot of physicians are stressed right now financially, especially when they own their practices. They've got this big payroll, they've got staff, and they want to keep this office going. So this is an option that can help people. And I think the government did a good job in actually being aggressive to come up with some sort of stimulus plan. And I hope that you can utilize it to your benefit and ultimately help you get to the other side, because that other side is coming. I don't know when that'll be, but we know that every week that passes gets us closer to that. So I wish you guys all the best. However I can support you. Continue to let me know and we'll see you on the next episode. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you a part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group Passive Income Docs, and you can always learn more at our website, passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next.