Special Release - Where to Begin When COVID-19 Changes Your (or Someone You Know) Employment Status

April 22, 2020
By Angela Baker, JD, CFP®, CLTC, CASL®, RICP®

As the coronavirus disease (COVID-19) continues to send shock waves through our economy, we have seen unemployment numbers skyrocket from the low 200,000s to more than 17 million. Most of the recently unemployed, or significantly underemployed, are people working in service industries such as retail, restaurant, hotel, and travel industries. These workers make our lives more pleasurable—they work in our favorite restaurants, hotels, and salons, clean our homes and businesses, and provide all forms of valuable services in our economy.

All of my children are now unemployed or underemployed as a result of the impact of COVID-19 and I know that I am not the only parent in this situation. Before I consider using my own cash reserves in an effort to help them out (which is my option of last resort), I wanted to learn what resources might be available to them and what recommendations I can make to help them weather this storm.

Here is what I have learned:

File a 2019 income tax return. A number of the benefits contained in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are based on an individual’s taxable income. Many of those details were outlined in a recent West Financial Services article on April 6, 2020 "Special Release - Tax Relief and CARES Act". If you are aware of friends or family with earned income who have not filed their 2018 or 2019 income tax returns, they should file their tax return as soon as possible, with the intention of possibly qualifying for the tax credit.

File for unemployment benefits. Because of the large number of people that will be filing for unemployment benefits, it will take a while to process the applications. The CARES Act provides $600 per week in addition to the typical benefits, which range from $200 to $550 per week. This extra payment under the CARES Act will only last through July 31, 2020. The CARES Act also extends the typical unemployment benefits by an additional 13 weeks, for up to a total of 39 weeks. Newly unemployed workers should prioritize filing for benefits, which may also help jump start the search for a new job.

Defer student loans. Federal student loan providers are automatically deferring student loan payments through September 30, 2020. However, private lenders may need to be contacted individually for any suspension of payments or similar relief.

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It is important to contact the loan provider to determine the requirements for deferment and understand the repayment terms and conditions.

Request the deferment of mortgage, rent, and consumer loan payments. Contact your landlord or mortgage company and consumer loan providers (e.g. auto loans) to request deferment of your payment for at least 30 days. Be certain to clearly understand the terms and conditions regarding repayment. Generally, being honest about your personal circumstances goes a long way towards asking for help from someone who is likely experiencing a significant impact to their income as well.

Contact any trade or industry associations. It is helpful to determine whether they can offer any assistance.

Take this time to revisit your budget and your financial plan. If you have the time, consider reviewing your regular expenses with an eye toward reducing costs now and in the future. Since you can’t go out to eat, maybe set a reasonable budget for takeout now, and for future dining out costs. Review online subscriptions, telephone and internet plans and see if you can negotiate better terms, or cancel services you don’t use anymore. Even when the social distancing/self-quarantine requirement is lifted, it will take some time for people to recover financially. During the recovery period, while it may be tempting to begin to spend money on all those things we have been unable to do, it will be equally important, if not more so, to manage personal income and expenses wisely.

As a last resort, leverage your retirement account, if available. For those who are fortunate enough to have funds in a retirement account, another notable provision of the CARES Act allows individuals younger than 59 ½ to withdraw up to $100,000 without incurring the 10 percent early withdrawal penalty and without the mandatory 20 percent federal tax withholding that normally applies to in-service distributions. We believe this should be a last resort. The early withdrawal must be coronavirus-related, meaning you or a spouse or dependent was diagnosed with the disease or suffered financial consequences as a result of the pandemic. While you won’t be able to get withholding back on previous qualifying distributions, the 10 percent penalty waiver is retroactive to January 1, 2020. A distribution may be paid back over a three-year period beginning after the distribution date, and repayments will not count toward annual contribution limits. If not paid back, the taxes due may also be spread over three years. The CARES Act also increases retirement plan loan limits from $50,000 to $100,000 and removes the rule that loans cannot exceed half the vested account balance.

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Finally, this could be a good time to look for other job opportunities. There are a number of companies hiring thousands of workers due to the increased demand for their products and services. Some of these companies include Amazon, Walmart, Instacart, CVS, Dollar General, Pizza Hut, Lowes, Dollar Tree, Walgreens, 7-Eleven, and Kroger. So, take the time to look for new temporary or permanent job opportunities.

Please pass this information on to anyone in need. Additionally, reach out to your West Financial Services relationship manager for more information or to discuss this further should you, a friend, or family member need help. 

Meet Angela Baker, JD, CFP®, CLTC, CASL®, RICP® »

West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements. 

Certain information contained herein was derived from third party sources, as indicated, and has not been independently verified. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. We have not and will not independently verify this information. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to WFS. 

This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. This information is not intended to be tax advice and, because each individual’s tax situation is different, we encourage you to consult with us and/or a qualified tax professional about the effects of the CARES Act on you and your tax situation.