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The CARES Act

Blog Financial Planning

With the recent enactment of the CARES Act, we wanted to provide you with a readable summary of the provisions most likely to impact you. More importantly, we want to remind you that we are here to answer your questions and assist you in your financial decision-making.  

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to provide relief for individuals and businesses who have been impacted by the pandemic. In an effort to help you understand its impact on your individual situation, you will find a summary of key provisions below. 

Regardless of the pandemic’s financial impact on you, the following arrangements are broadly applicable: 

  • Delay in tax-filing requirements. The April 15, 2020 tax filing deadline has been extended to July 15, 2020. In addition, the deadline for making IRA contributions is also extended (this deadline is the earlier of your actual filing date in 2020 or July 15, 2020).
  • One-time cash payment. As you’ve likely heard by now, taxpayers are eligible for a one-time payment (a refundable income tax credit against 2020 income) of up to $1,200 per adult ($2,400 per couple) plus $500 per child under age 16. Amounts are reduced for those who make more than $75,000 ($150,000 if married). You can estimate the payment you are likely to receive using this calculator.
    1. U.S. Treasury Secretary Steven Mnuchin said he hopes to distribute rebates to taxpayers who e-filed with direct deposit banking information in three weeks. Taxpayers receiving rebate checks may have to wait six to eight weeks to receive a paper check in the mail.
    2. If you have filed your 2019 taxes, the IRS may use that income to calculate your payment; if not, they’ll use your 2018 tax filing.
    3. There are no minimum income requirements to receive a payment as long as you have filed a tax return, are not a dependent of another taxpayer, and have a Social Security number.
  • Better unemployment benefits. The Act will extend and expand unemployment insurance through Dec. 31. Eligible workers (now including self-employed, independent contractors, and gig economy workers) will receive an extra $600/week for four months, on top of what they receive from state unemployment benefits.
  • 2020 RMDs suspended. You won’t have to take a Required Minimum Distribution from your IRA or 401(k) this year. If you already took your RMD for 2020, you have several choices: keep it and pay taxes on it, return it to your IRA as an indirect rollover, or convert the amount into a Roth IRA (Roth conversions are permanent). You do not need to meet any qualifying criteria to suspend your RMD in 2020.

Other provisions apply only to qualifying individuals including those who are diagnosed with COVID-19, have a spouse or dependent who is diagnosed with COVID-19, or experience financial harm as a result of COVID-19 including quarantines, layoffs, business closures or child care responsibilities.

Note: Before taking a retirement plan distribution (whether by withdrawal or loan), we suggest examining if other CARES Act provisions may provide necessary assistance first (e.g. mortgage, small business, or student loan relief). Please contact us to discuss further.

  • Retirement Account Early withdrawal penalty waiver. The Act waives the standard 10% early withdrawal penalty for eligible coronavirus-related distributions from retirement accounts (up to $100,000 retroactive to Jan. 1). You’ll still pay income taxes on withdrawals, but you can spread them over a three-year period or use that time to roll the distribution back over. If you are considering a withdrawal, you should contact your plan administrator to confirm if your plan allows for COVID-19 distributions.
  • Increase in the Retirement Plan Loan Amount. The maximum amount that can be taken as a loan increases from $50,000 to $100,000 in 2020. The CARES Act also allows loans equal to the vested plan balance, dollar-for-dollar, up to the $100,000 maximum amount (the regular rules only allow for loans up to 50% of the vested balance). Finally, any payments owed on a loan taken through the remainder of 2020 may be delayed for up to one year.

There are a variety of other details in the Act (it came in at over 800 pages!) including provisions related to mortgage relief for homeowners, help for small-business owners, and student loan assistance. A few highlights are listed below. 

Relief for Homeowners and Renters

  • Mortgage Relief for Homeowners: servicers of federally-backed mortgages are required to postpone mortgage payments if the borrower requests due to financial hardship caused by COVID-19. The postponement must be granted for up to 180 days (and potentially extended for another 180 days if requested).
  • Foreclosure Moratorium: servicers of federally-backed mortgages may not initiate any foreclosure process for at least 60 days beginning on March 18, 2020.
  • Eviction Relief for Renters: landlords with mortgages backed by the U.S. Department of Housing and Urban Development (HUD), Fannie Mae, Freddie Mac, and other federal entities cannot pursue eviction for their tenants for 120 days after enactment of the CARES Act. Fees and penalties related to nonpayment of rent may not be charged. 

Assistance for Small-Business Owners

  • Payroll Protection Program: a (partially) forgivable loan program offered through the Small Business Administration (SBA), loans will be 100% guaranteed by the SBA.
  • Employee Retention Credit for Employers subject to closure due to COVID-19
  • Deferral of payment of payroll taxes
  • Net Operating Loss rules amended to allow for losses in 2018, 2019, or 2020 to be carried back up to five years.

Student Loans

  • Loan Payment Suspension: payments are automatically suspended for federally-held student loans through Sept. 30, 2020, with no interest accruing or penalties during this period.

Tax Benefits for Charitable Gifts

  • $300 Deduction of Cash Contributions: this is a (relatively) small “above-the-line” deduction for up to $300 of cash contributions to charities, regardless of whether the individual itemizes deductions.
  • Changes to Limits on Charitable Contributions:
    1. Individuals: For those who itemize their deductions for charitable giving, the 50% of adjusted gross income limit is suspended for 2020.
    2. Corporations: The 10% limit on charitable contributions is increased to 25% of taxable income.