The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27, 2020. This is an extensive piece of legislation that will have an impact on many Americans in one way or another and hopefully offer some financial help to those struggling during the COVID-19 pandemic.  We are going to touch on a few of the key provisions that help individuals but there is much more in this bill addressing assistance to businesses of all sizes.

Recovery Rebates

The most sweeping part of the CARES Act are the payments that the federal government will be sending to families. Individuals who make less than $75,000 will receive a payment of $1,200 and married couples making less than $150,000 will receive $2,400. For those above these income levels, the payments will be phased out with benefits ending at $99,000 for single filers and $198,000 for couples.  Families with children will receive $500 per child under age 17.

These one-time payments will be calculated from your Adjusted Gross Income on the most recent federal income tax return you have filed. For people taking advantage of the federal tax filing extension to July 15th, that means the relief payment will be based on their 2018 return. If your income was lower in 2019 or if you had children last year, it may make sense to file your tax return as soon as possible to maximize this benefit.

It is important to note that these payments are an advance on a tax credit for 2020. This means that if someone deserved the payment based on their 2020 income but did not receive it because their 2018 or 2019 income was too high, they will receive it when they file their 2020 income tax in 2021. Unfortunately, this may mean that people who truly need this money are not going to receive it for another year. However, if someone received the payment that did not technically qualify based on their true 2020 income, the IRS is not going to claw these payments back.

The government will issue the payments via direct deposit to the bank account on file for you from your most recently filed tax return. If there isn’t a bank account listed for you or there are any issues, a check will be mailed to the most recent address on file for you. If you receive Social Security Benefits, your Recovery Rebate should be distributed to the same account to which you receive your monthly Social Security payment. It was also announced that the IRS will have a website that will allow you to update your bank account information or address if it has changed since you filed your federal income tax.

2020 Required Minimum Distributions Waived

 For those required to take retirement distributions, there is some good news: the RMDs have been suspended for 2020. This applies to all RMDs, even those from inherited IRAs. The requirement to take distributions will resume as normal in 2021.  This is a tremendous tax savings for individuals with large IRAs.  We encourage you to talk to your accountant and recalculate your estimated taxes for 2020 based on this hiatus.

Of course, while you are not required to take a distribution from your IRA in 2020, you can still take voluntary distributions including Qualified Charitable Distributions (QCD). Using funds from your IRA for charitable distributions will give you the benefit of donating to charity with entirely pre-tax funds.

Pandemic Unemployment Assistance          

The CARES Act is also providing additional unemployment assistance to those who may have lost their jobs due to the virus in a few different ways. Traditionally, there are no unemployment benefits for the first week of unemployment, but this new law changes this requirement. Unemployment benefits will be paid immediately under this act subject to ratification by each individual state. States can increase unemployment payments by up to $600 per week with federally funded money. For example, if someone was to receive $300 a week based on their pay, they will now receive $900 a week. Unemployment typically provides up to 26 weeks of benefits, but the CARES act has extended this timeframe by 13 weeks (39 weeks total) providing an additional quarter of protection to those who may be nearing the end of their unemployment benefits. This extension is in place through the end of 2020.

Furthermore, the CARES act adds relief for those who are unable to work due to coronavirus. There are many different classifications for those who are impacted, but the most common would be if you personally have COVID-19 or are caring for someone with the disease, you do not have to be available or looking for work to receive unemployment benefits. This includes those who are self-employed and independent contractors- classifications normally exempt from unemployment benefits. However, those who fall into these classifications must certify to their state that they are unable to work due to coronavirus.

Unemployment rules vary widely from state to state and the execution of this act may not be uniform across the country. We advise consulting state-based resources for information that is more specific to your area.

Student Loans

Some federal student loan payments are suspended until September 30th, 2020. During this period no interest will accrue on the outstanding debt and there will be no penalties or late fees. The loans are essentially put on pause through September. Individuals need to stop any automatic payments that they may have set up during this period.  This only applies to federal student loans- not private student loans.

For those who can afford to keep making student loans payments during this time, it would be beneficial as you are paying down the balance while there is no interest accruing and more of the payment will go towards the principle.

Small Business Retirement Plans