CARES Act Becomes Law
Updated: Mar 31, 2020
On Friday, the Coronavirus Aid, Relief and Economic Security Act (CARES) was signed into law. This $2 trillion stimulus package provides financial relief to individuals, families, and businesses through multiple measures. While many details and provisions have not been fully worked out as of this writing, the following are some details of the CARES Act, and we are available to discuss how the plan might help you through this crisis.
Stimulus Checks for Individuals and Joint Taxpayers
To relieve the financial pressures that most Americans are facing, the federal government expects to send cash payments to individuals by the end of April. Payment amounts are up to $1,200 for individuals and $2,400 for joint taxpayers, with an additional $500 for each qualifying child. Eligibility is based on adjusted gross income (AGI) from your most recent tax filings, either 2019 or 2018, if you have not yet filed. If you have an Adjusted Gross Income (AGI) of up to $75,000 ($150,000 for married filing jointly), you should be eligible for the full amount, with the payments phased-out at $99,000 for single taxpayers and $198,000 for joint filers with no children. Retirees who receive Social Security benefits are eligible to receive the money as well as people who receive the Earned Income Tax Credit.
Required Minimum Distributions (RMD) Suspended for 2020
RMDs for 2020 are suspended for IRAs and certain defined contribution plans, such as 401(k)s, for 2020 to help retirement accounts try and recover from stock market losses. Included are inherited IRAs, as well as first RMDs for clients who turned 70 ½ last year and opted to delay their RMD until April 1, 2020. Our office will be reaching out to clients who have the option to waive, as it depends on your unique financial situation as to whether this makes sense. If you already took your 2020 RMD, you will have to include it in gross income and pay taxes on it. However, if you have taken it within the last 60 days, you may have an option to return it to your IRA, and our office will help to do this with you.
Early Withdrawals from IRAs and Retirement Plans
Affected participants in workplace retirement plans and IRAs may take an aggregate distribution of up to $100,000 from all retirement accounts in 2020, without incurring the usual 10% early withdrawal penalty. The distribution must be coronavirus-related, but the rules are loose and include anyone who has been diagnosed with the virus (including a spouse or dependent), or has experienced adverse financial consequences such as lay-off, furlough, reduced works hours, or inability to find work or childcare. Individuals can elect to pay the federal income tax on the distribution or repay the distribution back to the plan over three years. The legislation also makes it easier to borrow money from retirement plans, raising the limit from $50,000 to $100,000, and delaying loan repayments for one year. While tapping a retirement plan or IRA may be necessary, it should generally be a last resort if other options exist, and discussed with our office and your tax advisor. If you have been laid off from your job, we will work with you in understanding your options with regard to your workplace retirement plan and other benefits.
Relaxed Limits on Charitable Giving
The inclusion of charitable giving by Congress is an acknowledgment that non-profits need additional financial resources during this time. Under the 2017 tax law, the standard deduction was increased so much that fewer people are itemizing deductions, which includes gifts to charities. The CARES Act allows individuals who use the standard deduction to take an above-the-line deduction for charitable contributions for cash donations, up to an annual maximum of $300. If you take the standard deduction, this means that you get up to an additional $300 tax break. Also included is a provision for taxpayers that do itemize, with AGI limits suspended so that you can deduct charitable contributions up to 100% of your AGI, an increase from 50%. For corporations, the 10% limitation is increased to 25% of taxable income. It is important to note that the legislation does not provide for enhanced deductions to donor-advised funds.
Expanded Unemployment Insurance Program
The law provides an expansion of unemployment insurance to more individuals. If you have lost your job because of coronavirus, you are likely eligible to receive benefits, including self-employed individuals and part-time workers. These benefits have also been extended, with eligible workers receiving unemployment for 39 weeks, which is 13 weeks more than usual in most states. How much you can receive depends on your state, and the federal government is adding $600 per week in benefits until July 31.
Financial Assistance Provided for Small Businesses and Eligible Non-Profits
The Small Business Administration (SBA) has been authorized to provide loans to small businesses and non-profits through a new program titled the Paycheck Protection Program (PPP). The goal is to provide cash-flow assistance to cover operational costs such as payroll, rent, health insurance premiums, etc., during this time. Independent contractors, sole proprietors, and certain self-employed individuals are also covered under this program. There are several features in this bill, with loans available through June 30. The government is still in the process of determining how to administer this provision and promises more information by the end of the week.