CARES ACT Guide
Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law March 27, 2020. CARES Act will allocate $2.2 trillion of relief funds for individuals and businesses affected by the coronavirus pandemic.
- $1,200 for individuals, $2,400 for married couples Additional $500 per child under age 17
- Phase out based on Adjusted Gross Income (AGI) Starts at the following AGI for the various ling status: $150,000 Married $112,500 Head of Household $75,000 Single Phase out rate is $5 per $100 over the above thresholds.
- Will be for 2020 (refundable tax credit) Based on 2018 or 2019 tax return (latest return available) If qualified with 2018 or 2019 tax return – advanced payment of the credit is available If not qualified with 2018 or 2019 tax return, but qualified with the 2020 tax return – credit is available with 2020 tax return ling No claw backs if you qualify now and receive the advanced payment, even if not qualified with 2020 tax return.
- To be paid as soon as possible by Direct deposit info on le with the IRS or if not available, mailed to your current address.
Retirement Account Distributions:
- Up to $100,0000 from (combination of) IRAs or employer sponsored plans
- Must be made in 2020 (distribution can be anytime in 2020)
- Must be because you have been impacted by COVID-19
Distributions from Retirement Accounts:
To be eligible you must have a qualifying event: You were diagnosed with COVID-19 Spouse or dependent was diagnosed with COVID-19 Experience adverse financial consequences from being quarantined, furloughed, being laid off Are unable to work because of childcare as a result of the disease Own a business that closed or reduced hours because of the disease Met some other reason the IRS decides is okay.
Benefits of Coronavirus Related Distributions
- Under 59 ½ exempt from 10% early withdrawal penalty
- Not subject to mandatory withholding (for distributions from employer plan) – Eligible to be repaid over 3 years (2020 – 2022)
- Can ‘roll back’ into the account within 3 years to pay no tax
- By default – Taxable income from distribution is spread over a 3 year period Ex – In 2020, you take $90,000 as a coronavirus distribution, the $90,000 of income is split up over 3 years, (2020: $30,000, 2021: $30,000, 2022: $30,000
- Can make election to take all distribution income in 2020
Enhancements to Loans from Employer Plans
- Maximum loan amount increases by $50,000 to $100,000
- Payment on plan loan may be delayed 1 year
RMDs Waived in 2020
- Includes IRA’s and all employer retirement plans 401(k), 403(b), 457(b) etc..
- Stretch IRA RMDs
- Inherited IRA’s suspended
- 2020 ignored as a year for 5-year rule for non-designated beneficiaries.
- First-timers get to suspend 2019 RMDs as well as 2020.
- What if you have already taken your RMD?
- You can use the 60-day rollover rule to put the money back
- If the 60-day rollover rule is not available to you, rollover can be done if the distribution is treated as a Coronavirus-Related Distribution – elect to payback over 3 years.
- Non-spouse beneficiary RMDs from inherited accounts – no option to ‘roll back.
- Self Employed now eligible for unemployment compensation.
- Elimination of waiting period (Federal Government will cover first week of unemployment)
- Benefits have been extended by 26 weeks (6 months) to 39 weeks (9 months)
- Increased unemployment benefit of $600/week
New Above-‑e-Line Charitable Deductions – Limited to $300 Only available for those who do not itemize and claim the standard deduction Limited to $300 Must be made directly to a 501(c)(3) charity (Can’t be paid to a donor-advised fund)
For HSAs, FSAs – medical expenses will now include OTC medication Medicare beneficiaries Receive No-Cost COVID-19 vaccine (when available) Part D recipients can request up to 90-day supply of medication Telehealth services temporary covered by HSA eligible HDHP
Student Debt Relief
- Federal student loan payment deferred
- No payment required until September 30, 2020.
- To take advantage client needs to call to suspend payment until September 20, 2020
- No interest will accrue during the interim
- Deferral period will still count toward loan forgiveness programs
- Paycheck Protection Program
- Maximum Loan equals the lesser of $10 million or 2.5x average monthly payroll costs Must be applied for by June 30, 2020 Maximum duration 10 years Maximum interest rate is 4% Initial payment will be deferred for 6 to 12 months
- Eligibility (in general) Less than 500 employees Good-faith certification that loan is necessary due to uncertainty of economic conditions due to Covid 19
- Proceeds may be used for Payroll costs, group health insurance, salaries and/or commissions, rent or mortgage
- May be forgivable
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