CARES ACT Guide- Repost

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.

Recovery Rebate:

  • $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.

Unemployment Compensation

  • 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

Charitable Deductions:

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)

Healthcare Related:

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

Small Business

  • 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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