In response to the evolving COVID-19 global pandemic, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion emergency fiscal stimulus package aimed at helping individuals, businesses, healthcare entities and state and local governments. The CARES Act is the most recent of three bills focused on reducing the economic impact of COVID-19 and is the largest economic stimulus in American history.
Key provisions in the CARES Act:
The CARES Act includes direct payments to taxpayers. Individuals (single filers) who had less than $75,000 in adjusted gross income (AGI) in 2019 will receive a one-time payment of $1,200, while married couples with AGI up to $150,000 will get $2,400. Additionally, taxpayers will receive an extra $500 for each qualified child. Single filers with AGI above $99,000 and married filers with AGI above $198,000 will not receive payments.
Retirement account rules have been have been modified for 2020. Required Minimum Distributions have been waived for traditional IRAs and inherited IRAs. Distributions that have already been processed can be returned within 60-days and avoid taxable income.
For taxpayers who are under age 59 ½, the CARES Act waives the 10% penalty on withdrawals from retirement plans and IRAs for distributions up to $100,000 for IRA owners and participants in workplace retirement plans that have been impacted by this pandemic. The withdrawals qualify if the taxpayer, their spouse, or a dependent is diagnosed with COVID-19 or SARS-COV-2, or if they suffer adverse financial consequences due to the pandemic. The taxpayer may repay part or all of this withdrawal over three years, any portion that is not repaid may be included in income for tax purposes over this same period. Loan repayments that are due in 2020 may be delayed for one year.
A new charitable deduction is included in the bill for up to $300 in annual charitable contributions. To qualify, you have to give cash to a qualified charity and not to a donor-advised fund. It also relaxes the limit on charitable contributions for itemizers – increasing the deduction from 60% of AGI to 100% of gross income. These charitable changes are not currently limited to 2020.
Other factors that could impact you:
- The CARES Act increases unemployment benefits $600 per week for up to four months as well as an expansion of benefits for those who would otherwise not qualify
- Federal student loan payments can be deferred through September 30, 2020 and income tax exclusion for individuals who get student loan repayment assistance from their employer
- Expanded insurance coverage for COVID-19 treatment and funding for health care providers and suppliers
- Certain small businesses with up to 500 employees will be able to take out loans (up to $10M depending on payroll costs and other factors), which will be eligible for forgiveness if used to cover payroll and other expenses (like rent and utilities) along with some other ‘employee retention’ tax credit opportunities. Other benefits for businesses include a delay in the employer’s portion of Social Security payroll tax until January 1, 2021.
Beyond benefits for individuals and businesses, the CARES Act provides for $454 billion in emergency lending to municipalities, airlines and other businesses critical to US national security and another $150 billion allocated proportionally to state and local governments to offset amounts used to respond to the pandemic.
If you have any questions about the CARES Act, or what it means to you, please do not hesitate to contact your team at Crestwood Advisors.