On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. This $2 trillion emergency relief package is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis.

Because the CARES Act is largely aimed at businesses, we have summarized the major relief provisions for individuals here in order to potentially benefit you, our valued clients. While not every situation will apply to you personally, please feel free to share this information with family, friends, and coworkers. 

Unemployment Provisions

The legislation provides for the following:

  • *NEW* unemployment benefits through 2020 for many who would not otherwise qualify, including independent contractors and part-time workers; contact your state unemployment office for details on how to apply
  • An additional $600 weekly benefit to those collecting unemployment benefits, through July 31, 2020
  • An additional 13 weeks of federally funded unemployment benefits, through the end of 2020, for individuals who exhaust their state unemployment benefits
  • The federal government will cover the one-week waiting period by reimbursing states

Recovery Rebates (Checks to Individuals)

Many individuals will receive a direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns (2018 returns in cases where a 2019 return hasn’t yet been filed) and sent automatically via check or direct deposit to qualifying individuals. If you have moved since you last filed your taxes, complete Change of Address Form 8822 and send it to the IRS to make sure your check is mailed to the correct address. Alternatively, in the coming weeks the IRS is planning to build a web-based portal where you can provide direct deposit information. To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.

The amount of the recovery rebate is $1,200 ($2,400 if married filing a joint return) plus $500 for each qualifying child under age 17. Recovery rebates begin phasing out for those with adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return or $112,500 for those filing as head of household). For those with AGI exceeding the threshold amount, the allowable rebate is reduced by $5 for every $100 in income over the threshold. If you don’t qualify based on 2018 or 2019 income, you may qualify for a credit on your 2020 tax return if your income is lower in 2020.

Rebate Amounts and Phaseout Ranges

While details are still being worked out, the IRS will be coordinating with other federal agencies to facilitate payment determination and distribution. For example, eligible individuals collecting Social Security benefits may not need to file a tax return in order to receive a payment.

Retirement Plan Provisions

  • Required minimum distributions (RMDs) from employer-sponsored retirement plans and IRAs will not apply for the 2020 calendar year; this includes any 2019 RMDs that would otherwise have to be taken in 2020
  • The 10% early-distribution penalty tax that would normally apply to distributions made prior to age 59½ (unless an exception applies) is waived for retirement plan distributions of up to $100,000 relating to the coronavirus; special re-contribution rules and income inclusion rules for tax purposes apply as well
  • Limits on loans from employer-sponsored retirement plans are expanded, with repayment delays provided

Student Loans

The legislation provides a six-month payment forbearance for any student loan held by the federal government. This six-month period ends on September 30, 2020. Direct debit payments will be paused, and 0% interest will apply. If you are unable to make payments, we recommend double checking that your loan servicer has stopped them. However, if you are in a position to make payments, contact your loan servicer to remove the forbearance. Doing so will mean your entire payment will go toward principal until September 30, 2020.

Other Miscellaneous Provisions

  • The Paycheck Protection Program allows businesses (including self-employed individuals) to take a loan of up to 2.5 times average monthly payroll costs (the total amount of compensation that may be considered for payroll costs, per employee, is limited to $100,000, annualized); if the loan is spent on certain qualifying expenses within eight weeks of loan origination, the loan may be forgiven (for more information, contact an SBA-approved lender)
  • The definition of qualified medical expenses for HSAs, MSAs, and FSAs is expanded to include over-the-counter medical products and telemedicine or telehealth

We hope that you or a loved one will find at least part of this information useful. If you have any questions about the topics covered above, or any other provisions of the CARES Act, please contact your Senior Wealth Advisor.

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