The CARES Act – What You Need To Know

In the wake of the COVID-19 (coronavirus) pandemic, the economy has been upended as many businesses have been, and continue to be, disrupted. With record U.S. jobless claims, the federal government moved to quickly implement a massive stimulus package. On March 27, President Trump signed the CARES Act into law, seeking to provide support for individuals, families, employees, and businesses. 

Below are some highlights of the CARES Act, and how it could impact you. For the full legislation (if you need some help falling asleep at night), click here.

Recovery Rebates for Individuals (Direct Payments)

• Certain individuals will receive up to $1,200 for single / head of household taxpayers, or $2,400 for joint taxpayers (dependent on tax filing status).
• You may also receive $500 per qualifying child (children under the age of 17, claimed as dependents on your tax return).
• The actual amount you will receive well be based on your AGI (Adjusted Gross Income)
  • You will receive the full amount if you make under: $75,000 for individuals, $112,500 for head of household, $150,000 for joint.
  • If you are above the lower limit, you will experience a $50 reduction for every $1,000 you make above the AGI limits.
  • The payment amount is completely phased out for incomes over: $99,000 for individuals, $136,500 for head of household, $198,000 for joint.
  • These phaseouts do not apply to the qualifying child payment (i.e. if you made $200,000 as a joint couple, you would still receive $500 per child).
• You will not have to pay taxes on the payment you receive. The rebate is treated like any other refundable tax credit for the tax year 2020 (a dollar for dollar credit against your tax liability).
• Your AGI will be based on 2018 or 2019 income tax returns (most recent return the IRS has on file).

Special Rules for Retirement Funds

• RMDs (Required Minimum Distributions) from IRAs and other retirement plan accounts (401(k), 403(b), etc…) are suspended for 2020.
• You may take distributions from retirement accounts (IRA, 401(k), Roth IRA) prior to age 59½ without the normal 10% early withdrawal penalty for coronavirus-related events.
• Regular income taxes on retirement account distributions will still be owed, but can be spread over three years rather than claiming it all in 2020.
• The loan limit for 401(k) plans has been increased from $50,000 to $100,000.

Unemployment Compensation

• Self-employed individuals (who are generally ineligible for unemployment compensation benefits), and other individuals who are generally ineligible for “regular” unemployment, will be eligible for up to 39 weeks of benefits via this provision.
• The very first week of unemployment will now be covered. Historically, there has been a one-week “elimination period” where individuals are ineligible for benefits the first week they are unemployed.
• Individuals who exhaust the time period for their regular state benefits will be allowed an extension of up to 13 weeks of unemployment compensation
• States have the ability to provide up to an additional $600 per week for individuals, for up to four months.

Modified Limitations on Charitable Deductions

• For 2020, taxpayers will be able to take advantage of a $300 above-the-line deduction for “Qualified Charitable Contributions”.
• To take advantage of this deduction, you must not itemize on your federal return.
• For those who are itemizing, the new limit for cash contributions is 100% of AGI for qualified contributions, up from 60% of AGI for 2019. In the event that contributions exceed 100% of AGI, the excess will be carried forward as a qualified contribution for up to 5 years.

Temporary Suspension for Federal Student Loans

• The CARE Act will suspend federally-held student loan payments through September 30, 2020.
• These loans will also accrue no interest within this time period as they will be subject to a 0% rate through September.
• Per the Department of Education, if you have an automatic-debit set up to make your payments, those payments will be suspended through September. Please note, this suspension of payments is only for “required” payments. If you are making payments in addition to the required amount, we would suggest reaching out to your loan provider to ensure all payments are suspended. With that being said, with interest rates being 0% it’s not a bad idea to continue payments so long that you can afford to.
• This time period will continue to count towards any loan forgiveness programs.
• Employers can exclude student loan repayments from compensation. In general, any amount paid by an employer would normally be considered compensation and subject to income tax.  An employer can provide an employee with up to $5,250 for purposes of paying down student debt. Please note, this amount will be coordinated with the ‘regular’ $5,250 limit that employers can provide employees with as a tax-free fringe benefit for education assistance.

Look forward to chatting with you again soon.

Derek and Ben
Co-Founders and Owners of Aspire Wealth