On March 28, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. Building on previous legislation, its purpose is to provide a measure of federal support in the wake of the public health crisis and economic downturn brought about by the coronavirus.
There are many provisions in the law intended to provide relief to U.S. citizens and businesses. Some of the more significant that financial advisors and their clients should know about include the following:
- Payments to taxpayers. The law provides for up to a $1,200 one-time payment to individual taxpayers ($2,400 for joint filers), and a flat $500 for each child under the age of 17.These payments are not taxable and will be made according to adjusted gross incomes, using the taxpayer’s 2019 or 2018 tax return:
| Filing Status |
Full Payment |
Phased Down Payment
|
No Payment |
| Single |
AGIs up to $75,000 |
AGIs between $75,001 and $99,000 |
AGIs over $99,000 |
| Couples Filing Jointly |
AGIs up to $150,000 |
AGIs between $150,001 and $198,000 |
AGIs over $198,000 |
| Head of Household |
AGIs up to $112,500 |
AGIs between $112,501 and $146,500 |
AGIs over $146,500 |
*Payments are reduced $50 for every $1,000 in AGI above the full payment threshold.
- Waiver of 10 percent penalty on premature withdrawals.The 10 percent penalty tax on early (pre 59½) distributions (up to $100,000) from qualified plans and IRAs will be waived for virus-related conditions.(Such distributions have been dubbed “Coronavirus-related distributions.”) The withdrawn amounts remain taxable; however, the tax liability can be spread over three years and the withdrawal can be repaid within three years (in a single lump sum or as a series of repayments), unaffected by any associated contribution limit.
- Suspension of 20 percent withholding on (indirect) rollover distributions.Typically, when an indirect rollover is made from an employer plan to an IRA or to another qualified plan, the distributing employer is required to withhold 20 percent of the funds.This 20 percent withholding will not be applied if the owner attests that the distribution is related to coronavirus conditions.
- Suspension of required minimum distributions for 2020.Required minimum distributions are suspended in 2020 for both account or plan owners and beneficiaries.For account owners, this applies to initial RMDs that were required to start in 2020 for the 2019 tax year (because the owner had turned 70½ or retired) but had not been taken in 2019.Any RMDs taken after January 1, 2020 can be repaid if the owner wishes.
- 2020 ignored for purposes of the 5-year rule.Nondesignated beneficiaries to IRAs or qualified plans (including estates, charities, corporations, and non-look through trusts) typically have until the end of the fifth year following the year the IRA owner or participant diedto fully distribute the inherited funds if the owner or participant died before his or her required distributions had begun.For this purpose, the year 2020 can be ignored, effectively providing a six-year payout period.
- Note: This does not apply to the recently enacted 10-year post-death distribution period for noneligible designated beneficiaries, since the 10-year rule applies to deaths that occur in 2020 or later, with the 10-year period beginning the year following the year of death.
- Qualified plan loans increased.For the 180 days following enactment of the CARES Act, the maximum loan amount from a qualified plan increases to $100,000 or 100 percent of the individual’s vested account balance, up from $50,000 / 50 percent.The loan must qualify as a “coronavirus-related distribution.”In addition, repayments for any outstanding qualified plan loan – regardless of the reason – that are due by December 31, 2020 can be suspended.
- Above-the-line charitable donations allowed.The CARES Act allows taxpayers who do not itemize to take an above-the-line tax deduction for charitable contributions of up to $300 for the 2020 tax year.
- Loans available to small businesses.Small businesses with up to 500 employees that have been affected by the coronavirus are eligible to take out loans which might be eligible for forgiveness if the loans are used to meet payroll, rent, utilities or similar costs.
- Unemployment benefits expanded.The CARES Act provides for an increase of $600 per week in unemployment benefits, through July 31, 2020.
The above is only a brief summary of only a few of the many, many provisions that are included in the CARES Act. Many are temporary, but should be considered if an individual or business needs access to financial resources. Professional advisors can help their clients through these difficult times by providing information about these (and other) relief-measures.
The CARES Act is a direct response to the coronavirus pandemic. WebCE is working with state representatives, industry associations, and outside vendors to provide updates to our customers and corporate clients on how shelter-in-place and stay-at-home orders affect your profession.
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