The
CARES (Coronavirus Aid, Relief and Economic Security) Act was signed last week by
President Trump to help provide financial stability and relief for individuals
and businesses affected by COVID-19.
While
the bill is very broad and addresses a number of areas and industries, and many
of the specific details will still need to be analyzed, we believe the
following are important to highlight for individuals and their families.
Cash Payments and
Unemployment Assistance
--2020
Recovery Payment: All U.S. residents with adjusted gross income up to $75,000
($150,000 joint filers) are eligible for a $1,200 ($2,400) payment, as well as
an additional $500 per child (under age 17).
--There
are no minimum income requirements for the payment. Individuals with little or
no income are eligible provided they are not a dependent of another taxpayer
and have a work-eligible Social Security number.
--This
amount is reduced by $5 for every $100 over the income limit above, so it would
be fully phased out for those with incomes over $99,000 (single) and $198,000
(joint filers) with no children.
--Increased
Unemployment Assistance: Provides an additional $600/week payment to each
recipient of unemployment insurance for up to four months.
--Provides
an additional 13 weeks of unemployment benefits through Dec. 31, 2020, for
those who remain unemployed after state unemployment benefits are no longer
available.
--Delay
in Tax-filing Requirements: Individuals now have until July 15, 2020, to file
their 2019 tax returns instead of April 15.
--The
Treasury Department has also postponed the deadline for making IRA
contributions until the date taxpayers file their 2019 tax return during the
extended filing period.
Retirement Account
Changes
The
following apply to qualifying individuals including those who are diagnosed
with COVID-19, have a spouse or dependent who is diagnosed with COVID-19 or
experience adverse financial consequences as a result of COVID-19, including
quarantines, layoffs, business closures or child care responsibilities.
--Elimination
of Early Withdrawal Penalty: Waives the 10% early withdrawal penalty for
withdrawals up to $100,000 from qualified retirement accounts for retirement
plan participants who qualify for COVID-19 relief. Income tax on the
distribution would still be owed but could be paid over a three-year period.
Individuals could "recontribute" the funds to the plan within three
years without regard to contribution limits. While the law allows for these
types of penalty-free distributions, individual plans can set more restrictive
policies.
--Qualifying
individuals include those who are diagnosed with COVID-19, have a spouse or
dependent who is diagnosed with COVID-19 or experience adverse financial
consequences as a result of COVID-19, including quarantines, layoffs, business
closures or child care responsibilities.
--Increase
in the Retirement Plan Loan Amount: Increases the amount that can be taken as a
loan from a qualified retirement plan from $50,000 to $100,000 for 2020.
--In
general, we recommend exhausting some of the other provisions associated with
the CARES Act first, such as mortgage and student loan relief, or using the
recovery payment to bridge the gap on current expenses before taking a
distribution or loan from your retirement accounts.
--For
any withdrawal or loan, we recommend working with your financial advisor to
consider developing strategies to recontribute/pay back these funds over time
to reduce any long-term impact to your retirement goals.
--Temporary
Waiver of RMDs for 2020 for All Retirement Savers: Waives the required minimum
distribution (RMD) requirement for retirement plans and IRAs in 2020. This
provision also applies to RMDs due in 2020, but attributable to 2019.
Individuals do not need to meet COVID-19 qualifying criteria to temporarily
waive RMDs for 2020.
Items for Consideration:
--In
general, we recommend exhausting some of the other provisions associated with
the CARES Act first, such as mortgage and student loan relief, or using the
recovery payment to bridge the gap on current expenses before taking a
distribution or loan from your retirement accounts.
--For
any withdrawal or loan, we recommend working with your financial advisor to
consider developing strategies to recontribute/pay back these funds over time
to reduce any long-term impact to your retirement goals.
Enhanced Tax Benefits
for Charitable Gifts
--$300
Deduction of Cash Contributions: Ability to deduct up to $300 of cash
contributions to charities, regardless of whether the individual itemizes
deductions.
--Changes
to Limits on Charitable Contributions:
--Individuals:
For those who itemize their deductions for charitable giving, the 50% of
adjusted gross income limit is suspended for 2020.
--Corporations:
The 10% limit on charitable contributions is increased to 25% of taxable
income.
Mortgages
--Mortgage
Relief for Homeowners: Requires the servicers of federally backed mortgages to
postpone mortgage payments at the request of the borrower, provided the
borrower affirms financial hardship due to COVID-19. The postponement must be
granted for up to 180 days and extended for an additional period of up to 180
days at the request of the borrower.
--Foreclosure
Moratorium: Prevents the servicer of a federally backed mortgage loan to
initiate any foreclosure process for at least 60 days beginning on March 18,
2020.
--Eviction
Relief for Renters: For 120 days after the CARES Act date of enactment,
landlords with mortgages backed by the U.S. Department of Housing and Urban
Development (HUD), Fannie Mae, Freddie Mac, and other federal entities cannot
pursue eviction for their tenants. Landlords also can't charge any fees or
penalties related to nonpayment of rent.
Student
Loans/Education
--Loan
Payment Suspension: Suspends payments automatically for federal student loans
through Sept. 30, 2020, with no interest accruing or penalties during the
period of suspension.
--Additional
Provisions: Contains a variety of other emergency-relief provisions related to
education, and specifically the impact of many students being sent home
mid-semester. For example, it allows universities to make payments to students
who were unable to complete work-study programs.
Small-Business Owners
--Small-Business
Loans: Many small businesses are now eligible for disaster relief loans from
the Small Business Administration. Additionally, the CARES Act provides
conditions for when loan payments may be deferred, and loan amounts forgiven.
--Other
Provisions: There are additional tax and accounting provisions such as:
--An
employee retention tax credit for employers subject to full or partial
suspension of business due to COVID-19
--The
ability to delay payment of employer payroll taxes
--Modifications
for rules around net operating losses
--Modifications
for rules around corporate AMT (alternative minimum tax) credits
--A
temporary increase in the limitation on interest deductions imposed by the Tax
Cuts and Jobs Act
Disclaimer:
PillartoPost.org operating as a daily not-for-profit online magazine has been
publishing since 2011. Edward Jones has
been our financial advisor each step of the way.
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