The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on the evening of Friday, March 27th. The CARES Act is designed to boost the economy by providing over $2 trillion in relief through multiple avenues including individual rebates, increased unemployment benefits, and tax breaks for businesses. For business owners affected by the Coronavirus, please see our summary of the Paycheck Protection Program (PPP) here. Below are a few features that may impact you.
Stimulus checks for Individuals
The Act provides for payments of $1,200 per adult and $500 per qualifying child dependent under age 17. The rebates are reduced by 5% of adjusted gross income (AGI) above the following levels: $75,000 (single) / $112,500 (head of household) / $150,000 (joint).
- Eligibility will be determined based upon 2019 (if filed) or 2018 tax returns, or in the absence of a return being filed, the Social Security Benefit Statement (Form SSA-1099). An individual who is claimed as a dependent on another individual’s tax return is not eligible for the payment.
Special Rules Regarding Retirement Funds
While the proceeds from a death benefit can be used at the beneficiary’s discretion, the most common uses for life insurance are:
- Required Minimum Distributions (RMDs) are waived for 2020.
- Hardship Distributions from IRAs and 401(k)s: The 10% penalty for accessing funds from an IRA or 401(k) for those under the age of 59 ½ has been waived. The hardship withdrawals are considered taxable to the account owner, but the tax can be paid over three years, rather than in the first year.
- In order to qualify for the hardship waiver, the account owner or his/her spouse or dependent must have been diagnosed with the coronavirus or affected by economic losses related to the virus.
Increased Charitable Giving Benefits
The Cares Act provides two tax benefits to those individuals who are charitably minded:
- An above-the-line deduction for cash contributions up to $300 to charitable organizations for taxpayers that do not itemize deductions.
- For 2020, individuals may deduct qualified contributions to the full extent of their 2020 adjusted gross income (AGI). Prior to the Act, individuals were only allowed to deduct up to 60% of their AGI.
Postponed Income Tax Filing
Separately from the CARES Act, the IRS has announced that any taxpayer with payment or tax return due on April 15th will now have until July 15th to file and make such payment.
- 2019 contributions to IRA and Roth IRA accounts are also extended to the July 15th deadline.
- Currently, not all state and local governments have followed the lead of the federal government. Please check the individual filing requirements for your specific locale.
The CARES Act is a sweeping piece of legislation. While a lot of the specifics will take months to clarify with input from various federal agencies, almost every American will be impacted in some way by the items noted above. If you have questions about how this affects you and your financial plan, please be in touch.
