Published on May 14, 2020
Written by The Servion Financial Advisors Team
Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is a relief package supplying more than $2 trillion to workers, families and small businesses to help everyone weather the COVID-19 pandemic.
This post provides a basic outline of the CARES Act provisions that are specifically designed to help individuals. If you're interested in information about small business relief, like the Paycheck Protection Program, which is also part of the Act, you can see that information here.
All U.S. residents with adjusted gross income up to $75,000 ($150,000 for joint filers) are eligible for a $1,200 payment ($2,400 for joint filers), and an additional $500 per child under age 17.
The amount is reduced by $5 per $100 for income above $75,000, fully phasing out for those with incomes over $99,000 (single) and $198,000 (joint filers) with no children. This is based on either your 2018 or 2019 tax return. Payments are not considered taxable income. You do not need to request these payments, they will be sent automatically.
Many people who are eligible have already received their payments. The IRS has said that payments not being directly deposited will be mailed in batches over the summer.
The IRS Get My Payment tool allows people to check the status of their payment.
Waived RMDs – Required minimum distribution rules are waived for 2020 distributions from IRAs, including inherited IRAs and 2019 distributions taken in 2020 which had a required beginning date of April 1, 2020.
Distributions/Early Withdrawals – Distributions of up to $100,000 taken from IRAs during 2020 for COVID-19-related purposes are allowed without a 10% penalty, even if you are under age 59 ½. These distributions are taxable evenly over 3 years beginning with the year of distribution, and may be recontributed within 3 years. Related purposes include a COVID-19 diagnosis for you, your spouse or dependent; or financial hardship due to business closures, reduced work hours, lay off, furlough, lack of childcare or other factors as determined by the Treasury Secretary.
Waived RMDs – Required minimum distribution rules are waived for 2020 distributions from certain defined contribution plans including 401(k), 403(b), and 457(b) plans.
Distributions – Distributions of up to $100,000 taken from qualified retirement plans during 2020 for COVID-19-related purposes are allowed without a 10% penalty. These distributions are taxable evenly over 3 years beginning with year of distribution, and may be recontributed within 3 years. Related purposes include a COVID-19 diagnosis for you, your spouse or dependent; or financial hardship due to business closures, reduced work hours, lay off, furlough, lack of childcare or other factors as determined by the Treasury Secretary.
Loans – Qualified retirement plan loan provisions are broadened to allow loans up to $100,000 or 100% of the participant’s vested account balance, whichever is less. This applies to loans made within 180 days of enactment. Loan payments due from the date of enactment of the CARES Act until 12/31/20 may be delayed.
Filing – The deadline for filing 2019 individual income tax returns has been pushed back from April 15 to July 15.
Paying – The deadline for paying any 2019 income taxes owed has also been pushed to July 15.
Many CARES Act provisions are time sensitive or have technical requirements that must be met. Speak with your financial advisor, tax advisor, and retirement plan administrator to get an assessment of your situation.
Check out these resources for more details about all aspects of CARES Act relief:
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