By all accounts, the United States economy is facing an unprecedented intentional slowdown of economic activity. This slowdown, however, is being met with an equally unprecedented monetary and fiscal stimulus in terms of both its scope and speed. Late last Friday, President Donald Trump signed into law the latest relief effort with the “Coronavirus Aid, Relief, and Economic Securities Act” or the CARES Act. The goal of the CARES Act is to provide relief for individuals and businesses impacted by the outbreak. So, what does the CARES Act mean to you and your family? We’ve broken it down for you below.
The CARES Act: What Individuals and Families Should Know
How the CARES Act Impact Individuals and Families
Direct Payment Checks
Individuals earning $75,000 or less in adjusted gross income can expect direct payment of $1,200 each. Married couples with combined earnings totaling $150,000 or less would receive $1,200 each or $2,400 total. Families also would receive an additional $500 per child and there are no limits on the number of children that qualify.
Payments scale down by income by $5 for each $100 a taxpayer’s income exceeds $75,000 for individuals, $150,000 for married couples filing jointly, or $112,500 for head of households. Payments phase out completely at $99,000 for individuals and $198,000 for married couples filing jointly.
Payment amounts will be based on 2019 tax filings. If you haven’t yet filed, check amounts will be based on 2018 filing information. If you’re interested in what your CARES Act recovery rebate check will be, here is a handy calculator from Forbes.
Expansion of Unemployment Insurance Program
The CARES Act has allocated nearly $250 billion towards an aggressive expansion of Unemployment Insurance programs offering more robust benefits and a larger pool of qualified candidates. Those who are now eligible include part-time employees, freelancers, independent contractors, those who are self-employed, as well as “gig workers”. Workers are offered an additional $600 per week on top of their existing state unemployment benefits. This additional benefit will last for a period of up to four months through July 31.
The CARES Act will also extend state-level unemployment insurance by an additional 13 weeks. So instead of the traditional benefit period of 26 weeks in most states, the bill extends benefits on those states to 39 weeks. These extended benefits will last through the end of the year (December 31, 2020).
Special Use of Retirement Funds
To help those experiencing significant financial hardships due to COVID-19, the bill allows individuals the ability to access their retirement funds up to $100,000 without incurring the traditional 10% early withdrawal penalty, retroactive to January 1. Withdrawals are still taxed, but are spread out over three years, or the taxpayer has the three-year period to roll these distributions back over to their retirement account.
There is also a temporary elimination of requirement minimum distributions (RMDs) from IRA and 401(k) plans. The goal of the RMD suspension is to give those individuals who do not need their money now the ability to help recover some of what they lost when the markets eventually recover.
Treatment of Charitable Deductions
Included in the tax changes is a new above-the-line deduction for charitable contributions specifically for taxpayers who do not itemize (i.e., those who claim the standard deduction). These taxpayers may deduct from their adjusted gross income (AGI) up to $300 of qualified charitable contributions. This provision only applies to tax year 2020.
Those with federal student loans are now able to pause payments entirely for the next six months, through September 30, 2020. For this period, the interest rate will also be set at 0% meaning no new interest will accrue on federal student loan balances.
If an employer is paying a student loan as an employee benefit, they can now provide up to $5,250 in tax-free student loan repayment benefits. This means an employer can continue to make loan payments on an employee’s behalf, and an employee wouldn’t have to include that money as income.
Over-the-Counter Medical Products Considered Qualifying Medical Expense
Patients are now permitted to purchase over-the-counter medical products from their Health Flexible Spending Account (FSA), Health Reimbursement Arrangement (HRA) or their Health Savings Account (HSA).
Delayed Tax Filing and Payment Deadlines
As noted in our email last week, Federal and many states’ tax filing and payment deadlines have been extended to July 15th. Essentially, if you expect a refund, you should file quickly, and if you expect a payment, take advantage of the three-month extension.
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Information was obtained and collected from a variety of public resources. We believe this information provided here is reliable, but do not warrant its accuracy or completeness. It is provided for informational purposes only, and should not be construed as legal or tax advice. Laws may change pursuant to the administration's legislative agenda. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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