By James B. Runey III, CFA®
In response to the unfolding COVID-19 (coronavirus) global pandemic, the US Senate has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion emergency fiscal stimulus package, in order to help ease the effects of the resulting economic damage.
President Donald Trump signed it into law on Friday, March 27, 2020. This legislation is aimed at providing relief for individuals and businesses that have been negatively impacted by the coronavirus outbreak. The Act is much needed good news during these times, and the following are some of the key provisions included in the bill and what they may mean for you:
The most notable provision in the bill is the direct payments to taxpayers. Individuals who had up to $75,000 in adjusted gross income (AGI) in 2019 will receive a onetime payment of $1,200, while married couples with AGI up to $150,000 will get $2,400. Taxpayers will also receive an additional $500 for each qualified child, while individuals and families with income above their respective thresholds will see their relief payments reduced by $50 for every $1,000 of AGI.
The applicable threshold amounts are as follows:
Married Joint: $150,000;
Head of Household: $112,500; and
All Other Filers: $75,000.
Required Minimum Distributions (RMDs):
Required Minimum Distributions from IRAs and 401(k) plans are suspended. For individuals who have already taken their RMD for this year, they are able to return it if they wish. However, the option to return an RMD is not available for beneficiaries who have already taken it. This provision is only applicable for primary account holders.
Other Distributions from Retirement Accounts (not RMDs):
Individuals under the age of 59.5 may access retirement funds without the normal 10% penalty that would otherwise apply. Beginning on the day after an individual receives a Coronavirus-Related Distribution, they have up to three years to roll all or any portion of the distribution back into a retirement account. If distributions are rolled using this option, an amended return can be filed to claim a refund of any tax paid attributable to the rolled over amount. Lastly, if income is declared from the distribution, it may be spread over three years.
Loans from Employer-Sponsored Retirement Plans (401(k)s, 403(b)s, etc.):
The maximum loan amount from an Employer-Sponsored Retirement Plan is increased from $50,000 to $100,000. An individual may take a loan equal to 100% of their vested plan balance up to the $100,000 maximum amount. Any payments that would otherwise be owed on the plan loan from the date of enactment through the end of 2020 may be delayed for up to one year.
There is a new provision that provides a $300 above-the-line deduction for charitable contributions, plus, the limits on charitable contributions are changed. The CARES Act temporarily increases the AGI limit on cash contributions made to charities from a maximum of 60% of AGI to a maximum of 100% of AGI for qualified contributions.
As such, an individual can completely wipe out their 2020 tax liability with charitable contributions, if total charitable contributions exceed the 2020 100%-of-AGI limit.
Employers are eligible to defer payroll taxes from the date of enactment, through the end of the year, until the end of 2021 and 2022. More specifically, 50% of the payroll taxes that would otherwise be due during this period may be deferred until December 31, 2021. The remaining 50% is due on December 31, 2022.
This relief applies to self-employed individuals as well, at least with respect to the employer equivalent portion of their self-employment taxes. Accordingly, 50% of an individual’s self-employment taxes, from the date of enactment through the end of 2020, may be deferred, with 50% of that amount due December 31, 2021, and the remaining deferred amount due on December 31, 2022.
Ultimately, the CARES Act is a historic emergency relief program for Americans and provides much-needed assistance for those affected by the pandemic and the resulting economic damage. We are all hoping that these, and the other measures contained in the stimulus bill will do what they are designed to do, which is help individuals and businesses survive during, and recover from, the coronavirus pandemic.