Wealth Planning

How the CARES Act may help you

  • The CARES Act, which passed in March, can provide Americans with several opportunities for economic relief from the coronavirus pandemic.
  • Unemployment benefits, direct cash payments, and new rules on retirement accounts are all parts of the legislation.
  • Check with your tax advisor to see how these provisions could affect you.

Under the CARES Act, which passed in March to help mitigate the economic effects of the coronavirus pandemic, individuals are given several opportunities to get relief. Here are 6 provisions from the legislation, plus one additional pandemic related change that may affect you: 

  1. Relief checks: The CARES Act authorizes direct cash payments to individuals based on your adjusted gross income, plus a supplemental cash payment for each child.  For Americans who qualify, this could involve a payment of a few thousand dollars, many of which were made in April.  Your adjusted gross income thresholds determine your eligibility to receive the funds and are based on 2019 income tax returns (if already filed) or 2018 income tax returns (if 2019 returns are not yet filed). Qualified individuals will receive a payment automatically; no application is required. 

  2. Withdrawal of funds from your retirement accounts:  You may now be able to take coronavirus-related distributions of up to $100,000 in 2020 from retirement accounts without the usual early withdrawal penalties if you are under age 59 ½.  The distributions can be included in income over a three-year period; and if you recontribute these funds to an eligible retirement account within three years of the distribution then you may be able to eliminate the income tax liability. The new law also may allow you to take larger loans from your 401(k) and certain other retirement plans; the overall cap increased from $50,000 to $100,000. If you qualify but don’t have an immediate need, it may be best to leave the funds untapped for the longer-term.

  3. Unemployment benefits: Individuals who are unemployed for reasons relating to the coronavirus pandemic can qualify for up to 39 weeks of unemployment benefits, plus an additional weekly stipend through the end of July; benefits are extended to self-employed people, independent contractors and those with limited employment history.  See www.usa.gov/unemployment for a link to your state’s unemployment program to help you understand if you qualify for benefits.

  4. Federal student loan payment relief: Most payments on Federal student loans are deferred interest-free through September 30. Check with your loan administrator.

  5. Waived RMDs: Retirement account owners and beneficiaries are not obligated to take required minimum distributions (RMDs) in 2020.  Since RMDs generally are taxable income, this provides two benefits: first, you avoid paying income tax on an RMD this year, reducing what otherwise would have been an income tax liability, and second, you can keep more assets in your retirement account to ride out current market volatility. Consider whether you rely on distributions from your retirement accounts for your living expenses before deciding not to take them in 2020.

  6. Making charitable contributions: The CARES Act expands your ability to take a tax deduction for your charitable contributions. Although you typically cannot take a charitable deduction if you don’t itemize your deductions, now you will be able to deduct up to $300 of contributions to certain charities.  And, if you do itemize, you may be able to make gifts to charities up to your total adjusted gross income and deduct those gifts fully in 2020; typically, you are capped in any given year based on your adjusted gross income. Note that this only applies to cash contributions directly to public charities, not to foundations or donor-advised funds.

  7. Other relief related to the pandemic:
    • The IRS delayed Federal income tax filing and payments, (including 2020 estimated quarterly payments) to July 15.
    • The government expanded paid sick leave (employees who cannot work because of coronavirus-related reasons) and family medical leave relief (employees who need leave to care for children because school or daycare is closed as a result of the public health emergency) under the Families First Coronavirus Response Act.
    • Companies such as cellular carriers, lenders, and credit card companies may offer private relief to some customers; check with your vendors.

Congress is debating how it will continue to respond, so additional legislation may be forthcoming. Be sure to speak with your tax advisor about how these will affect you before making any moves. 






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