Late last week, the federal government passed an 883-page, $2.2T bill dubbed the CARES Act (Coronavirus Aid, Relief and Economic Security). Included in this big money is a $500 billion lending program for businesses, states, and municipalities. It also includes $377 billion to support small businesses, $32 billion in grants for the airline industry and $117 billion for hospitals. Here’s what else is included:

Direct payments

The bill includes payment for individuals and families: $2,400 for joint filers, $1,200 for individuals, and $500 for each qualifying child age 16 or younger. These payments have income limits of $150k joint, $112.5k HoH (Head of Household), and $75k for individuals and they phase out by $5 for every $100 over the limit. *Joint filers making more than $198,000, HoHs making more than $136,500, and individual filers above $99,000 will not receive a payment. The income limits are based on the adjusted gross income (AGI) of your most recent tax return. This gets a little tricky since that could be your 2019 return if you have already filed OR 2018 if you have not yet filed your 2019 tax return. Since the 2019 tax deadline has been extended to July 15th, 2020, there may be incentive for some to file now or to hold off depending upon your AGI in 2018 vs 2019.  *The top end phaseout would increase if the household also receives a payment for qualifying children. This amount changes based on the number of children in the household.

Unfortunately, if you had high income in recent years, but will have low or negative income due to the Coronavirus, you still would not be eligible for a direct payment.

Required Minimum Distribution (RMD) Waiver

CARES includes a provision that waives RMD requirements for 2020. This is impactful because RMDs are based on year-end values, which were significantly higher. If you have already taken your RMD, the act does not provide provisions for undoing this, but you may be able to take advantage of the existing 60-day rollover rules and return the funds if the withdrawal happened in the last 60 days.

Retirement Withdrawal Provisions for Coronavirus Hardships

Eligible taxpayers who are diagnosed with COVID-19, have a spouse or dependent diagnosed, or experienced adverse financial consequences as a result of being furloughed, quarantined, etc. can take an early distribution from their IRA or retirement plan without incurring the 10% early distribution penalty. The distribution must be in 2020 and can be up to $100,000. The income from the distribution will be automatically distributed over 3 years unless the taxpayer elects to have it all included in 2020. The taxpayer also has three years to repay the amount withdrawn as a qualified rollover contribution and they can amend tax returns for any related tax that was previously paid.

Retirement Plan Loans Updated

The act doubles the maximum amount of an allowable retirement plan loan from $50k to $100k, and the loan can be up to the present value of the account (previously limited at 50%). Loan payments from the date of enactment until 12/31/20 can also be deferred for one year.

Expanded Unemployment Benefits

In addition to collecting state unemployment benefits, those who are unemployed will be eligible for an additional $600 per week for up to four months.

Charitable Deductions

The limit on taxpayers’ deduction for cash contributions to public charities was increased from 60% of AGI to 100% of AGI, which allows taxpayers to take a larger deduction. This could incentivize larger donations during this time of need.

For taxpayers who don’t itemize, a provision was added allowing $300 of charitable contributions to be taken as an above-the-line deduction. Essentially this means a deduction is allowed without itemizing.

Payroll Retention Tax Credit for Businesses

Businesses that experience a 50% loss (compared to the same quarter last year) will be eligible to receive a tax credit of up to $5,000 per employee for keeping idled workers on their payroll during the pandemic.

Deferral of Social Security Tax

Employers and self-employed individuals can defer the 6.2% tax paid on wages by two years. Paying half by December 31st, 2021 and the other half by December 31st 2022.

Food Assistance

The act includes an additional $16 billion for SNAP (formerly known as food stamps) along with a $9 billion increase for child nutrition.

Small Business Assistance

For companies with less than 500 employees, $350 billion is being dedicated to prevent layoffs. This is structured as a loan, but for companies that maintain employees, 8 weeks of payroll costs, interest on mortgage obligations, rent, and utilities would all be forgiven. If you are a small business owner it is recommended you research the Paycheck Protection Program (PPP) and other assistance programs.

Business Tax Relief

Provisions to help businesses were modified such as:

  • Net Operating Losses- The 80% rule is lifted and losses can be carried back five years.
  • AMT Tax Credit Refunds: Companies with tax credit carryforwards and previous Alternative Minimum Tax (AMT) liabilities can claim refundable tax credits.
  • Excess Loss Limitations (ELL): The Acts suspends ELL rules for pass-through entities.

Employer Payment of Student Loans

The provision allows employers to pay up to $5,250 annually toward an employee’s student loans and the payment would be excluded from income. The $5,250 can be applied to other educational assistance (tuition, fees, books, etc.) as well. The provision will be in place until the end of the year.

Student Loan Payments Suspended

The Department of Education will suspend payments on student loan borrowers without penalty until September 30th.

REAL ID Deadline Delayed

The deadline to obtain a REAL ID will be extended until September 2021.

Foreclosure and Eviction Protections

CARES provides forbearance on a federally backed mortgage for up to 60 days, which can be extended four times for a period of 30 days each if you are facing a coronavirus-based hardship. Servicers of federally backed mortgages can’t begin the foreclosure process for 60 days from March 18th. The bill prohibits fees, penalties, or extra interest from being charged for delayed payments.

Those with a federally backed mortgage cannot evict tenants for failure to pay for 120 days. They also can’t charge fees or penalties for a tenant who can’t pay rent.

Final note

These measures include many opportunities for investors along with aid for those who find themselves in need, but each financial situation is unique. As always, be sure to speak with your trusted financial professional before acting on the information or tactics mentioned.

The full text of the bill can be found here:

W. Devin Wolf, CFP®
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