- \ Gerard Gruber
- April 13, 2020
On March 27th, the largest and most extensive economic relief effort in American history was signed into law: the Coronavirus Aid, Relief, and Economic Security Act ( CARES) Act. This $2.2 trillion-dollar stimulus was designed and passed to provide economic relief to Americans financially impacted by the COVID-19 pandemic.
While the finer details of implementation have yet to be released, the major tenets for individuals and families, retirement planners, and business owners as follows:
Recovery Rebates: Perhaps the most commonly known provision of the CARES Act is Section 2201 which affords individuals and families under a certain income threshold with a “recovery rebate,” or direct payment from Uncle Sam. Over 90% of taxpayers should receive some rebate, according to research conducted by the Tax Foundation.
How much can you expect to receive?
Individual “recovery rebates” of $1,200 will be issued to individuals earning $75,000 and below and $2,400 will be issued to married couples making $150,000 and below, with a $500 provision for each child. The rebates begin to phase out at the rate of $5 for each $100 of income earned over the threshold, completely phasing out at $99,000 for single filers and $198,000 for joint filers.
However, while these rebates will not count as taxable income, they are being treated as an advance on an individual’s 2020 tax credit. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.
No action is required on the part of the taxpayer to file for their stimulus check. These payments are expected to be made electronically via direct deposit according to bank account information on file with the IRS if possible.
Student Loan Payment Suspension: Student loan payments (principal and interest) will be suspended through September 30, 2020 without penalty to the borrower for federal student loans.
Charitable Giving Increases: The new law creates a $300 charitable contribution deduction that is available to taxpayers that do not itemize deductions and suspends the individual charitable contribution limitation of 60% of adjusted gross income for the 2020 tax year. It also increases the charitable contribution limitation for corporations for the 2020 tax year from 10% to 25% of taxable income.
Prohibition of Evictions and Foreclosures: The Act prohibits foreclosures on all federally-backed mortgages for a 60-day period beginning March 18, 2020. A landlord is prohibited from initiating legal action to evict a tenant or to assess fees, penalties, or other charges for nonpayment of rent for a 120-day period after the enactment date where the landlord’s mortgage is federally backed.
Unemployment Insurance Benefits: Unemployment insurance benefits will increase by $600 per week for up to four months.The Act also creates a temporary Pandemic Unemployment Assistance (“PUA”) program for those not traditionally eligible for unemployment benefits (including the self-employed, independent contractors, and individuals with limited work history) that are unable to work due to the national health emergency.
Healthcare Provisions and Coronavirus Testing: All coronavirus testing and potential vaccines will be covered to patients at no cost. The definition of “qualified medical expenses” for eligible accounts has been temporarily expanded to include certain over-the-counter medications. Telehealth services will temporarily be covered by Health Savings Accounts (HSA) for those with eligible High Deductible Health Plans. Medicare Part D recipients can request up to a 90-day supply of their medications.
Retirement Provisions
Suspension of RMDs: Required Minimum Distributions from IRAs and 401(k) plans (at age 72) are temporarily suspended to help retirees keep savings in their accounts while the markets are low.
Early 401 (k) Withdrawals and Loans: Individuals affected by COVID-19 are eligible to withdraw up to $100,000 from a qualified retirement plan without paying a 10% early withdraw penalty through the end of 2020. Savers have three years to return the funds to their accounts. Contributions not repaid by that time will be taxable over a 3-year period. Loan thresholds on these accounts have also been increased to the lesser of 100% or the vested balance in the account.
Relief for Small Businesses:
Deferral of Payroll Taxes: The Act allows business owners to defer payroll taxes through the end of 2020. 50% of payroll taxes will be due at the end of 2021 and the other 50% at the end of 2022.
Employee Retention Tax Credit: This refundable tax credit is good for 50% of wages paid to each employee up to $10,000 max per person. Qualifying employers include (1) those whose business is fully or partially suspended by government order due to COVID-19 during the calendar quarter or (2) those whose gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
Corporations, States, and Municipalities: $500 billion in loans will be given to large corporations, states, and municipalities.
Harbor West will keep you informed as more information becomes available regarding these and other changing conditions in this economic climate. Should you have concerns or questions about the CARES Act or any other issue, feel free to reach out at any time. We are always here to help.