Key 2020 CARES Act Provisions

In response to the unfolding COVID-19 global pandemic, the Coronavirus Aid, Relief, and Economic Security Act was unanimously passed by the Senate on March 25, 2020.  The next day it was passed in the House via voice vote and signed into law by the President.

The legislation was the largest-ever economic stimulus package, amounting to 10% of U.S. gross domestic product. The main points and key takeaways from the bill are listed below:

Recovery Rebates

• There will be a refundable income tax credit for 2020 income of up to $2,400 for married couples filing a joint return. This amount decreases as income (AGI) meets certain thresholds.
  • All other filers begin with a refundable credit of up to $1,200.
  • The credit amount increases by up to $500 for each child a taxpayer has under the age of 17.
• AGI Threshold amounts:
  • Married Joint, $150,000;
  • Head of Household, $112,500;
  • All other filers, $75,000. 
  • The payment is reduced by $50 for every $1,000 over threshold amounts. (View Chart Below)
• Individuals must have a work-eligible Social Security number (and not to be claimed as a dependent), but they do not need to have had reportable income in 2019 and can also be eligible for other income-benefit programs as well.

Coronavirus-Related Distributions

• Distributions of up to $100,000, made from IRAs, employer-sponsored retirement plans, or a combination of both, made in 2020 by an individual who has been impacted by the Coronavirus are exempt from the 10% penalty and not subject to mandatory withholding requirements.

Unemployment Compensation Benefits

• ‘Regular’ Unemployment Compensation is ‘increased’ by $600 per week, and the benefit period is extended by 13 weeks.
• Unemployment benefit will now be available during the first week of unemployment, waiving the ‘normal’ one-week waiting period.

Small Business Benefits

• Certain small businesses can qualify for small business loans up to a maximum of the lesser of $10 million or 2.5x average payroll costs to cover payroll, rent, utilities, mortgage interest, group insurance premiums, etc.
• Such loans (which have a maximum interest rate of 4%) are eligible for full or partial forgiveness. Eligible amounts must be spent during the first 8 weeks after the loan is made if spent on payroll costs, rent, utilities, and group health insurance premiums, BUT business MUST maintain, the same number of employees.
• 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.

Other Provisions

• Required Minimum Distributions are waived in 2020, and taxpayers who have already taken their RMDs for 2020 have the option of returning them if they so desire.
• 2020 is ignored for the purposes of the 5-Year Rule that applies to Non-Designated Beneficiaries who inherit a retirement account from decedents who die prior to reaching their required beginning date.
• There is a new $300 above-the-line deduction for “qualified charitable contributions”, and the AGI limit for cash charitable contributions have been temporarily repealed.
• Student loan payments are deferred until September 30th, 2020, and employers can exclude student loan repayments from compensation.

If you would like to talk in more detail about the current environment or your portfolio, please schedule a call on my calendar below.
 
Sincerely,
 
Ryan M. Bayonnet, CFP®, MSF