The CARES Act
Congress recently passed three bills to inject money into the economy and to help mitigate the economic impact of COVID-19. The most recent legislation is the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest economic stimulus in American history since the New Deal. The CARES Act aims to provide relief for families, individuals, and small businesses affected by the coronavirus outbreak. Here is a summary of some key provisions, including additional changes the federal government has initiated to help individuals.
- Deadlines Extended
The deadline for filing 2019 federal income tax returns has changed from April 15 to July 15, 2020. The deadline for making 2019 IRA and HSA contributions has also changed to July 15, 2020.
- Temporary Changes to Retirement Account Rules
Required minimum distributions (RMDs) from some retirement accounts have been waived for 2020.
The 10 percent early withdrawal penalty will be waived on distributions of up to $100,000 from certain employer-sponsored retirement plans and from IRAs for COVID-19-related purposes. The affected participant or IRA owner (including a spouse or dependent) would need to either be diagnosed with SARS-COV-2 or COVID-19 or experiencing adverse financial consequences as a result of an event, including but not limited to quarantine, furlough, lay-offs, reduced work hours, no available childcare, business closing or reduced business hours (self-employed), or other factors determined by the Secretary of the Treasury. Individuals can opt to pay the federal income tax on the distribution over three years or they may elect to repay the distribution within a 3-year period to an eligible retirement plan.
- Payments to Many Americans
Most Americans will receive direct payments of $1,200, or $2,400 for joint-filers, plus $500 for each child. The amount of the payments will be reduced for those with higher incomes. For tax-payers filing as singles, the reduced amount begins at an adjusted gross income (AGI) of $75,000 per year and is phased out at $99,000. For joint filers, the reduced amount begins at $150,000 and is phased out at $198,000. Your AGI is determined by your 2019 tax filing (or 2018, if 2019 is unavailable).
- Unemployment insurance has been expanded
The CARES Act expands unemployment insurance. Under the provisions in the bill, more people will qualify for benefits and the amounts of weekly benefits will increase.
- Tax credits for the self-employed
The Families First Coronavirus Response Act includes assistance for self-employed individuals, including a tax credit for sick leave and family leave of up to $200 a day or 67% of average daily pay. It also allows for up to $500 a day or 100% of average daily pay for emergency paid sick leave for quarantine or testing for COVID-19.
- Interest waived on federal student loan payments
On March 13, President Trump announced that interest would be waived on federal student loans. The CARES Act suspends payments on federal student loans for six months and waives any interest on the loans for six months as well. The missed months of payments will be recorded as if the borrower had made a payment for the purposes of loan forgiveness programs.
Students forced to withdraw from school due to the coronavirus may have the portion of their loan covering that semester canceled. Additionally, requirements to return portions of grants or loan assistance will be waived for students who had to withdraw from school.
Learn more at Studentaid.gov
- More funding available for health care and expanded coverage
Testing for COVID-19 must be covered by private health insurance without cost sharing. Any vaccines for COVID-19 must be covered as well without cost sharing. The CARES Act expands coverage of telehealth services under Medicare. It also allows high-deductible health plans with health savings accounts (HSAs) to cover telehealth services even if patients have not met their annual deductible.
For health savings accounts, flexible spending accounts, and health reimbursement arrangements, the CARES Act includes over-the-counter (OTC) medicines (without a prescription) and feminine products as qualifying medical expenses that can be reimbursed by these accounts.
- Above-the-line deduction for charitable contributions
The CARES Act allows for a $300 above-the-line deduction for charitable contributions made to 501(c)(3) organizations for taxpayers who take the standard deduction or those who itemize. It also relaxes the limit on charitable contributions for itemizers—increasing the amount that can be deducted from 60% of adjusted gross income to 100% of gross income. These changes are retroactive to the beginning in the 2020 tax year.