What the CARES Act Means for Individuals

As we continue to delve into the CARES act and legislation here at FDAA, our advisors wanted to pass along the following summary around the potential benefits and impact this legislation may have on your financial affairs:

As the health care community tries to get a handle on the coronavirus pandemic, the U.S. government has stepped in to provide over $2 trillion in economic support for the beleaguered nation, the largest aid package in the country’s history. This relief package—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—includes economic support for individuals, businesses, health care organizations, state governments, and more.

A previous bill, the Families First Coronavirus Response Act (FFCRA), focused more on medical-related support, including paid leave. For individuals, the CARES Act expands aid through tax changes, unemployment insurance, cash payments, and other financial support meant to ease the economic burden this pandemic has caused.

These provisions include:

Direct Stimulus Payments

The CARES Act includes a stimulus package for individuals, even if you’re still working full time.

For any taxpayer with $75,000 or less in adjusted gross income (AGI) or $150,000 for married couples filing jointly, you will receive $1,200 per adult individual ($2,400 per couple) and $500 for each qualifying child, tax-free.

These payments will be reduced by $5 for every $100 in AGI above these thresholds, and the payments will be completely phased out for individuals with an AGI of $99,000 and married couples filing jointly with an AGI of $198,000.

This AGI is based on your tax return for 2019. If you’ve yet to file, the stimulus will be based on your 2018 return. The IRS will automatically send money to those who qualify using the information in your most recent qualifying tax return, using direct deposit where possible.

The agency notes that it will soon set up an online portal for those who have not given their banking information to the IRS for previous tax payments or refunds. This means you can still receive stimulus payments electronically rather than through the mail.

The details of when and how these payments will be distributed are still in flux. If you don’t receive a stimulus payment in the next few weeks or need to provide your banking information, you may want to check the IRS website, which has a special section on coronavirus-related issues.

In related news, you now have until July 15, 2020, to file your 2019 federal income taxes or make estimated tax payments that were previously due April 15.

The due date for second-quarter estimated taxes remains June 15, although this can change. In addition, make sure to check with your state and local jurisdictions to see whether their tax deadlines have also changed.

Expanded Unemployment Benefits

The CARES Act dramatically expands unemployment benefits for those whose incomes have been affected by the virus and its economic fallout. According to the Department of Labor, the new rules permit states flexibility in paying benefits in cases such as:

  1. An employer temporarily ceases operations due to COVID-19, preventing employees from coming to work
  2. An individual is quarantined and expects to work after the quarantine is over
  3. An individual leaves employment due to a risk of exposure or infection or to care for a family member
  4. Importantly, these unemployment benefits also extend to self-employed individuals and independent contractors, who might not otherwise be eligible for support.

The CARES Act also increases regular unemployment benefits by up to $600 per week, which can be a significant boost for many workers. This increased stipend can be paid for up to four months through July 31, 2020.

Note that the specifics of unemployment benefits can vary significantly by state, employment status, prior income, etc. The main takeaways, though, are that the CARES Act expands unemployment benefits to more workers, increases the duration of payments, and increases the amount of some payments.

Also keep in mind that unemployment offices are receiving an unprecedented influx of claims, so there may be delays in processing your benefits. The Department of Labor provides some guidance online.

Loan Freezes

For certain types of loans such as federally backed mortgages and federal student loans, borrowers can freeze payments to make this period of economic uncertainty easier to manage.

For example, the law allows those with federal student loans to delay payments through September 30, 2020, without accruing interest or penalties. As the Consumer Financial Protection Bureau explains, you can simply wait to make payments without having to apply for relief.

You may want to check with your non-federal lenders on the details of any loan freezes during this time. Even if a lender is not required to allow you to delay payments due to the CARES Act, you may be able to work out an agreement with them.

Retirement Planning Relief

For those who need to withdraw retirement funds for coronavirus-related reasons, you can withdraw up to $100,000 before age 59 ½ without paying the 10% early withdrawal penalty.
You may then spread out the income tax implications of the withdrawal over three years. You may even get a full refund on any taxes paid related to this distribution if you put the amount you withdraw, up to $100,000, back into your retirement plan within three years.

Many retirement plan participants will also be able to waive required minimum distributions (RMDs) for 2020, helping you keep more money in tax-advantaged retirement accounts. You are therefore not required to sell investments, which have decreased in value, to make an RMD, and you will gain time for your portfolio to recover.

Charitable Contribution Deductions

For those who are philanthropically minded, the CARES Act makes it easier to make charitable contributions. You can deduct up to $300 in qualified charitable contributions from your 2020 taxes (filed in 2021), even if you do not itemize your taxes.

In other words, you can lower your AGI by up to $300 by making donations this year, perhaps making it an opportune time to help others who may be in a more tenuous financial position because of this pandemic.

Consult with a Qualified Professional

While these are some of the more prominent components of the CARES Act for individuals, the law covers many other areas that can ultimately have an impact on you. This impact extends to how your state uses the funding it receives under this law.

Both the health implications of the coronavirus and associated relief efforts continue to change rapidly, and some of the effects of the CARES Act may not be fully clear until government agencies like the IRS issue more guidance.

Consulting with our advisory team here at FDAA, an accountant, or tax advisor can help you understand how this law will affect you and your financial picture.

This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.