The signing into law of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020, marks one of the nation’s largest economic relief packages ever offered to American citizens. The CARES Act represents a $2 trillion stimulus package that offers individuals (as well as businesses and health care organizations) financial help for those affected by the COVID-19 pandemic.

Woman reviewing how the CARES Act will help individuals

Relief Through Non-taxable Recovery Rebates

One of the CARES Act’s most far-reaching provisions offering help to individuals is the provision for recovery rebates. The Federal government will make up to a $1,200 direct payment to those individual taxpayers who file their Federal tax return as a single filer or head of household. Married couples filing jointly will receive a similar benefit of up to $2,400. In addition, $500 direct payments will also be disseminated for each qualifying child.

Certain exceptions do apply. The recovery rebates are not subject to taxation, though they are subject to ineligibility phaseouts based on the adjusted gross income (AGI) the filer reported on their Federal 2019 tax return. If the 2019 tax return has not yet been filed, the determination will be based on the filer’s 2018 tax return.

The recovery rebates are subject to the following phase-outs:

  • Single filers – phaseout begins at $75,000 and completely phases out at AGI in excess of $99,000
  • Heads of household – phaseout begins at $112,500 and completely phases out at AGI in excess of $146,500
  • Married couples – phaseout begins at $150,000 and completely phases out at AGI in excess of $198,000

Increased Unemployment Compensation Benefits

For those individuals who are unable to work as a direct result of impacts from COVID-19, the CARES Act provides considerable help by way of increases in unemployment compensation benefits. The new law offers these individuals an additional $600 per week for up to four months, above state unemployment benefits the individual is eligible to receive.

For states that elect to pay recipients as soon as they become unemployed (versus those states which require the newly unemployed to wait one week before collecting benefits), the CARES Act generally provides Federal funding covering the first week of unemployment benefits on a temporary basis, through December 31, 2020. For those who are still unemployed after their state unemployment benefits expire, the new law provides for 13 additional weeks of unemployment benefits to be provided through the end of 2020.

The Pandemic Unemployment Assistance Program, also available through the end of this year, generally offers unemployment benefits to self-employed individuals, independent contractors, those with limited work histories, and others who do not otherwise typically qualify to receive unemployment benefits.

Early Retirement Distributions, Without Penalties

To help individuals who are looking to their retirement savings plans as a measure of financial relief, the CARES Act allows those with IRAs, 401(k) plans, and certain other retirement vehicles to take early withdrawals of up to $100,000 for COVID-19-related reasons without incurring the 10% early distribution penalty. This only pertains to withdrawals made on or following January 1, 2020 and through December 31, 2020.

The waiver applies to retirement account distributions made to an individual who has been diagnosed with COVID-19 or whose spouse or dependent has been diagnosed. It is also effective for individuals who:

  • Are financially impacted as a result of being quarantined, let go from their job, or who have had their work hours reduced
  • Are unable to work because of lack of childcare due to COVID-19
  • Have had to close or reduce the hours of a business they own due to COVID-19

Eligible individuals can repay the funds they withdraw within three years of the day after the distribution without regard to the applicable cap on annual contributions. To the extent such early distributions aren’t repaid within this three-year period, the related income tax will be prorated over three years.

Certain Required Minimum Distribution Rules Are Being Waived

Required minimum distribution (RMD) rules for certain IRAs and defined contribution plans for the calendar year 2020 are also being waived. This CARES Act provision helps individuals who might otherwise sell retirement assets in response to the stock market’s downturn.

The waiver covers both 2019 RMDs required to be taken by April 1, 2020, and those required for 2020, and is applicable for calendar years beginning after December 31, 2019.

Expanded Above-the-Line Charitable Contribution Deductions

A new above-the-line $300 deduction for cash contributions to qualified charities made in 2020 is another enhanced benefit being offered by the new law. Above-the-line deductions reduce a taxpayer’s AGI. Individuals can take advantage of this deduction whether or not they choose to itemize their deductions.

The CARES Act also relaxes the limitation on charitable deductions for cash contributions made to public charities in 2020 by shifting it upwards from 60% to 100% of AGI.

Changes to Student Loan Payments

Under the CARES Act, individuals who are paying down Federal student loans can be helped by the provision that permits them to temporarily stop making payments through September 30, 2020. No penalties or late fees will be assessed and no interest will accrue during this time frame. Additionally, the government will temporarily suspend garnishments to collect Federal student loans.

Employers who are assisting their employees with Federal student loan payments are permitted to provide up to $5,250 on a tax-free basis each year toward their employees’ payments before January 1, 2021. Employers can make the payments either directly to the employee or to the lender. However, the employee cannot take a student loan interest deduction for any loan payment for which the exclusion is available.

Relief from Mortgage Payments and Foreclosures

If you are a homeowner with a federally backed mortgage, you can request forbearance, regardless of your delinquency status. You will not be assessed any penalties, fees, or interest if you choose to exercise this option. Eligible homeowners are required to submit a request to their loan servicers and affirm financial hardship during the COVID-19 emergency. A servicer is required by the CARES Act to grant forbearance for up to 180 days and to grant a further extension for an additional period of up to 180 days if the borrower requests it.

Servicers of federally backed mortgages are prohibited from initiating any foreclosure processes, making a move to execute a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or foreclosure sale for a minimum of 60 days, commencing on March 18, 2020. This provision does not include vacant or abandoned properties.

Borrowers with federally backed mortgages on multifamily properties can request a forbearance for up to 30 days (as well as two additional 30-day extensions) if they were current on their loans as of February 1, 2020.

If you have questions on how you can capitalize on help being offered to individuals through the many provisions included in the CARES Act, please reach out to your Untracht Early advisor for guidance.