On Friday, March 27, Congress passed, and President Trump signed into law, the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. The new law is designed to stabilize the economy by providing financial relief to millions of American families and small businesses. Here’s an overview of some of the key features of the CARES Act legislation.
Federal income tax filing date extended
The IRS has extended the 2019 tax-filing deadline from April 15 to July 15. The extension is automatic and does not require you to file an extension request. You can file any time up to July 15 and if you expect a refund you may want to file as early as possible to get your refund sooner. If you file before July 15, you do not have to pay any taxes you might owe until July 15. Some state filing deadlines may not be extended, so check with your tax advisor to confirm when any state tax returns are due.
Cash payments for many Americans
A big part of the CARES Act involves direct payments to individuals. If you are a single adult with income of up to $75,000 you will receive $1,200. Payments will be reduced by $5 for every $100 of income above $75,000. Individuals earnings over $99,000 will not qualify for this benefit.
Married couples with combined income up to $150,000 will receive $2,400. Payments will be reduced by $5 for every $100 of combined income above $150,000. Couples with combined income of more than $198,000 will not qualify for this benefit. Parents will also receive a maximum of $500 for each child age 16 or younger in their household, with similar income-based adjustments. Qualifying income will be determined by your most recently filed tax return (2018 or 2019). Payments will also be made to people who were not required to file a tax return.
Unemployment payments have also been increased. An additional $600 per week will be added to any state unemployment benefits paid through July 31. Unemployment benefits will be extended by an additional 13 weeks for claims filed through December 31, 2020.
Relaxed retirement plan rules
Depending upon your plan provisions, you may withdraw up to $100,000 from your retirement accounts as a “COVID-19 emergency” distribution. These distributions are exempt from the 10% early withdrawal penalty. The exemption applies to withdrawals made since January 1, 2020. Any taxes due on the withdrawals can be spread out over three years. To qualify, you must have been directly impacted by COVID-19 and meet other U.S. Treasury requirements.
If you are over age 70-1/2, you do not have to take a Required Minimum Distribution (RMD) in 2020. This waiver also applies to inherited IRAs. Contact your tax advisor if you’ve already taken a RMD in 2020. You may be able to return the funds to your account or reclassify your withdrawals as special coronavirus retirement distributions. If you are age 70 or older and still employed, you can now continue making contributions to a traditional IRA.
If your workplace retirement plan permits loans and depending upon your plan loan provisions, you may now borrow the full vested value of your account, up to $100,000. But please keep in mind that retirement plans are designed to fund your retirement. You should only consider loans or withdrawals if you have exhausted all other funding options that might be available to you.
Larger charitable giving deductions
If you itemize deductions, your cash donations to qualified charities are now deductible up to 100% of your Adjusted Gross Income (AGI). If you use the standard deduction, you can deduct up to $300 in cash donations. Please make sure your donations are given to legitimate charities that are recognized by the IRS.
Expanded COVID-19 Medicare coverage
The reduction in Medicare reimbursements imposed in 2011 has been suspended from May 1, 2020 through December 31, 2020, which will increase payments to hospitals and other providers. In addition, hospitals will receive a 20% payment increase for patients diagnosed with COVID-19. Medicare telehealth services are being broadened to enable retirees to get medical advice from home.
More diagnostic tests, immunizations and preventive services will be covered by regular insurance for all insured Americans.
Relief for federally-backed mortgages
If your mortgage is federally backed, you can ask the servicer for forbearance (stop making payments) for up to 180 days, and this request may be extended for an additional 180 days. Federally backed mortgages include those purchased by Fannie Mae and Freddie Mac, insured by the departments of Housing and Urban Development, Veterans Affairs or Agriculture or made directly by USDA. Check with your mortgage servicer to see if you qualify.
Benefits for students
If you have federal student loans outstanding, you don’t have to make any principal or interest payments until after September 30, 2020. There will be no penalty for these deferred payments and interest will not accrue.
There are additional benefits available for current students. Students unemployed due to COVID-19 may be able to continue receiving work-study payments from their institutions. Recipients of Pell Grants or federally subsidized loans who have been forced to drop out of school because of COVID-19 will not have to return that money. Any grants or loans students have received will not count against their lifetime eligibility.
Small business benefits
Small businesses and nonprofits with less than 500 employees, along with individuals who are self-employed, operate as a sole proprietor or as an independent contractor, are eligible for an Economic Injury Disaster Loan emergency advance of up to $10,000 from the U.S. Small Business Administration. Restaurants and hotels are also eligible. These loan advances do not have to be repaid if certain guidelines are followed.
The CARES Act also increases the deductibility of business interest expense for 2019 and 2020 to 50% of Adjusted Gross Income (AGI). Self-employed individuals are eligible for up to 39 weeks of unemployment compensation, through December 31, 2020.