(CARES) ACT IMPACT ON INDIVIDUALS

Written by Matthew Dickens on April 3, 2020. Posted in General

The Coronavirus Aid, Relief and Economic Security (CARES) Act was just signed into law on March 27, 2020.  It is a gigantic economic stimulus package with many provisions that will affect you financially.  Some of the key points are as follows:

1. Recovery rebates for individuals – To help individuals stay afloat during the time of economic uncertainty, the government will send up to $1,200 payments for eligible taxpayers and $2,400 for married couples filing joint returns. An additional $500 payment will be sent to taxpayers for each qualifying child dependent under age 17.  These amounts will phase out based on your adjusted gross income over $75,000 (singles or married filing separately), $122,500 (head of household), and $150,000 (joint).  For singles, if your income is greater than $98,000, you will not be eligible for this payment.  For married filing jointly, the payment will be reduced to zero if you income exceeds $198,000.  We are forwarding another announcement with more details on the specifics of this rebate.
2. Waiver of 10% early distribution penalty (no waiver of tax, just penalty). The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus.  Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA.  Income arising from the distribution and the corresponding tax is spread out over three years unless the employee elects to turn down the spread out.
3. Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived.  This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70-1/2 in 2019. 
4. Charitable deduction liberalizations. The CARES Act makes significant liberalizations to the rules governing charitable deductions:
   • Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
   • The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income doesn’t apply to cash contributions made to public charities in 2020. Instead, an individual’s qualifying contributions, reduced by other contributions can be as much as 100% of the contribution base.  No connection between the contributions and COVID-19 activities is required.