In response to the COVID-19 pandemic, Congress has passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This legislation is the third round of federal funding aimed at providing economic support for individuals and businesses. Below are some of the key provisions relating to individuals.
- Recovery Rebate for Individuals – This widely anticipated provision will provide cash payments of up to $1,200 to individuals ($2,400 if you file a joint tax return). Taxpayers will receive an additional $500 for each child under the age of 17 that are claimed as a dependent on the taxpayer’s return. While those eligible will begin receiving this money in the coming weeks or months, taxpayers whose income is above a certain threshold will not receive payments.
- Suspension of Required Minimum Distributions (RMDs) – The bill also waives required minimum distributions in 2020 for most retirement account owners and beneficiaries. This applies only to those taking RMDs under the rules in place prior to the SECURE Act.
- Penalty Free Access to Retirement Plan Funds – People who are facing Coronavirus related hardships can take distributions from their retirement accounts and have certain benefits apply. Benefits include:
- No 10% penalty for people under age 59 ½.
- Distributions are still taxable, but income can be spread out evenly over three years.
- Funds withdrawn in 2020 may be put back into a retirement account within three years. This may be done in a lump sum or with multiple rollovers.
- $300 Above-the Line Deduction for Charitable Contributions – Taxpayers who make charitable contributions in 2020 but do not itemize their Federal deductions because of the increased standard deduction, will now receive a tax benefit for up to $300 worth of these contributions. Contributions must be made in cash and cannot be made to donor-advised funds.
- Healthcare Benefits – The Act health insurance issuers, including Medicare, to cover any Coronavirus preventative service. This means that people will be eligible to receive the COVID-19 vaccine at no cost (once available). Additionally, over-the-counter medications and menstrual care products, are now considered qualified medical expenses for purposes of HSA distributions.
- Deferral of Student Loan Payments – The bill suspends student loan payments through September 30, 2020. During this time interest will not accrue on the loans, and each month will count as a qualifying payment under any loan forgiveness program.
- Increased Unemployment Benefits – Unemployment compensation is increase by $600 a week for up to four months. The Act also extends the amount of time someone can receive benefits for by 13 weeks. Assistance is also extended to those who are self-employed, or otherwise ineligible for unemployment benefits under normal circumstances.
In addition to the provisions effecting individuals, the CARES Act provides benefits to businesses and their employees. Stay tuned for future posts which will discuss these, and other, provisions in more detail. As always, if you have any questions on how the CARES Act may affect you, please reach out to your Rockbridge advisor.