On Friday, March 27, 2020, President Trump signed into law the more than $2 trillion coronavirus stimulus bill known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The following is a description of certain significant provisions of the CARES Act affecting individuals.
Recovery Rebates for Individuals
The Act provides for one-time payments of $1,200 for people making up to $75,000 a year and $2,400 for couples making up to $150,000 a year, with an additional $500 per child. Individuals with little or no tax liability would receive the same amount. Payments would decrease for those making more than those amounts, with an income cap of $99,000 for individuals and $198,000 for couples. These “recovery rebates” are being treated as advance refunds of a 2020 tax credit, and taxpayers will reduce the amount of the credit available to them on their 2020 tax return.
Expansion of Unemployment Benefits
There is a broad expansion of unemployment benefits. Current unemployment assistance is increased by $600 a week for up to four months. In addition, the federal government will provide funding to extend benefits for an additional 13 weeks after state benefits end, through December 31, 2020. Also, “pandemic unemployment assistance” has been added to provide the same unemployment benefits to individuals who would not otherwise qualify for unemployment compensation (such as independent contractors and gig workers) and are unable to work because of COVID-19.
Withdrawals from Qualified Retirement Plans and IRAs, and Plan Loans
The Act provides tax relief for retirement plan and IRA “coronavirus-related distributions” up to $100,000 taken by individuals on or after January 1, 2020 and before December 31, 2020. The Act permits in-service distributions, provides an exception to the 10% early distribution penalty, exempts the distribution from the mandatory 20% withholding applicable to eligible rollover distributions, allows the individual to include income attributable to the distribution over a three-year period, and allows the for the recontribution of the distribution to a plan or IRA within three years. In addition, required minimum distributions for 2020 are waived.
The Act also provides that for plan loans made during the period commencing on March 27, 2020 (date of the passage of the Act) and lasting for 180 days thereafter, the maximum loan amount is increased from $50,000 or 50% of the vested account balance to $100,000 or 100% of the vested account balance. For plan participants with outstanding loans on March 27, 2020, any payments due through December 31, 2020, can be deferred for one year.
The Act increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations. For individuals, the 50-percent of adjusted gross income limitation is suspended for 2020. For corporations, the 10-percent limitation is increased to 25 percent of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent.
Treatment of Student Loans
The Act expands the definition of employer-provided educational assistance that is excluded from gross income to include up to $5,250 in student loan payments made by an employer between the date of enactment and the end of 2020.
The Act also suspends involuntary collections on student loans, including offsetting an income tax refund.
Questions About How this May Impact You
There are many unanswered questions relating to the interpretation of the CARES Act. Hopefully these questions will be answered in upcoming regulations. We will continue to provide updated information on current developments and explanations of other provisions of the CARES Act as the implementation of the Act proceeds. Do not hesitate to contact Jon Samel at (215) 661-0400 or JSamel@HRMML.com or any other member of our Team with any questions as they pertain to your personal situation.