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The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Thumbnail

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

What is the Coronavirus CARES Act and How It Can Benefit You

On Friday March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act also known as the CARES Act.

The CARES Act provides 2 trillion dollars of government aid along with several SIGNIFICANT changes to preexisting IRS, retirement accounts, and other financial rules in attempts to open up opportunities for individuals and small businesses to survive in this time of crisis.

The CARES Act is 880 pages in its entirety, full of new rules and significant changes to current rules.  I have broken down and summarized that document here into 5 key areas: 

Recovery Rebates, Coronavirus Related Distributions,  Significant Tax Changes to Retirement Accounts, Unemployment Compensation Benefits, and Small Business Benefits.  

Recovery Rebates

A major part of the 2 trillion-dollar stimulus is designated for “Recovery Rebates” that the government will be giving to individuals as a form of supplemental income for one month.  According to estimates by the Tax Foundation, over 90% of taxpayers should receive some form of Refundable Income.  In order to calculate this benefit, it is dependent on three main factors:

A.      Filing Status – Married Joint, Head of Household or Single

B.      Income Thresholds – Each filing status has INCOME LIMITS that phase out of the benefit.  The income amounts below are calculated on 2018 or 2019 taxes based on which return was the most recently filed (since many have not yet filed for 2019 due to an automatic IRS extension for everyone till July 15th 2020.) 

  1. Married Joint – $150,000 or less

  2. Head of Household – $112,500 or less

  3. All other filers – $75,000 or less

  4. PHASE OUT RULE – There will be a 5% reduction to the amount over the income limits.  In essence, you will lose $5 for every $100 you make over the phase out limits (1-3 above).  

EXAMPLE – A married couple (filing Married Joint) makes 180,000/year.  They have 2 children that are under the age of 17.  $1,200 x 2 adults = $2,400.  $500 x 2 children = $1,000 for a total of $3,400.  That couple made $30,000 OVER the $150,000 limit therefore $30,000 x 5% = $1,500 reduction.  Total benefit = $1,900. 

C.      Amounts per person per household

  1. Adult (17 or older) who are NOT claimed as a dependent – $1,200/person

  2. Child (under 17 years old) – $500/child

The following is a quick reference graph to show a summary of all scenarios for the Refundable Income.


These payments are currently stated to be made “as soon as possible” but will not likely be dispersed for another 30 days or more.  In addition, these payments will be made to one of the following:

  1. Social Security Recipients - The account that receives your social security payments will receive an auto deposit of these funds

  2. Account on file for IRS Reimbursements - For those who put electronic deposit authorization for rebates or drafts for tax payments will receive the money in that account.

  3. Last Known Address on File with IRS-  A check will be mailed.

Coronavirus- Related Distributions

This portion of the act opens up distributions for up to $100,000 from any or all qualified retirement accounts such as IRA’s, 401K’s and 403B’s.  Prior to this act, the rules for these accounts restrict the ability of taking funds from these accounts without incurring a 10% penalty prior to age 59.5 (in most cases) along with withholdings for the income tax owed.  The following is a list of all qualified distributions under the CARES Act:

  • Have been diagnosed with COVID-19

  • Have a spouse or dependent who has been diagnosed with COVID-19

  • Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease

  • Are unable to work due to lacking childcare as a result of the disease

  • Own a business that has closed or is operating under reduced hours because of the disease

  • Meets another reason that the IRS decides you qualify from a tax perspective;

  1. Exempt From the 10% Penalty – Individuals under the age of 59 ½ may access retirement funds without the normal penalty that would otherwise apply.

  2. Not Subject to Mandatory Withholding Requirements – Typically, eligible distributions from employer-sponsored retirement plans are subject to mandatory federal tax withholding of at least 20%. Coronavirus-Related Distributions, however, are exempt from this requirement. Plans can rely on a participant’s self-certification that they meet the requirements of a Coronavirus-Related Distribution when processing a distribution without mandatory withholding.

  3. Eligible to be Repaid Over 3 Years– Beginning on the day after an individual receives a Coronavirus-Related Distribution, they have up to three years to roll all or any portion of the distribution back into a retirement account. Furthermore, such repayment can be made via a single rollover, or multiple partial rollovers made during the three-year period. Finally, if distributions are rolled using this option, an amended return can (and should) be filed to claim a refund of any tax paid attributable to the rolled over amount.

  4. Income May Be Spread Over 3 Years- By default, the income from a Coronavirus-Related Distribution is split evenly over 2020, 2021, and 2022. However, a taxpayer can elect to include all of the income from a Coronavirus-Related Distribution in their 2020 income.

Significant Tax Changes to Retirement Accounts

1.  Required Minimum Distributions (RMD’s) for 2020 can be SUSPENDED and PAID BACK! - For those who have achieved age 70.5 in 2019 or earlier, you are required to take a portion of your retirement accounts each year.  The CARES Act allows for those taking RMD’s to suspend RMD’s for ALL of 2020.  In addition, it allows for the “reimbursement” of the RMD’s already taken in 2020 to be paid back. 

You can “pay back” RMD’s in one of two ways, depending on when the RMD was taken:

  • RMD’s taken within the last 60 days - as these distributions fall under the “60 day rule” of exchanging pre-tax money without taxes or penalties, you can simply write a check to be deposited for the amount of the RMD taken.

  • All Others - for those who took an RMD very early in the year, these distributions would be filed under “Coronavirus Related Distributions” and therefore can be paid back over the next 3 years.

2.  401K/403B Loan Enhancements - Many employer sponsored retirement programs have built in options for “loans” to be taken from the account.  Ironically, this was designed to help create financial “relief” to those who may be in dire need for the funds.  The CARES Act further enhances those rules and uses the same qualifications under “Coronavirus Related Distributions.”

  • Maximum Loan Amount is Increased to $100,000 – In general, the maximum amount that may be borrowed from an employer plan is $50,000. The CARES Act doubles this amount for affected individuals.

  • 100% of the Vested Balance May Be Used – “Vesting” is the portion of your account that involves the portion that comes from the employer in a “match.”  Typically, with regards to 401k/403b loans you cannot take more than 20,000 of your vested balance as part of the 50,000 maximum loan amount.  The CARES Act allows for 100% of the vested amount as part of the 100,000 total you can take.

  • Delay of Payments – Any payments that would otherwise be owed on the plan loan from the date of enactment through the end of 2020 may be delayed for up to one year. 

3.  Inherited IRA “5 Year Rule” not applied to 2020 - One of the options when inheriting an IRA from a non spouse is the 5 Year Rule that essentially gives the beneficiary 5 years to take the full amount of the IRA plus taxes owed.  For those who have elected this option, 2020 does not count as part of the 5 year payout period, thus, in essence, makes it a “6 Year Rule.”

4.  Charitable Contributions -  As you may know, the Tax Cuts and Jobs Act passed in November of 2017 and  was a massive overhaul in tax brackets and other tax related issues.  In part, the act made it quite difficult to receive the same "tax breaks” we had become accustomed to from our charitable contributions.  There are two changes the CARES Act makes to charitable contributions:

  •  $300 Deduction for Qualified Charitable Contributions -  Currently under the Tax Cuts and Jobs Act, only 10% of taxpayers today apply itemized deductions on their federal returns.  This means that 90% of Americans qualify for “Above the Line Deductions” on their gross income.  Above the line deductions are deductions to your GROSS income to assist in reducing your annual tax liability.  This reform in the CARES Act allows for you to apply a $300 deduction to your annual income for charitable contributions.  Furthermore, this is one area of the CARES Act that does NOT “end” according to the law, therefore this can be done every year unless it is reformed.  The reality is that this will not “make or break” someone's tax liability each year, but it is something, and we believe is a “more for you- less for the IRS” scenario which is always a good thing to consider. 

  • AGI for Charitable CASH Contributions Repealed - For Charitable CASH contributions, the old maximum of 50% of AGI has been increased to 100% for 2020 and any amount after your 2020 tax liability has been wiped to 0 can be carried over for 5 years.  

5.  Student Loan Relief - There are 3 main aspects of this act which give relief to those who have outstanding student loans:

  • Loan Payments DEFERRED until September 30, 2020 - Payments are suspended for this time and all accruing interest will stop.  It is important to note that VOLUNTARY PAYMENTS MUST be suspended by the payor directly as they will continue (unless notified by the payee).  This period WILL qualify as a “payment period” for anyone enrolled in the forgiveness program.

  • Employers can EXCLUDE Student Loan Repayments from Compensation - Employers from now until the end of the year 2020 can provide up to $5,250 to any employee for the purposes of “student debt payments” and exclude that from income for tax purposes.

  • Pell Grant and Federal Student Loan Relief for Students Leaving School - This part of the act will EXCLUDE any loan or grant amount owed by the student due to the student not being able to complete education due to the qualifying emergency.

6.  Broadening of the “Qualified Medical Expenses” list - For those who have HSA and FSA accounts, the CARES no Act broadens the definition of the TAX FREE distributions of these accounts to include over the counter medications and other related products such as tampons, pads, and liners.  

7.  Medicare - There are several additions to Medicare recipients under the CARES Act which include:

  • Medicare Beneficiaries will be eligible to receive the COVID-19 vaccine (when available) at no cost.

  • During the COVID-19 emergency period, Medicare Part D recipients must be given the ability to have, upon request, up to a 90-day supply of medication prescribed and filled. 

  • Telehealth Services, in general, may be temporarily covered.

  • Rules for providing Telehealth Services are relaxed during the COVID-19 emergency period for Medicare.

Unemployment Compensation Benefits

1.  Pandemic Unemployment Assistance – Self-employed individuals and other individuals who are ineligible for ‘regular’ unemployment, extended unemployment or pandemic unemployment insurance, or run out of such insurance, will be eligible for up to 39 weeks of benefits via this provision.

2.  Immediate Unemployment Benefit Payments - Under the original rules you will NOT receive an unemployment check for one week after qualifying for benefits.  Under the CARE Act, you will receive unemployment checks IMMEDIATELY. 

3.  Increase in payments - Normally you would receive a max of $400/week in unemployment benefits The CARE Act increases that to $600/week.

4.  Extension of Benefit Period - The normal payment period of unemployment benefits is 10 weeks.  The CARE Act extends the payment period to 13 weeks.

Small Business Benefits 

1.  Paycheck Protection Program - This is a forgivable loan offered through the Small Business Administration (SBA) for small businesses to cover things like payroll, rent, medical expenses and other business related expenses. The following are KEY aspects and advantages to this program:

  • These loans must be applied for prior to June 30, 2020 and have a maximum maturity of 10 years.  

  • The amount eligible to be FORGIVEN is the amount used in the first 8 weeks after the loan is made.  Normally when a loan is “forgiven”, the amount forgiven will incur income tax the year it was forgiven.  For example, if  an individual owed $20,000 on a loan that was forgiven, he would owe income tax on the $20,000 assuming this individual is at a 22% income tax bracket that is 4,400 in income taxes owed.  Under this rule with the CARES Act, the income tax owed on the forgiven loan amount is WAIVED!

  • MUST maintain the same number of employees from February 15th to June 30th 2020.

  • Maximum loan interest cannot exceed 4%.

  • Payments to the loan can be deferred for 6 months and no longer than 1 year.

2.  Employee Retention Credit - For those small businesses who lost employees, this Payroll Tax Credit is established to encourage employers from further laying off employees due to lost revenues.  In order to qualify for this credit, you must have been partially or fully suspended during a quarter as a result of government authority such as the mandatory stay-at-home order.  In addition, you must show a 50% or more loss in revenues that quarter compared to the same quarter in 2019.  The calculation of this benefit is 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee.

3.  Deferral of Payroll Tax Payments - Regarding the employer portion of payroll taxes owed for 2020, the CARE Act defers 50% of those payments to be paid no later than December 31st of 2021 and the other 50% to be paid no later than December 31st 2022.  This will undoubtedly assist “cash flow” for small businesses by deferring payroll taxes.  

4.  Net Operating Loss Rules Adjusted - The current rules only allow for businesses to carry losses FORWARD 20 years.  The CARE Act now allows for small businesses to use any Net Operating Losses from 2018, 2019 and 2020 BACK 5 Years!  This, in essence, should allow for many businesses to reduce prior years tax liabilities allowing them to claim refunds for amounts previously paid to create cash flows.  

Like everything in legislation it can take time to review, understand, and most importantly, implement the opportunities and strategies laid out in the law.  At FSG, we are working diligently for our clients to ensure they are protected and are taking advantage of the kind of relief the CARES Act provides.  We have all worked and will continue to work tirelessly for you during this time.  We are currently working to identify the areas in this act in which our clients can benefit.  If you have any questions or concerns related to this material, please reach out to us. 

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This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Written by Ronnie Thompson

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