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

Kelly HooverMarch 31, 2020

COVID-19 Related Information

On Friday, March 27th, President Trump signed a $2 trillion economic relief plan to provide assistance to Americans being affected by the coronavirus pandemic.  This fiscal stimulus package has been called the Coronavirus Aid, Relief and Economic Security (CARES) Act. There are many components, some of which include stimulus payments to individuals, expanded unemployment coverage, student loan changes and different retirement account rules for 2020.

We wanted to provide some of the key highlights that we believe are most important for you to understand.  We have compiled a summary of these items below.  We are also providing direct links to several articles that were used to gather this information for you to review.

Stimulus Payments

  • The act provides for direct payments of $1,200 to each adult and $500 per child to qualifying American households.
  • Single adults with Social Security numbers who have an adjusted gross income (AGI) of $75,000 or less will get the full amount. Married couples with no children with an AGI of $150,000 or less will receive a total of $2,400. And taxpayers filing as head of household will get the full payment if their AGI is $112,500 or less. All qualifying income amounts are based on AGI from tax returns.
  • Above those amounts, the payment decreases by $5 for every $100 above the threshold until it stops altogether for single people at $99,000 or married people who have no children at $198,000. According to the Senate Finance Committee, a family with two children will not be eligible for any payments at $218,000.
  • Your 2019 AGI will be used to determine eligibility if you have filed your 2019 return. If you have not, then 2018 AGI would be used.  If you did not qualify for the payment based on your 2019/2018 AGI but your 2020 AGI does qualify, then you will receive a tax credit equal to the payment when you file your 2020 tax return.
  • You do not need to apply for this payment. It will come via direct deposit if the IRS has your bank account information on file.  You will also receive a paper notice in the mail.
  • Treasury Secretary Steven Mnuchin said he expected most people to get their payments within three weeks.
  • You will not have to pay income tax on the payment.
  • Here is a recovery check FAQ with some additional information.

Retirement Accounts

  • For the calendar year 2020 only, you do not have to take a required minimum distribution (RMD) from any IRA or workplace retirement savings plan, like a 401(k). This is an effort to avoid requiring individuals to sell investments that may have fallen in value, which would lock in losses.
  • You also have the ability to return 2020 RMD distributions as rollovers in order to avoid paying taxes on the amount.
  • If you are under the age of 59 ½ you may withdraw retirement funds up to $100,000 in 2020 without the usual 10% early withdrawal penalty, as long as it’s because of the coronavirus outbreak. The withdrawal will be subject to ordinary income taxes.
  • If you take a Coronavirus-Related Distribution, you have up to three years to roll all or any portion of the distribution back into a retirement account. This repayment can be made via a single rollover, or multiple partial rollovers made during the three-year period.
  • The taxable income from a Coronavirus-Related Distribution will be split evenly over tax years 2020, 2021 and 2022. A taxpayer can also elect to include all the income in their 2020 income.
  • The maximum amount that can be taken as a loan from an employer-sponsored retirement plans is increased to $100,000.
  • 100% of the vested balance in the employer-sponsored plan may be taken as a loan (up to $100,000)
  • Any payments that would otherwise be owed on the plan loan after March 27, 2020 through December 31, 2020, may be delayed for up to one year.

Charitable Contributions

  • The Act allows taxpayers who choose not to itemize their deductions to take a charitable deduction of up to $300 for cash contributed to a public charity. Taxpayers who claim the standard deduction do not get a tax benefit related to any charitable contributions they make during the tax year. The Act changes this by allowing taxpayers who do not itemize their deductions to deduct up to $300 of cash contributions to public charities beginning in 2020 and continuing for future years.
  • To qualify, you must give cash to a qualified charity and not to a donor advised fund. If you have already given money this year, that will count towards the $300.
  • The new deduction only applies to cash gifts that go to a public charity. If you give cash to your private foundation (as an example), the old deduction rules apply.

Unemployment Benefits

  • $250 billion is available for unemployment insurance benefits.
  • More categories of workers are eligible for these benefits, including self-employed and part time workers.
  • The amount of the payment will depend on your state’s benefit. Benefits are increased in an attempt to replace more of the average worker’s paycheck.
  • Under the plan, eligible workers will get an extra $600 per week on top of their state benefit for up to four months, covering weeks of unemployment ending July 31st.
  • In addition to receiving benefits if you lost your job, you will be covered under unemployment if you’ve received a COVID-19 diagnosis or if you must care for a member of your family or household who has received a diagnosis.
  • You will also be eligible if you rely on a school, day care of another facility to care for your child and that facility has been shut down due to COVID-19.
  • Most states already provide 26 weeks of benefits. The Act provides all eligible workers with an additional 13 weeks – for a max of 39 weeks.  The Act will pay for states to provide benefits immediately, without the typical one-week waiting period that unemployment usually requires.

Student Loans

  • Payments are suspended for any student loan held by the federal government until September 30th, 2020.
  • All suspended payments during the six-month period will still qualify for public service loan forgiveness (PSLF), income driven repayment plans (IDR), or any other forgiveness program in which an individual is currently enrolled.
  • Loans that are excluded are 1) older Federal Family Educational Loans (F.F.E.L) that the US Department of Education does not own, 2) Perkins loans,3) loans from state agencies, or 4) loans from private lenders like Discover, Sallie Mae or Wells Fargo. The holders of all those loans may be offering their own assistance programs.
  • From March 27 to December 31, 2020, employers may reimburse employees up to $5,250 for student loan payments. The payments would be excluded from an employee’s taxable income.

There are many other benefits in the Act offered to small businesses to help them maintain operations during this difficult time.  There is $454 billion in emergency lending available, to states and municipalities, airlines and other businesses critical to US national security.  There is also $150 billion allocated proportionately to state and local governments to offset amounts used to respond to the pandemic.  This is the largest economic stimulus package in our country’s history.

Please reach out to your advisor, or a member of the HFA team, if you have any further questions.  We hope you continue to stay safe and healthy.  Thank you for the confidence you place in our team.


Sources used & references with additional information:

Michael Kitces: Analyses the CARES Act

New York Times: F.A.Q on Stimulus Checks, Unemployment and the Coronavirus Plan

Chuck Grassley: CARES Act- Recovery Check FAQ

IRS: Economic Impact Payments – What you need to know

HFA Website Disclosures