On Friday, March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. Outlined below are several key provisions of the CARES Act that provide assistance to individuals.
One-time payments will be made in the amount of $1,200 for individuals 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.
The rebates will be paid out in the form of checks or direct deposits. Most individuals will not have to take any action to receive a rebate. The IRS will compute the rebate based on a taxpayer's tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). Further information is available here, including how individuals who were not required to file a tax return for 2018 or 2019 may obtain a rebate.
The Act authorizes a broad expansion in unemployment benefits, which will extend to self-employed workers (including gig workers and independent contractors), part-time workers, and others who typically would not qualify. It will also increase current unemployment assistance by $600 a week for four months. The federal government will also fund payment of the first week of unemployment for states that eliminate a waiting period as well as benefits for an additional 13 weeks after state benefits would end, through December 31, 2020.
The 10 percent early withdrawal penalty will be waived for coronavirus-related retirement fund distributions taken in 2020, up to $100,000. The mandatory 20 percent income tax withholding for rollover distributions is suspended during this period and income taxes can be paid over a three-year period. Individuals taking distributions will have up to three years to recontribute the amount to a plan or IRA. In-service distributions from a qualified retirement plan are also permitted if they are coronavirus-related.
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.
Modifications of Charitable Contributions
Individuals not itemizing their deductions will now be able to claim a $300 above-the-line deduction for 2020 cash contributions to public charities. For individuals who itemize, the limitation on charitable deductions will be increased from 60 percent to 100 percent of adjusted gross income for 2020 cash contributions to public charities.
Exclusion for Employer Payments of Student Loans
Currently, an employee may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.
Break for Non-Prescription Medical Products
The Act allows amounts paid after December 31, 2019 from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care if used to cover over-the-counter medical products such as drugs and masks. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.
The Act creates temporary rules for Health Savings Accounts (HSAs) to facilitate telehealth services and other remote care. Effective from March 27, 2020, for plan years beginning on or before December 31, 2021, telehealth coverage is ignored for purposes of the rule prohibiting an HSA-eligible individual from being covered by another health plan that is not a high deductible health plan (HDHP). In addition, an HDHP is not required to impose any deductible for telehealth services or other remote care.
We will continue to provide updates as additional tax, legislative, and other COVID-19 related developments emerge. We are also regularly updating our COVID-19 Resource Center, which you can access here. If you have any questions about these or any other matters, please do not hesitate to contact your Kreischer Miller professional or any member of our team.
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.