Highlights of the Coronavirus Aid, Relief, and Economic Security Act

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, 2020. It provides $2 trillion in emergency economic aid with tax relief and cash payments for individuals. The bill also includes aid for small businesses and self-employed workers and increases support for individuals out of work. 

Your Ameriprise financial advisor is available to help you understand which provisions are most relevant to you and your financial situation. In summary, elements of the bill may help:

Relief for individuals and families

This legislation is aimed at providing relief for individuals that have been negatively impacted by the COVID-19 outbreak. Key provisions include:

Recovery rebate checks 

Most individuals earning less than $75,000 adjusted gross income (AGI) will receive rebates of up to $1,200. Taxpayers married filing jointly earning less than $150,000 will receive up to $2,400. 

Parents with children under 17 will receive an additional $500 for every child. There are no limits on the number of children that qualify. Individuals and families with income above their respective thresholds will see their relief payments reduced by $5 for every $100 in AGI.

Retirement account COVID-19 withdrawals

The act allows for hardship withdrawals of up to $100,000 from retirement plans and IRAs by individuals who have been impacted by COVID-19. The 10% premature withdrawal penalty is waived, and distributions may be taxed ratably over three years. These COVID-19 related distributions can be repaid into the retirement plan or IRA within three years. The distribution must be taken from Jan 1, 2020 through Dec 30, 2020.

To qualify, individuals need to fall into one of two main categories:

  • The individual, their spouse or a dependent is diagnosed with COVID-19.
  • Someone has experienced adverse financial consequences as a result of:
    • being quarantined.
    • being furloughed, laid off, having work hours reduced.
    • or if is unable to work due to lack of childcare or other closures related to the coronavirus pandemic.

IRS Notice 2020-50 expanded eligibility to anyone who:

  • Is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
  • Experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
    • Being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
    • Being unable to work due to lack of childcare due to COVID-19;
    • Closing or reducing hours of a business that they own or operate due to COVID-19;
    • Having pay or self-employment income reduced due to COVID-19; or
    • Having a job offer rescinded or start date for a job delayed due to COVID-19.

Loans from retirement plans

Increased limits:

  • For qualified individuals, the maximum permissible loan limits are increased to the lesser of $100,000 or 100% of the participant’s vested account balance.
  • Applies to loans made to qualified individuals for the 180-day period beginning on the date of enactment (3/27/2020-9/22/2020)

Suspension of repayments:

  • For qualified individuals with an outstanding loan on or after the date of enactment, any loan repayments due between 3/27/2020 and 12/31/2020 may be suspended for a one year period.
  • At the end of the suspension period:
    • Loan repayments will be adjusted to reflect the interest accrued and
    • The loan’s term will be extended to reflect the suspension period

Charitable contributions 

The CARES Act provides opportunities for individuals to increase deductions for charitable contributions on their 2020 tax return.

  • Individuals who take the standard deduction can deduct up to $300 of cash donations to most charities.
  • For individuals who itemize, the CARES Act lifts the limitations on cash charitable contribution deductions from 60% of adjusted gross income (AGI) to 100% for most charities.

Student loans and education provisions

Individuals may defer federal student loan payments – including principal and interest – through September 30, 2020. 

Additionally, students whose universities have canceled classes are allowed to keep Pell Grants. 

Relief for individuals out of work

Expanded unemployment benefits

The package increases and extends unemployment benefits, including access to health insurance, for Americans who have lost jobs or been furloughed. Self-employed and contract workers, who are typically ineligible, can now qualify. 

  • Through July 31, 2020 the CARES Act provided eligible employees an extra $600 per week in unemployment benefits in addition to what they are eligible for under existing state programs. 
  • The CARES Act also provides for an additional 13 weeks of continued $600 weekly payments for individuals who remain unemployed after exhausting their state unemployment benefits. This means eligible workers will be able to receive unemployment benefits for up to 39 weeks rather than the 26-week cap under most state programs.

Relief from foreclosure 

Foreclosures on all federally-backed mortgage loans for a 60-day period beginning on March 18, 2020 are prohibited. For individuals experiencing financial hardship due to COVID-19, there is up to 180 days of forbearance, meaning loan payments are postponed (or reduced) but interest continues to accrue.

Eviction relief 

There is a 120-day eviction moratorium for nonpayment of rent if the landlord has a mortgage on that property and the mortgage is insured by HUD, Fannie Mae, Freddie Mac. 

Credit reporting

If a financial institution agrees to delayed or modified payments due to COVID-19, they will continue to report the account as “current” or as the credit status the account was previously in. 

Relief for retirees

Individuals who must take Required Minimum Distributions (RMDs) from their retirement accounts or IRAs may be concerned about having to take those distributions with the market down. The CARES Act provides options:

  • RMDs for 401(k)s and IRAs in 2020 are suspended. This would include an RMD normally due by April 1 for individuals who turned 70 ½ in 2019, but only if the individual did not take their RMD in 2019.
  • Update as of June 23: Under IRS Notice 2020-51, anyone who already took a required minimum distribution (RMD) from their IRA in 2020 now has the opportunity to roll those funds back into the distributing IRA. The 60-day rollover period and “one IRA to IRA rollover per 12 month rule” don’t apply as long as the rollover is completed by August 31, 2020. The guidance also allows for RMDs from inherited IRAs to be rolled back into the distributing inherited IRA.

Relief for small business owners and the self-employed

The CARES Act allocated approximately $660 billion to help small businesses keep workers employed amid the COVID-19 pandemic and economic downturn.

Paycheck Protection Program

  • Under the small business “Paycheck Protection Program” loans and grants will be available to small businesses. The loans under this program will be backed with a 100% government guarantee, as opposed to a 75% guarantee for existing Small Business Administration (SBA) lending.
    • The application deadline was extended to August 8, 2020.
    • Small businesses up to 500 employees are eligible. Businesses with up to 1,500 employees depending on the sector may qualify.
    • Non-profits with fewer than 500 employees who are 501(c)3s and do not receive Medicaid funding will also be eligible.
    • Sole proprietors, the self-employed, and independent contractors are also eligible for this program.
  • Loan amounts can include monthly payroll costs for 2½ months, not to exceed $10 million. Payroll costs exclude compensation paid to individuals, including the self-employed, above $100,000 a year.
  • The employer will be required to certify that they will maintain their average full-time equivalent employment, with incentives to re-hire if employees have been furloughed.
  • The borrower may have a portion of their loan forgiven in the amount equal to their payroll costs (not including costs for compensation above $100,000 annually), interest payments on mortgages, rent payments, and utility payments between February 15 and June 30, 2020.

Delayed payment of employer 6.2% Social Security tax

  • Employers and self-employed individuals are allowed to defer payment of the 6.2% employer share of Social Security tax for the remainder of 2020, unless they have debt forgiven on small business interruption loans. Half of that amount is due on December 31, 2021. The remainder is due on December 31, 2022.

We are here to help you 

An Ameriprise advisor can help you understand what the CARES Act means for you and your financial situation. We are here to help you navigate any short-term financial needs while we continue to support your long-term financial goals.