Situation Desk: April 7, 2020
Situation Desk: April 7, 2020

Situation Desk: April 7, 2020



Jill L. Ward
Jill L. Ward

Wealth Advisor

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Situation Desk: April 7, 2020

From the Situation Desk – How the CARES Act Can Help You

How the CARES Act Can Help You

Over the past several weeks, three new pieces of legislation have been enacted in direct response to the Covid-19 pandemic. On March 6th, the Coronavirus Preparedness and Response Supplemental Appropriations Act was established, providing funding for federal agencies to respond to the coronavirus outbreak. This act includes vaccine development and assistance for affected small businesses. Then came the Families First Coronavirus Response Act, which provides paid sick leave, tax credits, and free Covid-19 testing, while expanding food assistance and unemployment benefits and increasing Medicaid funding.

Most recently the Coronavirus Aid, Relief and Economic Security “CARES” Act was enacted to provide economic support to individuals, families, the business sector and their employees. Because this legislation can benefit many of our clients, we want to share its key provisions in greater detail.

Recovery Rebates

Direct payments of up to $1,200 for individuals and up to $2,400 for married couples, plus an additional $500 for each qualifying dependent child, will be issued to those who qualify. Payment amounts start phasing out for individuals with adjusted gross income over $75,000 and for married couples with AGI over $150,000. A recovery rebate is considered an advance refundable tax credit against 2020 income, but it is based on the AGI from a taxpayer’s 2018 or 2019 tax return (whichever is the most recent on file with the IRS). If AGI turns out to be quite different when 2020 taxes are eventually filed, those who were truly eligible for an advance rebate but who didn’t receive one based on their 2018/2019 AGI will get it after they file in 2021. What about those who were paid an advance rebate but who don’t qualify for one based on 2020 income? No repayment is required, so they get to keep it.

Recovery Rebates are certain to become the target of scammers. The IRS will not contact you via email or phone regarding these rebates, so treat any such communication as suspicious.

To protect yourself from scams, read:
CARES Act Recovery Rebates Open Doors for Scammers and Hackers

Required Minimum Distributions Waived

Required Minimum Distributions (RMDs) for 2020 have been waived for all IRAs and retirement plan accounts. This includes RMDs from inherited IRAs as well as beneficiaries taking RMDs under the 5-year rule who inherited prior to 2020.

This can be a good thing for two reasons. First, most IRAs and retirement account values ended last year at a higher level than where they are today. Since RMDs are based off year-end market values, the 2020 RMD can be quite high when compared to prior years, and you’d be taking it from an account that is now lower in value. Skipping the RMD for 2020 can avoid this. In addition, those who take advantage of this provision will see a lower tax bill for 2020.

But should you take advantage of the waiver?

This boils down to a tax question. If you are in a lower tax bracket for this year, or if you fear tax rates will go up in the future, you might want to take advantage of removing funds from your IRA while taxes are low. This will in turn lower the amount of future RMDs.

You also might want to consider a Roth conversion for a portion of your IRA. This involves removing funds from your IRA and rolling them over to a Roth IRA where they can grow tax-free, aren’t subject to RMDs during your lifetime, and pass to your beneficiaries tax-free. With the drop in market values, now is a prime time to consider this strategy because you only pay tax on the withdrawal and not on future growth once the markets improve. Keep in mind that Roth conversions are now permanent, so it is best to talk over this strategy – and whether you should take your RMD this year – with your tax advisor.

What if you already took your RMD for 2020?

If you took your RMD within the past 60 days, you can take advantage of the 60-day rollover rule and return the money to your IRA. However, this is limited to one rollover per 12-month period for all your IRAs combined, so you need to make sure you didn’t already have a rollover and don’t plan to take another in the coming 12 months. This option isn’t available for inherited IRAs unless you are the surviving spouse of the original IRA holder.

It is possible the IRS may provide additional guidance or clarification on the availability of rollovers as it did in 2009 when RMDs were also waived.

Even though RMDs have been waived this year, taxpayers over 70 ½ can still take advantage of Qualified Charitable Donations (QCDs) of up to $100,000 from their IRA. These donations come out of the IRA income-tax free if paid directly to the charity from the IRA custodian.

Coronavirus-Related Distributions

Individuals impacted by Covid-19 can now take distributions of up to $100,000 from IRAs and employer-sponsored retirement plans to help with any hardship. Those under 59 ½ will be exempt from the 10% early distribution penalty, and everyone eligible for this provision can spread the income tax due on the distribution over three years. In addition, the distribution can be repaid over the next three years to avoid tax altogether. To be eligible, the following requirements must be met:

  • You must have been diagnosed with COVID-19, as confirmed by a CDC-approved test;
  • Your spouse or dependent has been diagnosed with COVID-19, as approved by a CDC-approved test;
  • You have experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, have a reduction in work hours, or you own a business that has closed or has reduced hours because of COVID-19;
  • You are unable to work due to the unavailability of childcare because of the coronavirus pandemic; or
  • Other coronavirus-related factors determined by the Treasury Secretary.

Expanded Loan Access from Employer-Sponsored Retirement Plans

Employer retirement plans that allow loans have the option of increasing loan limits to $100,000 and delaying loan payments for one year for participants impacted by the coronavirus. Be sure to talk with your employer to see if your plan allows this provision.

For more information, read:
Frequently Asked Questions from the American Retirement Association on the CARES Act

Charitable Contributions

When the standard deduction was nearly doubled with the Tax Cuts and Jobs Act, most individuals stopped itemizing deductions. As a result, these taxpayers were no longer able to deduct charitable donations. The CARES Act now allows an above-the-line deduction of up to $300 for charitable donations for those who do not itemize. While this won’t result in much of a tax break, every little bit helps.

For those who do itemize, the CARES Act temporarily increases the AGI limit on cash contributions made to charities from a maximum of 60% of AGI to a maximum of 100% of AGI for qualified contributions.

Student Loan Relief

Required Federal student loan payments are deferred to September 30, 2020, and no interest will accrue during this time.

Unemployment Insurance

Unemployment benefits have been increased by $600 per week for up to four months. In addition, the normal one-week waiting period to begin receiving benefits is waived, and those who have exhausted their benefits are eligible for an additional 13 weeks of payments. The CARES Act also provides unemployment insurance for eligible individuals who are self-employed, seeking part-time employment, or who otherwise would not qualify for unemployment benefits under state or federal law.

Small Business Programs

Under the CARES Act, the Paycheck Protection Program allows small businesses to apply for loans of up to $10 million or 2.5 times the average monthly payroll costs over the previous year (whichever is lesser), at a maximum interest rate of 4%. The loans may be used for payroll costs, group health insurance premiums, rent, mortgage interest, and utilities, among other eligible expenses. These loans have the potential to be forgiven under certain circumstances.

The Economic Injury Disaster Loans & Emergency Economic Injury Grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.

The CARES Act also allows employers to defer payroll taxes from the date of enactment until the end of 2020. Fifty percent of the taxes are deferred until the end of 2021, and the other fifty percent are deferred until the end of 2022. This relief also applies to self-employed individuals for the employer equivalent portion of their taxes.

Finally, net operating loss rules have been relaxed for 2018, 2019 and 2020.

How can we help?

As you can see, the CARES Act is a comprehensive relief program, and it covers even more than what we’ve described here. Please don’t hesitate to contact us if you have any questions on these provisions and how they can help you.

We want to hear from you – reach out to the team.


Tags:  April 2020, CARES Act, Charitable Contributions, Coronavirus, COVID-19, Employer-Sponsored Retirement Plans, Market Update, Retirement Plans, Situation Desk, Small Business Programs, Student Loan Relief, Unemployment Insurance

Note:  The content of this article is for guidance and information purposes only and is not intended to be construed as advice. Information provided is not intended to provide investment, tax, or legal advice.

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