On Friday March 27th, Congress passed the “Coronavirus Aid, Relief and Economic Security Act” dubbed the CARES Act.
The $2.2 trillion stimulus package provides widespread emergency assistance to individuals, families, small businesses and corporations affected by the current pandemic.
For individuals and families, the most important provisions of the legislation allocate roughly $250 billion to extend the duration of unemployment benefits from 26 weeks to 39 weeks, with a standard increase of $600 a week for four months on top of the typical benefits provided (Minnesota’s unemployment program estimates average weekly benefits to furloughed employees let go or actively looking for jobs to be around 50% of their typical income over the last 18 months). Additionally, $300 billion is earmarked for direct payments to most Americans.
What do I do if I was recently laid off?
If you have lost your job due to the impacts of the COVID-19 outbreak, you should immediately apply for unemployment by visiting uimn.org. It is important to apply quickly to avoid missing the benefits distributed on a weekly basis. The unemployment benefits are extended to independent contractors or self-employed individuals through December 31, 2020.
How much can I expect from the direct payments to Americans program?
The stimulus package provides $1,200 for each adult, and $500 for each child under 17 years of age. The payments will go to any adult with a social security number that was not claimed as a dependent of another tax filer. Payments for the children will be sent to the adults who claimed them on their most recent tax filing.
A key consideration is a limit on payments to those that reported adjusted gross income on their recent tax filing above $75,000 (individuals), $112,500 (head of household), and $150,000 (married couples). If you reported income higher than this, you are still eligible to a direct payment – however, the benefits will be phased out completely at $99,000 for individual filers and $198,000 for married couples.
Of note – the payments will NOT be taxable income in 2020, and if you owe estimates or back taxes to the IRS this will not affect your eligibility to receive a payment.
How will I receive the money, and when can I expect it?
Treasury Secretary Steven Mnuchin noted in a White House briefing Wednesday (March 25) evening that the IRS is aiming to issue payments within three weeks – if you include direct deposit information on your filed return, you will receive the money quicker than the filers who will need paper checks. The IRS is leveraging the Social Security Administration to obtain information on those that don’t typically file tax returns to facilitate payments to these individuals. Please note that the logistics of the direct payment program are fluid, but all indications are that the Treasury is focused on providing the emergency relief as quickly as possible to curb the financial hardship from the pandemic.
What if my income fluctuates significantly year by year?
The payments will be determined based on 2019 adjusted gross income if your return has been filed, and 2018 adjusted gross income if you have not filed your taxes this year. The final benefit amounts will be determined based on your 2020 adjusted gross income (from 2020 tax return filed in 2021). For example:
If an individual’s adjusted gross income was $100,000 in 2019 (above the $99,000 cap for individuals to receive a payment from the Act) but $70,000 in 2020, the IRS will adjust your benefit under the provision on your 2020 return.
On the flip side, if your adjusted gross income jumps from $70,000 in 2019 to $100,000 in 2020 and you receive the full benefits of the direct payment program this year, the IRS will not require you to pay anything back.
Can I access funds in my retirement account(s)?
Yes. You can withdraw up to $100,000 in 2020 without the usual 10% penalty applied to early withdrawals from IRA or workplace retirement plans. You will also have to option to spread out any income taxes from these withdrawals over the next three tax years – or you could replace the funds in the account within three years to avoid any tax penalty. This exception applies to coronavirus-related hardships, which include “loss of employment, reduced hours, quarantine, or being unable to work due to lack of childcare.” Loans from retirement plans can be increased from $50,000 to $100,000 (or up to the balance in your account). The bill allows employees to self-certify to plan administrators that they have been adversely affected by the pandemic.
Additionally, all required minimum distributions from tax deferred accounts for 2020 are suspended.
Do I get any relief for my federal student loans?
The new bill would allow Americans with federal student loans to suspend their monthly payments through Sept. 30, 2020, without any interest accruing or impact to their credit scores. The bill does not address student loans obtained via private lenders.
What if I’m unable to make my mortgage payment?
The bill requires companies that service federally backed mortgages to grant a forbearance of up to 360 days to borrowers who say they have been harmed by the coronavirus outbreak. Servicers are prohibited from initiating foreclosure and processing foreclosure-related evictions for 60 days beginning March 18.
What are the other benefits available to me under the bill?
- A $300 charitable deduction for tax years beginning in 2020, received even if you are taking the standard deduction
- Modification of limitations on individual cash charitable contributions during 2020
- Increase in limits on contributions of food inventory
- An exclusion of employer-provided education payments up to $5,250 from gross income made before January 1, 2021
Your MKS tax preparers are available to discuss any questions or concerns regarding the CARES Act. We will continue to follow the developments closely to ensure that all clients understand the provisions and receive the benefits they are entitled to.