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

The CARES Act is vast, complicated, and, like most major legislation, there is a lot to interpret. It can be broken down into a few primary themes: Protecting household income, savings, healthcare, charities, and employers. Over the next 2-weeks, we’ll cover many of the various programs in more detail. To get us started, we’ll broadly go through three very important and timely mandates.

Checks are coming!

The CARES Act provides for up to $2,400 for married couples filing a joint return, $1,200 for single filers, and up to $500 per child under the age of 17. Unfortunately, there is fine print. For those making more than $150,000 (married filing joint), $112,500 (head of household), or $75,000 (all other filers), there is an income phase-out.

The amount you initially receive is be based on your most recent income tax return (2018 or 2019), with a twist. The government will use the latest tax return that the IRS has on file. Still, the benefit is based on your actual 2020 income, which means the government will adjust your payment if you did not qualify based on your previous tax return but would have otherwise based on your 2020 income. In a not very helpful way, you’ll have to wait until sometime after you file your taxes in 2021 to get your adjusted benefit. Interestingly, if you receive a benefit based on past income, but prove not to qualify based on 2020 income, you get to keep it!

You should receive your benefit by April…maybe, or May…hopefully. Payments are set to be disbursed by one of three methods:

1. Social Security Recipients: You will receive your payment in the same way you receive your Social Security benefits.
2. Tax Return Direct Deposit: If you have a direct deposit set up for your 2018/2019 income taxes, you’ll get a deposit into that account.
3. Last Known Address: If you don’t receive Social Security or have a direct deposit on file, you’ll get a check mailed to your last known address. Luckily, the CARES Act does mention that the IRS will provide a phone number to report issues.

Ideas: If you are receiving a payment and don’t need it, there many community organizations that will help you find people or organizations in need.

Required Minimum Distributions (a.k.a. RMDs and MRDs) are paused!

Before the SECURE Act, which was passed into law at the end of 2019, individuals were required to start withdrawing money from their retirement accounts in the year that they turned 70 ½ (with some exceptions). The SECURE Act changed the start date to age 72. The CARES Act allows everyone to skip 2020 RMDs from IRAs, SEPs, SIMPLEs, 401(k)s, 403(b)s, and government 457 plans. If you fell under the pre-SECURE Act rules and deferred your first RMD into 2020, which would have required you to withdraw both this year, you get a two-for-one. You’re allowed to skip them both. If you already received your RMD or part of it for 2020, there are ways you may be able to reverse it and get the funds back into an IRA.

Regarding Inherited IRAs, you get to skip those RMDs as well. If you were following the pre-SECURE Act 5-year distribution rule, this year doesn’t count, effectively changing it to a new 6-year rule. If you inherit an account this year, under the new SECURE Act, you have 10-years to cash it out (and pay income taxes), but the counter starts the year after you inherit the account, so 2020 wouldn’t have counted anyhow.

Ideas: You aren’t required to do an RMD in 2020, but you can still do a charitable direct RMD! Also, consider doing a ROTH conversion this year in place of your RMD.

Charitable donation limits have changed (BIG BENEFIT).

First, there is a new, and apparently permanent, $300 above-the-line deduction for “Qualified Charitable Contributions” for tax filers that do not itemize on their Federal return. These gifts must be made in cash and donor-advised funds or 509(a)(3) supporting organizations are not eligible.

Second, for those wishing to give a large gift, the AGI limit for contributing cash to charities has been temporarily repealed. This increases your maximum deduction from 60% of AGI to 100% for qualified contributions, so you could completely wipe out your entire tax liability in 2020 with charitable contributions. Excess contributions can be carried forward for up to 5-years. Gifts to donor-advised funds or 509(a)(3) supporting organizations are not eligible.

Idea: If you’ve always wanted to make a significant gift to charity to help a cause or leave a legacy, this might be the year to do it!

Some of the additional benefits provided by the CARES Act:

1. IRS penalty-free distribution options for retirement accounts (lots of special rules – and taxes still apply)
2. Student loan payment deferrals and employer options to exclude repayments from compensation
3. An expansion of the allowable expenses that an HSA can be used to cover
4. Medicare benefits such as eligibility to receive a COVID-19 vaccine at no cost (once available) and the right to request a 90-day supply of medications during this emergency period
5. The expansion of Telehealth and the rules pertaining to it including how it is covered by health insurance
6. An expansion of who qualifies for unemployment payments, a $600 increase in weekly unemployment benefits with the benefit period extended by 13-weeks with a waiver of the first week waiting period.
7. Small business low-interest loans to cover payroll and other overhead (subject to many rules – may qualify to be forgiven under certain circumstances)
8. Many other small business support programs, including payroll tax credits and payroll tax deferment through the end of the year (to be repaid in 2021 and 22)

This article is for educational purposes only and should not be considered tax advice.

Please consult a financial professional before taking any action.

There are many parts of the CARES Act, and this list covers just some of the programs. If you would like additional information about any of the items listed or anything not listed, please reach out to our team  – call 607-217-5091. 

S.E.E.D. Planning Group LLC (S.E.E.D.)is a Registered Investment Advisor (RIA) with the Securities Exchange Commission. S.E.E.D.’s team provides investment fiduciary and fee-only financial planning services to clients. Our fees are disclosed, easy to understand, and not predicated on product sales.

Travis Maus is the managing partner and a wealth manager at S.E.E.D. Planning Group, LLC. He earned the Accredited Investment Fiduciary Analyst® (AIFA®) designation from the Center for Fiduciary Studies®, the standards-setting body for Fi360. The AIFA designation signifies the ability to perform fiduciary assessments measuring how well investment fiduciaries are fulfilling their duties to a defined standard of Care. As a wealth manager, he is also a member of the firm’s Financial Planning team where he provides coordinated and strategic financial planning and investment services to families and small businesses.