The most notable effects of the economic toll of the coronavirus pandemic in recent weeks have been highly visible in investment prices. But, as those impacts have begun to make their way into the broader economy, real effects have been felt on people’s personal and household finances. In an attempt to alleviate impacts on the economy and household finances the US Government has stepped in with a broad-based relief act.
On March 27th, Congress passed the Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act. This bill provides extensive support to US individuals and businesses in order to enhance the economy during this time of self-isolation and social distancing.
The entirety of the Act is extensive and covers over 800 pages of text, so this summary is not intended to be exhaustive. Below are some of the important features of the legislation that we felt would be most relevant to you and your families. Please let us know if you would like to discuss any of the Act’s provisions in more detail or how they might possibly affect you personally.
Much attention has been given to the Recovery Rebates to Individuals. To help people stay afloat, the government will send up to $1,200 to eligible taxpayers and $2,400 to married couples filing joint returns. An additional $500 payment will be sent for each qualifying child dependent under age 17.
In addition to the direct checks to individuals, the CARES Act provides for enhanced unemployment benefits. The Federal Government will cover the first week of an individual’s unemployment benefit, whereas in normal times the first week is an elimination period. They will also provide funding for states to increase standard unemployment benefits by up to $600 per week and expand coverage duration by an additional 13 weeks. To expand coverage, self-employed individuals who are not normally eligible for unemployment benefits will be eligible through this enhancement.
RMDs are the amount taxpayers age 72 and over (70.5 years of age prior to 2019’s SECURE Act) must withdraw from their retirement accounts annually. This applies to account owners who have accumulated funds over their lifetimes and beneficiaries of inherited accounts (spouse and non-spouse). For 2020, this obligation to withdraw has been eliminated. This can be beneficial for both account owners and beneficiaries taking “stretch” distributions.
You have 60 days from the date of distribution to roll it back into your retirement account. If you took a distribution more than 60 days ago, you can still “roll-back” the funds within 3-years by showing that Covid-19 adversely impacted you. However, this “roll-back” provision is not available for beneficiaries of Inherited IRAs who have taken an RMD.
Normally, those under age 59 ½ are subject to a 10% penalty for early withdrawals. The CARES Act permits withdrawals between January 1st and December 31st, 2020 to be exempt from this penalty for people infected or financially affected by Coronavirus. Distributions are limited to $100,000. Moreover, there is a 3-year window where withdrawn funds can be rolled back into retirement accounts enabling you to claim a refund on the taxes you paid upon distribution. Lastly, income arising from these distributions can be spread over three years.
With the upsurge in job loss claims, the government is offering some relief to those who owe student debts. From now until September 30th payments are suspended for Federal student loans and interest will not accrue. This is especially beneficial for those who participate in student loan forgiveness programs, as the period until September 30th still counts towards their loan forgiveness, despite them not having to pay anything! For those affected, this change may not happen automatically, and it is important to get in touch with your student loan contact person.
Being that this relief effort stems from Coronavirus—a health concern, the bill has amenities for health and wellness including over-the-counter medications being included in qualified medical expenses for HSAs and FSAs
Before the CARES act, a taxpayer could eliminate up to 60% of their tax liability via cash contributions to public charities. With the hard times and further need of charitable funds, now you can eliminate up to 100% of your tax liability through qualified contributions for 2020.
First, there is an income (AGI) threshold, which you must meet: Married Filing Jointly ($150,000), Head of Household ($112,500), All Other Filers ($75,000). For every $100 your AGI exceeds these thresholds, your rebate decreases $5. For example, if you file as Married Filing Jointly, have an AGI of $151,000 ($1,000 over the threshold), and have 0 qualified child dependents, your rebate will be:
$2,400 – ($1,000 x 5%) = $2,350
This phaseout is based on your AGI on the latest tax return the IRS has on file whether that be 2018 or 2019.
As mentioned above, this option is available for non-beneficiary account owners within 60 days of distribution or greater than 60 days of distribution if you can show how Coronavirus negatively affected you. If this is of interest, please contact PrairieView to discuss further. We will be reaching out to some of you directly.
This strategy may be appropriate for some clients as the suspended 2020 RMD is voluntary. If under normal circumstances you would have taken an RMD, sending donations to charity from an IRA will continue to result in $0 tax on the donated funds. If you have questions, please contact PrairieView to discuss further.
Lastly, we want to take a minute and thank all of you again for your support, trust, and confidence during these challenging times. We aim to provide the best possible service, planning, and guidance, especially when, as one Minnesota native said, “The Times They Are a-Changin’”.
Wishing you health and wellness.