This article has been updated as of June 30, 2020.
What is the CARES Act?
The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on Friday March 27, 2020. This piece of legislation is the third round of federal support in the wake of the COVID-19 outbreak in the U.S. It builds off the previous two bills passed to provide more support to individuals and businesses, including changes to tax policy.
This is an aggressive action on the part of our government to aid in the challenges our economy faces. Additional measures are expected over time to continue to build on these supports.
Will I receive a stimulus recovery rebate payment, and if so, how much, how, and when?
How much: Adults will receive a recovery rebate up to $1,200 each ($2,400 per married couple) plus an additional $500 per child under age 17 in their household. If you file a joint return and your adjusted gross income is below $150,000 ($112,500 if you file Head of Household, and $75,000 if you file as single), you are eligible for the full amount. The amount is then reduced by $5 for each additional $100 dollars of income exceeding the thresholds. (As an example: A married couple with one 10-year-old child and with AGI of $180,000 would be eligible for a payment of $2,400 + $500 – 5*($180,000-$150,000)/100) = $1,400.
How: The payments will be deposited to an account the IRS has been previously authorized to deposit funds into, such as for a 2018 or 2019 tax refund, or Social Security payments. If a 2019 return hasn’t been filed, the amount will be based on your 2018 adjusted gross income instead. Those not otherwise qualifying for the recovery rebate will be entitled to a refundable 2020 tax credit if 2020 income is below the above thresholds (or family size larger).
When: “As soon as possible”, is the mandate. More specifically, the IRS has shared that the initial wave of payments will be deposited the week of April 13. It may take up to 20 weeks for paper checks to be distributed to those who do not have direct deposit information on file with the IRS. Additional information, including a possible refund tracking system, may be made available in the coming weeks.
Do I have to file and pay my taxes by April 15th? Are deadlines to contribute to retirement accounts for 2019 changed?
Tax filing: The federal government has extended the date for U.S. Federal individual tax returns and tax payments for 2019 and first quarter 2020 estimated income taxes from April 15th to July 15th. (An extension to October 15th for tax filing (but not tax payment) also remains available.) Second quarter 2020 U.S. Federal estimated income taxes are still due June 15th. All states have extended their 2019 tax year payment and filing deadlines from April 15th, to May 1st – July 20th, most to July 15th. More information is available here. U.S. Federal Gift and Generation Skipping tax returns and tax payments have also been extended to July 15th.
2019 retirement contributions: As the deadline for Traditional and Roth IRA contributions is tied to the federal tax filing deadline, which has moved to July 15th, the contribution deadline for 2019 has moved as well, to July 15th, 2020. SEP IRA contributions are allowable through the new tax filing deadline of July 15th, 2020 (or up to October 15th, 2020 if you file an extension). If you have a self-employed 401(k) account, the employer contribution can be made up until the tax-filing deadline, now extended to July 15th.
I heard that I can withdraw funds from my retirement plan or IRA account without penalty. Is this true?
Yes, individuals impacted by coronavirus can take distributions of up to $100,000 from their retirement accounts. The 10% penalty that applies to those under age 59.5 has been waived. We recommend speaking to your accountant or tax advisor prior to making any distributions or taking actions described below.
Eligibility: You are eligible for this penalty-free distribution if:
you were diagnosed with COVID-19 by a test approved by the CDC
your spouse or dependent has been diagnosed,
you experience adverse financial consequences due to:
- being quarantined, furloughed, laid off, unable to work due to a lack of childcare, the closing or reduction of hours of your business, or at the discretion of the Secretary of the Treasury.
This provision may apply to distributions taken before COVID-19 legislation was passed.
Tax: The withdrawn amount will be taxed as ordinary income over three years beginning in 2020, unless an alternate election is made.
Repaying COVID-19 Related Distribution: The CARES Act permits individuals to repay a COVID-19 distribution over a three-year period, beginning on the day after the date on which the distribution was received. Any amount repaid is treated as if it were rolled over and thus not included in taxable income.
Loans: Those who are negatively impacted by COVID-19 are eligible to take a loan from their employer retirement plan, and can borrow the lesser of $100,000 or their vested plan balance (up from the smaller of $50,000 or half of the vested account balance, as was allowed prior to the CARES Act passage). Repayment of the loan may be delayed for up to one year.
Do I need to take my 2020 Required Minimum Distribution (RMD)? What if I already took my distribution?
RMD waiver: The CARES Act has waived all required minimum distributions in 2020, including those from Inherited IRAs.
Distributions taken before August 31, 2020: If you have already taken required minimum distributions (RMDs) from your IRA account during 2020, you are able to roll the funds back into it or another qualified retirement account by August 31, 2020. The IRS allows all 2020 RMDs from all types of retirement accounts (including inherited IRAs, monthly installments, tax withholdings and those otherwise limited by the 365 day rule) to be returned to the original account by August 31.
Distributions taken that are not RMDs: For distribution in excess of the RMD or Non-RMDs, they are still bound by the 60-day rollover rules (or the July 15, 2020 deadline for distributions made after January 31, 2020) and subject to the once-per-year rule.
I’m worried about the cost of health care, given that this is a nationwide health crisis. What protections were added for me and my family?
Testing and preventative services: Insurance providers must cover the cost of COVID-19 testing to patients. This legislation expedites coronavirus vaccines as a permanent cost-free preventative service, once available. The Families First Coronavirus Response Act (FFCRA) requires insurance providers to cover testing without cost sharing. This includes deductibles, copayments, and coinsurance. The CARES Act has expended this requirement to in-network and out-of-network providers.
Other Costs: Plans, including Medicare plans, are now required to cover telehealth services. The use of Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) has been expanded. These accounts can temporarily cover over-the-counter medicine, without a prescription, and it specifies that menstrual cycle products can be treated as medical care items.
Additionally, the HSA contribution deadline has been extended to align with the U.S. Federal tax filing deadline of July 15th.
I have children or grandchildren in college. How will they benefit from the CARES Act?
Work-study: Support is provided to institutions of higher learning who are facilitating work-study programs, allowing students to be paid despite being unable to fulfill the program’s obligations due to COVID-19’s impact.
Loans: All federal student loan payments will be automatically suspended through September 30, 2020. These suspended payments will still count towards the timeline for public service loan forgiveness and other income-based payment plans.
I am not able to work due to the coronavirus. My family’s health has been affected by the outbreak or my employer has let me go. What options and protections do I have for income?
Unemployment Benefits: Eligibility for unemployment compensation has been expanded to include those who are able and available to work but are unemployed due to COVID-19 and the coronavirus. It also allows for additional coverage for individuals who have not been eligible in the past, including those who are self-employed, independent contractors, freelancers, part time workers, and new hires who do not have enough work history to qualify under normal circumstances. The act also attempts to close the gap between benefits and the average paycheck by providing an additional $600 per week through July 31, 2020 for those eligible.
Paid Leave: Eligibility requirements have been loosened and compensation amounts increased related to the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act, which stem from measures put in place by the FFCRA and the CARES Act. These measures aid in protecting employees from having to choose between their paychecks and the health of themselves, their families, and the public. For additional details and eligibility requirements, see the Department of Labor’s website.
Will my charitable giving strategy be affected by the CARES Act?
Above the line deduction: For those who do not itemize, the act allows for an above-the-line deduction up to $300 for cash contributions to qualified charities. This deduction does not apply to contributions to donor advised funds.
Itemized deduction: The adjusted gross income limit (AGI) of 60% has been temporarily repealed for cash contributions, allowing for those who itemize to deduct more of their cash contributions in 2020. You may deduct up to 100% of AGI and carry over any excess amount for up to 5 years to deduct later.
Qualified Charitable Distributions (QCDs): The waiver of the RMDs does not impact eligibility for QCDs from an IRA.
We hope you find this guidance helpful as you navigate this difficult period. Your Modera Wealth Manager can help assist you in a variety of areas – including connecting you to the right people inside and outside of Modera for specific needs and advice – and be your objective guide through this turbulent time.
Please keep in mind this information is changing rapidly and is based on our current understanding of the new CARES Act programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on these suggestions for your financial decisions. We recommend you consult with your attorneys, CPAs, insurance agents and other advisors before you take action.
Modera Wealth Management., LLC (“Modera”) is an SEC-registered investment adviser with places of business in Massachusetts, New Jersey, North Carolina, Georgia and Florida. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. SEC registration does not imply any level of skill or training. For information pertaining to our registration status, fees and services, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov) to obtain a copy of our disclosure statement set forth in Form ADV Part 2A. Please read the disclosure statement carefully before you invest or send money.
This article contains information that is not suitable for everyone and is limited to the dissemination of general information pertaining to Modera’s wealth management and investment management services. There is no guarantee that the views and opinions expressed in this presentation will come to pass. Nothing contained herein should be interpreted as legal, tax or accounting advice, nor should it be construed as personalized investment, financial planning or other advice. Investing in the stock and other markets involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered a solicitation to buy or sell any security or to engage in a particular investment or other strategy. For legal, tax and accounting-related matters, we recommend that you seek the advice of a qualified attorney or accountant. Investors should consult with a financial advisor before investing.
Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed herein will come to pass. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Some of the known risks include the possibility of changes in tax laws, interest rates, and market factors. Readers are cautioned not to place undue reliance on forward looking statements, which speak only as of the date of this document. Source of all cited information is believed to be reliable but is not guaranteed.