On March 27, 2020, the legislative branch signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help mitigate the economic damage of the widespread COVID-19 pandemic. The act contains provisions totaling $2 trillion to provide financial relief for individuals, small businesses, large corporations and others.
To help you understand how the CARES Act may impact you, this article provides a summary of the key points that apply to most individuals, including direct payments to taxpayers (referred to as “emergency recovery rebates” or “stimulus checks”), increased unemployment benefits, and new qualified retirement plan provisions.
Direct payments to taxpayers
Possibly the most notable provision within the CARES Act is the economic impact payments, also referred to as recovery rebates or stimulus checks, to be issued to taxpayers to provide immediate financial relief. Here are the most important facts to know about the economic impact payments:
- The credit amount to be issued to eligible recipients is $1,200 per individual, or $2,400 for married filing jointly taxpayers, plus $500 for each qualifying child.
- Individuals with an adjusted gross income of $75,000 or less, or married filing jointly taxpayers with an adjusted gross income of $150,000 or less, will receive the full credit.
- The credit is phased out for higher income earners.
- The amount of advanced refund you’re issued will be determined by your adjusted gross income reported in your 2019 tax return, or your 2018 return if you have not yet filed for 2019. The actual credit will be reconciled when filing your 2020 tax return.
- Ineligible recipients include nonresident aliens, qualified dependents of another taxpayer, an estate or trust, and those who exceed the income threshold.
As you are waiting to receive payment, it’s important you’re aware of the uptick in fraud currently surrounding economic impact payments. Scammers are known to take advantage of an environment of fear and desperation, and they are using the current situation as an opportunity to scam individuals into providing their personal information, such as bank account numbers, online banking credentials, and social security numbers.
According to the IRS, most Americans can expect to receive stimulus payments via direct deposit and they do not need to take any action at this time. The IRS will use information from your 2019 tax filing (or 2018 if you have not yet filed for 2019) to determine where to deposit funds. If you’re contacted by an individual claiming to be an IRS representative via phone, text, email, or computer alert, and you are asked to provide personal information, such as your bank account number, social security number, or online banking credentials, in order to receive payment, be aware this is a scam.
If you do need to provide information to the IRS, check on the status of your economic impact payment, or confirm how you’d like to receive your payment, you can use the IRS’s new tool “Get My Payment,” which launches on Friday, April 17.
With a record number of unemployment claims filed in the span of a few weeks, a lack of steady income is on the minds of many Americans who have been laid off due to the coronavirus. To provide relief and further stimulate the economy with consumer spending, unemployment compensation has increased. Eligible individuals will receive the regular unemployment compensation plus an additional $600 per each eligible week. Qualified individuals must register with their state agency and satisfy the “actively seeking work” standards prescribed by the state.
Qualified retirement plan provisions
Individuals (or their spouse or dependent) who have been diagnosed with the coronavirus by a CDC approved test or have experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, or having working hours reduced are eligible for special relief relating to distributions from qualified retirement plans and IRAs.
Here are the facts to know about the new qualified retirement plan provisions:
- Waived 10 percent early withdrawal penalty for distributions up to $100,000 taken in 2020, and all such distributions are exempt from tax withholding.
- Any distribution amount required to be included in taxable income from coronavirus-related distributions will be included ratably over three taxable years beginning with the year of distribution.
- Distributions may be repaid at any time up to three years after the date of distribution by making one of more repayment contribution(s) to any eligible retirement account to which you can make a rollover contribution.
- The usual 60-day rollover period and one-IRA-rollover-per-year rules do not apply to these repayment contributions.
Waiver of 2020 Required Minimum Distribution (RMD)
- RMDs required for the 2020 calendar year, from an eligible retirement plan, are waived. This includes Inherited IRAs.
- Calendar year 2020 does not count toward distributions subject to the “five-year rule,” which stipulates that five years must have passed since the tax year of your first IRA contribution before you can withdraw the earnings.
- If you’re interested in learning about relief provided to businesses, check out our full analysis of the CARES Act or our Paycheck Protection Program site.
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- For more coronavirus-related educational content, read this article on scams, online banking, and cash stockpiling.