The CARES Act: What it Means for Families and Business Owners

by | Apr 1, 2020

This week the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed.  The purpose of the act is to provide relief to individuals and businesses impacted by the global COVID-19 pandemic.  I won’t try to include all 800+ pages in this email, but here are a few key provisions that you should know about.

One-time cash payment

Taxpayers are eligible for a one-time direct deposit of up to $1,200 per adult ($2,400 per couple) plus $500 per child under age 17. Amounts are reduced for those who make more than $75,000 adjusted gross income ($150,000 if married). If you have filed your 2019 taxes already, the IRS will use that income to calculate your payment; if not, they’ll use your 2018 tax filing.  Families who make too much to qualify in 2018 or 2019, but qualify based on 2020 income, will have to wait until they file their 2020 return (2021) in order to receive their payment.  Payments are expected to begin in May.    

Better unemployment benefits

The Act will expand and extend unemployment compensation.  Eligible workers (now including self-employed, independent contractors, and gig economy workers) will receive an extra $600/week for up to four months, on top of what they receive from state unemployment benefits.  Unemployment compensation is also extended for 13 weeks and payments start immediately, without the normal one week waiting period.

Penalty waiver for retirement distributions

The Act waives the standard 10% early withdrawal penalty on up to $100,000 of eligible coronavirus-related distributions from retirement accounts (retroactive to Jan. 1). You’ll still pay income taxes on withdrawals, but you can spread them over a three-year period or use that time to roll the distribution back over.

2020 RMDs suspended

You won’t have to take a Required Minimum Distribution from your IRA or 401(k) this year, leaving you in control of how much you withdraw. If you already took your RMD for 2020, you have several choices: keep it and pay taxes on it, return it to your IRA, or convert the amount into a Roth IRA.  Beneficiaries who already received their RMD are not eligible to do a rollover.

Student Loan Relief

Required federal student loan payments are suspended through September 30, 2020. During this time no interest will accrue on the debt. Voluntary payments are not prohibited. Therefore, borrowers will have to contact their loan provider to stop payments.  If you are in the Public Service Loan Forgiveness program you should contact your loan service provider. They can confirm if suspended payments will be credited toward your 120 qualifying payments.

Forgivable business loans

The Paycheck Protection Program provides small business owners (under 500 employees) with loans that can potentially be forgiven.  Loan proceeds can be used for payroll, health insurance premiums, salaries, rent, mortgage interest and utilities.  Any debt forgiven in not included in taxable income and the maximum interest rate is 4%.  Loans are offered through the Small Business Administration and need to be applied for by June 30, 2020.

These are unnerving times for most families.  Many have had to close their businesses, reduce their hours or lost their jobs.  Some proactive planning and a better understanding of the CARE Act can help. If you or anybody else has questions we’re happy to talk to them.   


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