The Coronavirus Aid, Recovery, and Economic Security (CARES) Act (H.R. 748) was signed into law by President Donald Trump on Friday and has several significant provisions aimed at helping individuals & families weather the coronavirus (COVID-19) pandemic ― here’s what you need to know:
Direct Cash Payments
- Individual American adults with a Social Security number will be eligible for a direct cash payment (known as a “recovery rebate check”) of up to $1,200 and married joint filers up to $2,400.
- Each dependent child adds $500 to a household’s recovery rebate.
- Rebates start to phase-out for individuals with an adjusted gross income (AGI) of over $75,000 & for married filers with an AGI over $150,000.
- The AGI is based on the taxpayer’s most recent tax return ― either the 2019 return if it’s been filed or the 2018 return.
- The phase-out reduces the rebate by $5 for each $100 a taxpayer’s income exceeds the phase-out threshold. The phase-out means individuals with an AGI over $99,000 & married filers over $198,000 won’t receive a rebate.
- There won’t be a phase-in or minimum income requirement to receive the rebate.
- These cash payments won’t be taxable.
- Taxpayers who have set up Direct Deposit with the IRS will get the payment directly deposited in their bank account within 3 weeks. Otherwise, checks will arrive through the mail within 6-8 weeks.
- People receiving Social Security benefits, including & disability, will get the rebate even if they didn’t make enough to file a tax return in 2018 or 2019.
- Disabled veterans who receive benefits but don’t pay taxes will be able to receive a check through a system established by the Treasury Dept.
- People whose 2019 income exceeded the phase-out but have been laid off in 2020 will be able to apply for the cash benefit when they file their 2020 tax return if their income this year allows them to qualify through a system established by the Internal Revenue Service (IRS).
Enhanced Unemployment Benefits
- People who have been laid off because of “stay at home” orders & other social distancing guidelines impacting their work will be eligible for enhanced unemployment benefits.
- The CARES Act establishes a temporary Pandemic Unemployment Assistance (PUA) program through the end of 2020.
- For 4 months, the PUA program will pay an additional $600 payment to each recipient of unemployment insurance or PUA in addition to whatever unemployment assistance they receive from their state.
- People who wouldn’t be eligible for typical unemployment benefits ― such as the self-employed, independent contractors, and those with a limited work history ― would be eligible.
- Additionally, federal assistance would be available to states which have “short-time compensation” programs to help workers whose hours were reduced instead of being laid off.
- The federal government would finance 100% of short-time compensation through the end of 2020 in states with existing programs; and 50% of the costs incurred by states that establish new programs.
- Workers getting short-time compensation benefits would receive a pro-rated unemployment benefit.
Tax Relief for Individuals & Families
- The 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts would be waived for distributions made for coronavirus-related purposes.
- Distributions would be subject to tax over a three year period, and the taxpayer could recontribute these funds to an eligible retirement plan within three years without regard to that year’s contribution limit.
- Coronavirus-related purposes that would include those: made to an individual diagnosed with COVID-19; whose spouse or dependent is diagnosed with COVID-19; or who experience adverse financial consequences because they’re quarantined, furloughed, laid off, have work hours reduced, can’t work because of lack of child care, or their business closes or has hours reduced.
- To encourage contributions to churches & charitable organizations in 2020, people could deduct up to $300 in cash contributions “above the line” (i.e. whether or not the taxpayer itemizes their deductions).
- Employers would be able to provide a student loan repayment benefit to employees on a tax-free basis of up to $5,250 annually. These contributions would be excluded from an employee’s income for tax purposes. The $5,250 employer cap would apply to both the new student loan repayment benefit & other educational assistance contributions (for tuition, fees, books) allowed under current law.
— Eric Revell
(Photo Credit: iStock.com / Ivan-balvan)
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