Matt Crisafulli’s webinar on the CARES Act:
On the 27th of March 2020, legislation responding to the COVID-19 pandemic was cleared by the US Congress and officially signed into law by President Trump. The Coronavirus Aid Relief and Economic Securities Act (A.K.A. The CARES Act) was put into effect with the goal of helping the US economy and citizens in the wake of the Coronavirus, offering over $2 trillion to battle the virus and its economic effects.
Its immediate impacts are intended to be in the following areas:
- Individuals and families
- Small businesses
- Corporations
- Hospitals/Public health
- Federal programs
- State and Local governments
- Education Provision
ACap’s Webinar on the CARES Act is focusing on the provisions in the CARES Act that benefit individuals and families, and what benefits you can receive based on your particular financial circumstances.
Benefit #1 – Cash Payments
Cash payments will be given to eligible parties, namely:
Individuals earning less than $75,000 per year, married couples earning less than $150,000 per year, or a head of household earning less than $112,500 per year are all eligible to receive a one-time payment of $1,200 ($2,400 for married couples)
- Parents with dependent children qualify for $500 per dependent child (note that rules for determining whether your child qualifies as a dependent are the same as when filing tax returns)
- For example, a family of 4 (two adults and two children) filing as a unit earning less than $150,000 per year would receive a payment of $3,400
Cash payments are phased-out, meaning they diminish as income increases. The phase-out margins are set as follows:
- For individuals the margin is $75,000 – $99,000
- For married couples the margin is $150,000 – $198,000
- For heads of household the margin is $112,500 – $136,000
How can I figure out what cash payments I can receive based on my circumstances?
There are calculators that you can use to determine what your Economic Stimulus Check will be depending on your specific circumstances. The income number the IRS uses to determine your eligibility depends on your 2018 or 2019 (if filed) Tax Returns. Note the following:
- There’s nothing you need to do – the IRS will be using the information on record in order to distribute the payments
- If you had a direct deposit of your 2018 or 2019 tax refund or owed using electronic withdrawal for 2018 or 2019 tax returns, those payments will be automatically deposited into your bank account
- If your 2018 or 2019 Tax Return did not include any direct deposit or withdrawal using bank information, the IRS will open a web portal for individuals to enter bank account information online so payments can come to individuals much more quickly than with a check, which could otherwise take 6-8 weeks
The IRS are trying to get these out as quickly as possible, either with information from 2018 or 2019 tax returns or through web portals, with the ultimate goal of quickening the payment process. The goal is to have these payments out in the first week of April, but a more realistic prediction is the 2nd or 3rd week of April.
Eligibility Rules
Make sure you are aware of the following parameters for cash payment eligibility:
- Taxpayers must have a valid tax ID number/Social Security number
- You cannot be a non-resident alien
- You cannot be claimed as a dependent on another person’s tax return
- Estates and trusts do not receive the benefits outlined above
Benefit #2 – Tax Deadlines are delayed
Federal Tax Deadline
One of the key provisions of the CARES Act is that the Federal Tax Deadline has been moved from April 15, 2020 to July 15, 2020. This extension is automatic – no forms need to be filed, and individuals who extend get an extra extension past July 15th.
There will be no penalties or interest due for any tax liability owed for 2019 as long as it is paid by July 15, 2020. The IRS wants individuals to keep their money in their pockets to spend on necessities while the government and economy are shut down. However, after July 16, penalties and interest will start to accrue on any unpaid tax liability.
Estimated Tax Payments
Estimated Tax Payments have also been extended. These are normally due on April 15 (Quarter 1), June 15 (Quarter 2), September 15 (Quarter 3) and January 15 of the following year (Quarter 4).
However, for 2020 the 1st-3rd Quarter payments are all due on 10/15/2020 and Quarter 4 is due 1/15/2021.
- Quarters 1-3 Covers January 1, 2020 – September 30, 2020
- Quarter 4 covers October 1, 2020 – December 31, 2020
NOTE: THE WORDING OF THE CARES ACT INDICATES 1Q-3Q PAYMENT DUE DATES ARE EXTENDED UNTIL OCTOBER 15,2020, BUT AS OF THE WRITING OF THIS ARTICLE THE IRS AND THE IRS WEBSITE ONLY INDICATE THAT THE 1Q ESTIMATED TAX PAYMENT DUE DATE HAS BEEN EXTENDED. PLEASE CONSULT YOUR TRUSTED ADVISORS FOR THE FINAL DETERMINATION ON OFFICIAL DUE DATES FOR ESTIMATED TAX PAYMENTS.
Benefit #3 – Special Rules for Retirement Accounts
The ultimate goal of this section of the CARES Act is to give people access to money in the short term to bridge the gap during a time when they might be laid off, their company shut down, or they might be prohibited from working.
Coronavirus-related fund withdrawal
Coronavirus related funds of up to $100,000 can be withdrawn from retirement accounts (401k or IRAs) for use to make ends meet in the short term. Withdrawals are taxable but there is no 10% penalty. Normally individuals would not have access to the funds in 401k or IRA accounts, but now they are being made accessible.
You also have the option to put the up to $100k withdrawn from a 401k or IRA back into these accounts. Normally you would not be able to put these withdrawals back, but the CARES Act is providing you with three years to do this if needed, with the idea that the money was needed for the short term but can be put back when things return to normal. Additionally, if you take money out but can’t afford to put it back in over the three years, you’re allowed to spread the tax liability generated from the withdrawal over three years.
401k Loans
Maximum 401k Loan amounts have been increased. Normally you’re only allowed to borrow up to $50k from a 401k account, or 50% of the vested balance (whichever is less), but you will now be able to loan against up to $100k or 100% of your vested balance (whichever is less).
Required Minimum Distributions
Required Minimum Distributions (RMDs) do not need to be taken from retirement accounts in 2020. If you have an IRA or 401k account and you’re over 70.5 or 72 (depending on your birthday), you do not need to take RMDs for 2020.
NOTE: As of the writing of this article, it is unclear if Inherited IRAs are included in this RMD exclusion, however it is believed that they will be included and that RMDs will not need to be taken from Inherited IRAs for 2020. Until further guidance is issued, it is recommended that individuals with Inherited IRAs wait to take their RMDs for 2020 until further guidance is issued, if they do not want to take their RMDs for 2020.
This provision has been added because the stock market has been hit quite hard as a result of COVID-19, so the goal is to let retirees keep funds in their account and not have to sell right after everything declines sharply in value.
IRA Contribution Deadline
The IRA Contribution Deadline has also been extended until July 15, 2020. Normally this is April 15th but it has been extended to the due date of the return.
Benefit #4 – Expanded Unemployment Benefits
The CARES Act makes major changes to unemployment assistance: increasing benefits, extending the amount of time benefits can be received, and broadening who is eligible to receive these benefits.
Unemployment Benefits
The CARES Acts increases the amount paid to eligible recipients – Through 7/31/2020, all regular UI and Pandemic Unemployment Assistance claimants will receive their usual calculated benefit, plus an additional $600 per week in compensation to people who have been laid off. Unemployment benefits are also extended an additional 13 weeks, if necessary. (Note: These benefits become available after someone exhausts all their regular state UI benefits)
However, this 13-week extension is only provided if it is needed. If your company starts back before 13 weeks, for example, you will no longer be eligible.
The CARES ACT also expands eligibility to include Self Employed individuals and ‘gig’ workers (e.g. Uber drivers, etc) who are normally excluded from these benefits.
Student Loan Provisions
Under the CARES Act, payments on student loans are suspended for 6 months (until September 30, 2020). You will still be allowed to make payments, but no interest or penalties will accrue on your accounts during this period.
For those in loan forgiveness programs, any payments made will still count towards your monthly payment total goal in order to receive forgiveness.
If you are making less money as a result of COVID-19, you are eligible to re-certify your income mid-year and reduce your payments.
There are other benefits for current students as well:
- Work study payments will continue to be distributed to students, even though universities have been shut down
- Requirements to return grants if certain educational requirements are not met (e.g. if GPA has not been maintained) have been waived
In Summary
There are many other provisions included within the CARES Act, and new guidance is being issued almost daily. ACap’s webinar has focused on the legislation’s specific impact on individuals and families, but you can refer to many other sources if you’d like to learn more about the Act as it pertains to other sectors of the economy. For further information, you can refer to the official Congress report on the CARES Act:
https://www.congress.gov/bill/116th-congress/senate-bill/3548/text
Looking for an independent fiduciary financial advisor who can advise you on investments, retirement, real estate, alternative assets, and taxes? Contact ACap Advisors & Accountants to schedule a free initial consultation. Our clients include individuals, small businesses, entrepreneurs, and anyone serious about saving and investing for their future.
Matt Crisafulli, CFP, EA is a partner at ACap Advisors & Accountants, LLC in Los Angeles, CA.
