CARES Act – The Individual Provisions

U.S. Government Provides Relief to Individuals, Businesses in Midst of COVID-19 Crisis

On March 27, President Donald Trump signed into law a historic $2 trillion stimulus package designed to provide economic relief to individuals and businesses affected by the coronavirus pandemic.

Our aim in this alert is to give a brief overview of both the tax and non-tax provisions of the government’s new stimulus legislation, including what type of assistance is available for individuals and businesses, how to apply for it, and what to do if you become unemployed. This summary is for individuals, we will have a separate post for businesses.

Stimulus Payments: Amounts and Eligibility

· Most adults will receive $1,200; each qualifying child under 16 years old will receive $500

o The amount you receive is based on your tax filing status and reported adjusted gross income (AGI)

• Single filers with an AGI of $75k or less will receive the full $1,200; with a full phase-out at $99k
• Married filers with an AGI of $150k or less will receive the full $2,400; with a full phase-out at $198k
• Heads of households with an AGI of $112.5k or less will receive the full $1,200

· Having qualifying children will increase the phase-out threshold slightly for all groups

· Those claimed as a dependent by another taxpayer will not receive any stimulus money

· Recipients need to have a legitimate Social Security number to receive payment, except for military members

· Currently there is only one stimulus payment scheduled; however, there has been discussion of additional future payments

Proof of Income

o If prepared, your 2019 tax return is the basis of your eligibility; if not, use your return from 2018

o If you still have not filed for 2018, you can use a 2019 statement from the Social Security administration as proof of income to qualify

Applying for the Payment and Receipt

· If the IRS has your bank information from prior tax filings, then you don’t need to do anything. The money will simply be direct deposited into your account based on already filed income tax information

· Most people should expect to receive the money approximately three weeks from the bill’s passage date

Other Considerations

· Unemployed persons are eligible to receive payments

· You will not need to pay income tax on these payments

· Generally, this payment is exempt from all forms of wage garnishment; however, not in all cases for child support garnishments

Unemployment Benefits: Who is Covered?

· The bill expands eligibility for unemployment benefits, including part-time and self-employed workers

· Self-employed persons are newly eligible for unemployment benefits and their benefit is calculated based on previous income using a formula from the Disaster Unemployment Assistance program

· Part-time worker benefits are state dependent

Amount of the Benefit

· Unemployment benefits still vary by state, but generally the bill aims to compensate for the average worker’s paycheck by providing extra payments to cover the gap between traditional state unemployment and actual wages

· Eligible workers can get as much as $600 per week in addition to their state benefit; this includes self-employed and part-time workers

· States are free to pay the whole amount at once or send the top-up portion separately

How Long Will It Last?

· The bill provides an additional 13 weeks on top of whatever each state already provides; however, unemployment benefits cannot last more than 39 weeks total

o Those already receiving unemployment benefits are still eligible for the 13-week benefit extension as well as the $600 weekly benefit top-up

· The incremental $600 payment is only good for up to four months, through the end of July

Other Considerations

· Coverage also extends to those who can’t work because they are required to self-quarantine and people unable to travel to work because of imposed quarantine restrictions

· If the main household earner dies as result of the coronavirus, the survivor is eligible for their unemployment benefit

· People who can work from home or are already receiving paid sick or family leave are not eligible

Student Loans

· For six months (April 2020 to September 2020) there is an automatic suspension of student loan payments for loans held by the federal government (private loans excluded)

o You may choose to keep paying down the principal if you desire

Retirement Account Rule Changes

· For 2020, the minimum distribution requirements on IRAs, 401(k), 403(b) plans, etc. are suspended

o This is not applicable to pensions

· Up to $100k may be withdrawn early without being subject to the typical 10 percent early withdrawal penalty; and income taxes owed on withdrawals may be spread over three years from the date of distribution

o To qualify for these exemptions, you need to prove the need was related to the COVID-19 outbreak, which includes if you, your spouse or a dependent tested positive for the virus or if you suffered adverse economic costs due to the COVID-19 crisis

· Loan limits on workplace retirement plans (401k, etc.) are doubled, allowing participants to take loans of as much as $100k if they can prove they’ve been affected by the pandemic

Charitable Contributions

· The bill creates a new charitable deduction of up to $300 available for those who can’t itemize their deductions for donations to qualified charities

· The limit on charitable deductions (those that are itemized) are increased, allowing donors to deduct up to 100 percent of donations against 2020 AGI. For example, if you have $1.3 million in income, you can donate $1.3 million and deduct the entire amount

o Only cash gifts to public charities qualify; you cannot donate stocks or gift via private foundations to be eligible

Miscellaneous Provisions: Renter’s Relief

· The law puts a temporary 120-day nationwide stop to evictions if the landlord has a mortgage from a governmental agency, such as Fannie Mae, Freddie Mac and others. Additionally, landlords are not allowed to charge penalties for delinquencies during this period.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. For specifics on how this may apply to you or your business, please book a meeting with us.