Gill Capital Partners – CARES Act Update

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

CARES Act Approved     

On Friday, March 27th, President Trump signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law, which is expected to provide further relief for taxpayers and businesses dealing with the COVID-19 pandemic. The CARES Act contains many different provisions that directly impact individuals and businesses of all sizes. What follows is a summary of the areas that will most directly impact individuals. There are also many business-related benefits to this bill that we would love to talk with you about if you have questions or scenarios you’d like to discuss with us.

We recommend you consult with us to review strategies and questions related to any of the below topics, as there are far too many details for us to include in a single communication, without risking complete loss of attention:

Individual Tax Relief
The most well-publicized provision is the recovery rebates for taxpayers. As with all government rules, there is plenty of fine print, but here are the highlights:

The rebate amounts are advance refunds of credits against 2020 taxes, and equal $1,200 for individuals, or $2,400 for joint filers, with a $500 credit for each child, defined as 16 or younger.

The AGI threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed), and the phaseout begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. The rebates are completely phased out for single filers with adjusted gross income over $99,000, heads of household over $136,500 and joint filers over $198,000.

Charitable Contributions
The bill enhances tax incentives for making charitable contributions for the 2020 tax year. First, it allows an above-the-line deduction (i.e. those who do not itemize deductions) of up to $300 for charitable contributions made by individuals. These contributions must be made in cash.

For the 2020 tax year, individuals can claim an unlimited itemized deduction for a charitable contribution, which is normally limited to 50 percent of AGI.

Retirement Savings

The bill waives all required minimum distributions for 2020, regardless of whether the taxpayer has been impacted by the pandemic. This includes those who turned 70 ½ in 2019 but have not yet received their first distribution. The waiver on required distributions is retroactive to January 1, 2020, which begs the question, can required distributions already taken be put back into an IRA? This is possible, but if this is something you’re interested in, please reach out to us, as it is not a straightforward yes or no answer. This waiver of required distributions also applies to inherited IRA accounts, but these distributions cannot be put back into accounts if already taken in 2020.

If you use your IRA to make Qualified Charitable Distributions (QCDs), you can continue to make those from your IRA if you are 70 ½ or older. This age did not adjust to age 72 for 2020 with the adjustment of the RMD age. We recommend a discussion with us to determine the best account from which to make charitable distributions.

The bill also waives the 10 percent penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. For purposes of the penalty waiver, a coronavirus-related distribution is one made during the 2020 calendar year to an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus. Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions if made within three years.

The maximum loan that can be taken from employer-sponsored plans such as 401(k)s and 403(b)s was increased from $50,000 to $100,000 and payments may be delayed for 1 year.

One item that was not a part of the bill, but important to know, is that the deadline to make 2019 IRA and Roth IRA contributions has been extended, along with the tax filing deadline, to July 15th.

For those of us looking for a more visually appealing layout of the provisions, the below is very helpful:

As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.