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2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act

2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act

| May 13, 2020

Whether you watch television or read the news, you have probably heard the “CARES Act” repeated over and over. When I told my wife I would be writing my first blog post on the CARES Act, she said, “Perfect, all you need to do is read it and summarize it.” Little did she know the CARES Act encompasses 247 pages of confusing legal jargon. However, my goal is to summarize a few key provisions that might benefit you as well as help kickstart the U.S. economy.

  1. Aid to Households

Under the CARES Act, relief to individuals and families falls into three categories – stimulus checks, unemployment assistance, and student loan relief. Individuals with adjusted gross income (AGI) of less than $75,000 will receive $1,200. Couples filing jointly with an AGI of less than $150,000 will receive $2,400. Additionally, families will receive $500 per qualifying dependent child under the age of 17. A phaseout will begin once AGI reaches those limits and payments will decrease by $5 for every $100 in excess of the AGI limits. Therefore, when individuals exceeding $99,000 and couples filing jointly exceeding $198,000, no payment will be issued. Your payment will be based on your most recently filed tax return.  So, if you have filed for 2019 the IRS will use this return, otherwise 2018’s return will be used. These payments are not taxable and will not reduce future tax refunds you might receive.

For those who have lost employment due to layoffs or furloughs the CARES act has expanded unemployment benefits.  In addition to the standard 26 weeks of state unemployment benefits, Pandemic Unemployment Assistance (PUA) has added an additional 13-week extension. With the addition, unemployment benefits span over a 39-week period for those impacted by COVID-19.  Also, the CARES Act is adding an extra $600 per week per unemployment insurance applicant over the next four months.

Lastly, the CARES Act provides relief for federal student loan borrowers. Between March 13th, 2020 – September 30th, 2020, federal student loan payments will automatically stop. Interest rates on federal student loans are being temporarily set to 0%; therefore, if you continue to pay, your payments will be directly applied to your principal balance once interest accrued prior to March 13th is paid down. Note: These provisions do not apply to loans held by private lenders. Check with your lender or institution to understand the terms.

  1. Aid to Retirement Plans & Individual Retirement Accounts (IRAs)

In order to be eligible for a Coronavirus Related Distribution (CRD), you must certify that you meet one of the following criteria:

  1. You have been diagnosed with COVID-19 by a CDC approved test
  2. Your spouse or dependent child has been diagnosed with COVID-19
  3. You have experienced adverse financial consequences as a result of being quarantined, furloughed, or unable to work due to lack of childcare

Qualified individuals can take penalty free withdrawals up to $100,000 from retirement plans and IRAs in 2020. Although these distributions are subject to ordinary income tax, you are permitted to spread the tax burden over a three-year period. Additionally, you may pay back the distribution over a three-year period to avoid income tax. The loan limit from retirement plans has increased to the lesser of 100% of your vested account balance up to $100,000 between March 27th, 2020 – September 23rd, 2020. New and existing loan payments are being deferred until January 2021.

Required Minimum Distributions (RMDs)

By law, participants turning 72 are required to start taking Required Minimum Distributions (RMDs) based on previous year-end market values. The CARES Act has waived all RMDs for 2020 including first time 2019 RMDs, which individuals have until April 1st, 2020 to take. Any RMDs already taken are eligible for a 60-day rollover back into your account and will not be considered a distribution.

  1. Aid to Businesses and Self-Employed Individuals

Employers and self-employed individuals may elect to defer payment of the employer’s share of the Social Security tax (6.2%) for 2020. The deferred tax can be paid over the following two tax years with half the amount due by December 31st, 2021 and the other half by December 31, 2022. There has been no change to the employee’s side of the Social Security tax.

In order to help small businesses, the CARES Act has enacted the Paycheck Protection Program (PPP), a $350 billion loan program available through the Small Business Administration (SBA). These SBA loans are designed to help small businesses with eight weeks of cash flow assistance. Small business with 500 or fewer employees fall within the SBA’s standards. At least 75% percent of the PPP loan must be used to fund payroll and employee benefit costs. The remaining 25% can be spent on mortgage interest payments, rent, and utilities. If these guidelines are met, the entirety of the loan will be forgiven.

As mentioned, while the CARES Act contains many beneficial provisions the vastness of those provisions can cause confusion.  We are here to help. If you have general financial questions or ones pertaining to your specific situation, please do not hesitate to reach out to us.


  • This post is provided as informational only and should not be considered tax advice. Consult with your tax advisor regarding your specific situation and whether this information applies to you.