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CARES ACT - Everything you want to know about the new law but didn't know how to ask (PART 1)



March 29th, 2020 UPDATE --
CARES Act for Individuals


Wow.

There is a LOT in this new: 

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

(I wonder if Congress has a committee designated to just create acronyms like this?)
 
We’ve taken the weekend reading up on this, and it will require more than one update.  This will be long, so please take your time and read through.
 
Besides the ADVANCE REBATE everyone is excited about, we will cover here how the new law impacts:
  • · Unemployment Compensation (who is qualified? How much?)
  • · Taking Distributions from my IRA or other Retirement Plans (is there still a 10% penalty? Do I still pay tax on it?)
  • · Loans from Qualified Employer Plans (how much can I borrow? Has the amount gone up?)
  • · Required Minimum Distributions (Do I still have to take an RMD this year?)
  • · Charitable Donations (Can I take deduct my donations even if I use the standard deduction?)
 
Title I of this act is for businesses. It’s called the “Keeping American Workers Paid and Employed Act.”  We will cover this in detail in a later update.

Title II is titled: Assistance for American Workers, Families, and Businesses.”

We are going to go over the provisions of Title II, one by one.  

First, the one everyone wants to know about:
Q. Is the government gonna send me free money??? How Much??? And when????
A.If you qualify YES.  

It is technically an ADVANCE REBATE. And here’s how it works:
The law creates a TAX CREDIT on your 2020 tax return, which we will file ONE YEAR FROM NOW
 
They are sending you that credit NOW, based on
a.      Your Adjusted Gross Income on your 2019 return, if you have already filed it; or
b.      Your 2018 AGI, if you have not.
 
If you file:
a.     As a single person, Married Filing Separately (MFS), or a Qualified Widow(er) (QW), you get the full $1,200 ADVANCE REBATE if your income is $75,000 or less.
b.     As a Head of Household (HOH), you get the the full $1,200 ADVANCE REBATE if your income is $112,500 or less.
c.      If you are Married Filing Jointly (MFJ), you get the full $2,400 ADVANCE REBATE if your income is $150,000 or less. 
 
 
They reduce the amount of the ADVANCE REBATE by $5 for every $100 you are over that limit. AGIs over $99K Single, or $198K MFS, will not get a rebate.
 
They will send the money to you:
a.       Directly into your bank account if you have your refunds direct-deposited, so they have your bank information on file; or
b.      To the last address they know about for you.
 
IMPORTANT: If you have moved since you last filed a return and your current address is not in that return, you need to send the IRS form 8822 to tell what your new address is. Page 2 has instructions on where to mail it, based on where you live.
When we file your 2020 tax returns, just like in 2001 and 2008, you will need to let us know how much ADVANCED REBATE you received.
You ALSO get $500 for each child under 17.
 
Q. How will this affect my tax return next year?
A. Here are some examples:
 
Example #1 – Robert, a single taxpayer, claims two qualifying children, Billie and Sam, on his 2019 return.  Susan, Robert’s ex-spouse, does not claim any qualifying children on her 2019 return.  Assuming their respective AGIs are low enough, Robert will receive an advance rebate of $2,200 ($1,200 + $500 + $500) and Susan will receive an advance rebate of $1,200.
On their 2020 returns, Susan claims Billie and Sam.  Robert is only entitled to a credit on his 2020 return of $1,200, he received an advance of $2,200, so he is not entitled to an additional credit.  Susan is entitled to a credit on her 2020 return of $2,200, received an advance rebate of $1,200, therefore is allowed an additional credit of $1,000 on her 2020 income tax return.
 
Example #2 – Christina, a single taxpayer, claims one qualifying child, Emma, on her 2019 return.  Alfred, Christina’s ex-spouse, claims one qualifying child, Cole, on his 2019 return.  Assuming their AGIs are low enough, Christina and Alfred will each receive an advance rebate of $1,700 ($1,200 + $500).
On their 2020 returns, Christina and Alfred switch children.  Christina is entitled to a credit on her 2020 return of $1,700, she received an advance of $1,700, so she is not entitled to an additional credit.  Alfred, is also entitled to a credit on his 2020 return of $1,700, received an advance rebate of $1,700, therefore is not entitled to an additional credit.
 
We do NOT see a requirement to repay an advance that turns out to be higher than the amount allowed on the 2020 return.  In the past rebates, this excess was not required to be repaid, but that does not mean the same rule applies now.
 
Q. WHEN will the checks come?
A. The bill reads, on page 147, starting on line 12:
"TIMING.--The Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible." 

 
UNEMPLOYMENT COMPENSATION
 
 
This is HUGE.

 
Q. “I was furloughed or out of work as a direct result of COVID-19. Am I eligible to collect unemployment?”
 
A. YES!!!
 
 
Q. “I was on unemployment and it ran out. Can I get more now?
 
A. YES!!!
 
 
Q. “I was self-employed, or a freelancer, or a contractor. I always get 1099s, and sometimes I get paid without getting a 1099. I never got wages. I never paid into unemployment.  I have NEVER, in my life, been eligible to collect unemployment. Can I collect it now?”
A. Yes!!! 
 
Typically, self-employed people, freelancers and contractors can't apply for unemployment. This bill creates a new, temporary Pandemic Unemployment Assistance program through the end of this year to help people who lose work as a direct result of the public health emergency.
The only people NOT allowed to collect are those who can still get paid while teleworking, and those already on sick leave or receiving other paid benefits (no double-dipping here, even if you otherwise qualify).
 
 
Q.  “Unemployment doesn’t pay very much, and doesn’t last very long. Does this law change that?”
A. Yes!!!
 
The federal government is adding $600 a week to your unemployment benefits from now through July 31st. 
 
 
Q. If I get Medicaid or “CHIP,” will this increase change whether or not I am eligible?
A. NO! 
It will not!
 
 
Q. What is the maximum length of unemployment benefits?
A. 39 weeks, but that can change with new legislation.
 
TAKING MONEY FROM IRA, 401(k), 403(b), IRAs OR OTHER RETIREMENT ACCOUNTS
 
 
Q. If I need money from my retirement because my job shut down, or I’m quarantined, and I’m under 59 ½, will I still be subject to the 10% penalty?
A. NO!!! 
If you take a “coronavirus-related distribution,” there is NO 10% penalty. There will be normal income tax, but you can pay it back over 3 years!!!
 
“coronavirus-related distribution” is money from a retirement account taken during the 2020 calendar year by someone:
a.       who is diagnosed with COVID-19,
b.      whose spouse or dependent is diagnosed with COVID-19, or
c.       who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours reduced, or other factors as determined by the Secretary of the Treasury during the COVID-19 pandemic.
 
 
Q. So there is no 10% penalty if I take a “coronavirus-related distribution”?
 
A. Correct!!!
 
 
Q. And I can pay back the regular income tax on these distributions over the next 3 years?
 
A. Yes!!!
 
 
Q. Is there a limit on how much I can take out of my retirement accounts and still have all this apply to me?
A. Yes.
You cannot take out more than $100,000 from all distributions combined. If you do, the regular rules apply.

 
LOANS FROM QUALIFIED EMPLOYER PLANS
 
 
Q. My HR Department has always told me that I can borrow a maximum of $50,000 from my TDA. Is that still true?
A. NO!!! 
You can now borrow up to $100,000 over the next 180 days, if you have it to borrow.
AND, the due date of any loan between now and December 31st will be delayed for one (1) full year!!!
 
REQUIRED MINIMUM DISTRIBUTIONS (RMDs)
 
 
Q. Do I still need to take my RMD this year from my retirement accounts?
A. NO!!! 
This applies for all required minimum distributions (RMDS) that otherwise would have been required to be made in 2020.
 
DEDUCTING CHARITABLE DONATIONS
 
 
Q. For the last few years, I have not been able to deduct for charitable contributions because the standard deduction is so high. Will I be able to deduct for charitable giving this year, at least a little bit, anyway?
A. YES!!! 
You can take up to a $300 charitable donation in 2020, even if you can’t otherwise itemize! I know, it’s not much, but it’s something.
 
That’s it for this update.  I will have a separate update for Small Business Owners soon.  
There is a LOT more here for Small Business Owners, including:
· Loans and grants through the Small Business Administration (SBA) that can be forgiven to incentivize companies to retain employees;
· Reduction of, and delay of payment of payroll taxes
 
Stay tuned!!


David is a registered representative at LifeMark Securities Corp.

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