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The CARES Act and What it Means for You
In response to the unfolding COVID-19 global pandemic, the Federal Reserve has taken some extraordinary measures, the Treasury Department has extended some tax deadlines, and the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion emergency fiscal stimulus package in order to help ease the effects of the resulting economic damage. The CARES Act includes in its 1000+ pages a wide range of provisions for working individuals, retirees, plan sponsors and small businesses.
Extended deadline for 2019 IRA contributions The Treasury has extended the tax return filing date to July 15, 2020, from April 15, 2020 and the date for making 2019 IRA and Roth IRA contributions is also extended to July 15, 2020. This extended deadline also applies to 2019 Health Savings Account, Archer Medical Savings Account, and Coverdell Education Savings Account (ESA) contributions.
For our clients, we will be carefully monitoring any 2019 IRA contributions made after April 15, 2020. Custodians may automatically code 2019 IRA contributions as 2020 contributions if made after April 15th. Make sure that these checks state that they are for 2019 and we will then follow up with the custodians to confirm that the contributions are posted for 2019.
The CARES Act Relief for Retirement Accounts
2020 Required Minimum Distributions (RMDs) from IRAs, Roth IRAs and company plans are waived. Clients who use their RMDs for Qualified Charitable Donations may still wish to do so as a tax-efficient way to fulfill their charitable desires and reduce subsequent year RMDs. Roth conversions may also make sense in a year when taxable income is reduced.
The RMD waiver also applies to 2019 RMDs that are normally due by April 1, 2020 for those who turned 70 ½ in 2019.
RMDs that have already been taken this year may be undone if they are eligible to be rolled over. This must be done within sixty days of the distribution. Non-spouse beneficiaries cannot undo RMDs already taken.
The new act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans for coronavirus-related distributions. The tax would be due, but could be spread evenly over three years, and the funds could be repaid over the three-year period. This should be used only as a last resort.
The CARES Act increases the maximum amount of company plan loans to the lesser of $100,000 (reduced by other outstanding loans) or 100% of the account balance. [The usual limit is the lesser of $50,000 (reduced by other outstanding loans) or 50% of the account balance.] This rule applies to loans taken within 180 days from the bill’s date of enactment. Any loan repayments normally due between date of enactment and December 31, 2020 could be suspended for one year. IRAs do not allow loans.
Individual and Households
The CARES Act includes several measures aimed at helping American Families and individuals:
Added Federal unemployment insurance benefits for workers who are either not eligible for or have exhausted their regular Unemployment Insurance benefits. Anyone who quit or lost their job because of circumstances including, among other reasons: COVID-19-related reasons; individuals whose places of employment closed or can no longer provide them work; and the self-employed, would be eligible for unemployment benefits.
The CARES Act provides “rebates” that amount to cash payments of $1,200 per individual, $2,400 per married couple, plus $500 per child, with phase-outs beginning at incomes of $75,000 for individuals and $150,000 for married couples.
To promote charitable giving that is otherwise likely to decline amid the COVID-19 emergency, the CARES Act allows a $300 above-the-line tax deduction. This allows the majority of Americans who do not itemize their taxes to receive a financial benefit from some of their charitable donations.
Employers with Fewer than 500 Employees:
The CARES Act provides for advance refunding of paid sick and family leave credits so that employers can get the money they need to provide paid leave in the near-term.
The CARES Act provides about $300 billion in loans to address “small business concerns,” covering a wide range of impacts from supply disruptions to decreased sales and closures. A large portion of the loans would be forgiven, including payroll and compensation costs, rent or mortgage payments, utilities, and debt service payments, but forgiveness would be proportional based on how many employees the employer retained compared to their pre- COVID-19 levels.
Employers can receive credits and loan forgiveness for pay provided to workers who were laid off on March 1 or later if they rehire and pay them.
Please contact LVM Capital Management, Ltd (269-321-8120) if you have questions about the CARES Act. LVM does not provide tax preparation services and clients are urged to contact their tax preparer as well as LVM to review their specific circumstances.
The LVM Team