The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on Friday, March 27 by the president. It represents the third phase of Congress’s legislative efforts to address the financial and health care crisis resulting from the coronavirus (COVID-19) pandemic. In addition to providing relief to businesses and mustering forces to shore up the medical response, the CARES Act includes numerous provisions intended to help individuals. Below is a summary of some of the key provisions.
CARES Act Overview – Infographics
Recovery Rebates for Qualifying Americans
The CARES Act provides recovery rebates of up to $1,200 for singles and $2,400 for married couples filing jointly (plus $500 per qualifying child under the age of 16) subject to income-based phaseouts. Qualifying taxpayers include those with up to $75,000 adjusted gross income ($150,000 for married filing jointly and $112,500 for head of household).
Expansion of Unemployment Benefits
The CARES Act provides an extra $600 a week in jobless aid through July 31, 2020. It also extends regular unemployment compensation by 13 weeks after state benefits are exhausted for a total of up to 39 weeks. The bill also pays for the cost of the first week of unemployment for those states that waive the one week waiting period.
Retirement Accounts
It also waives the 10% penalty tax on early retirement account withdrawals for COVID-19-related distributions on or after 1-1-2020 and temporarily waives the required minimum distribution (RMD) rules for certain retirement accounts. The distributions will be taxed over a three-year period and the amount can be recontributed to an eligible retirement plan during that time without regard to the contribution limits at that time. Also, loan limits from certain retirement plans are increased for coronavirus-related relief.
Above-the-Line Charitable Contribution
The CARES Act authorizes a $300 “above-the line” charitable tax deduction for individuals who don’t itemize. This will give a slight boost to taxpayers who donate to charity and the charities they donate to. The new law adds the deduction for tax years starting in 2020. For the last couple of years, under the Tax Cuts and Jobs Act, only individuals who itemized could get a deduction for charitable gifts, and far fewer individuals have been itemizing because of the increased standard deduction. The new deduction only applies to cash contributions. The contribution can’t be used to establish a donor-advised fund or maintain an existing one.
Employer Payments of Student Loans
For 2020, employers may contribute up to $5,250 toward an employee’s student loan in tax-free student loan repayment benefits. The cap applies to this new student-loan repayment benefit as well as other educational assistance.
