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CARES Act

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Updated April 3, 2020

Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.

In response to the COVID-19 pandemic, Congress passed the CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT (CARES Act) to help mitigate the impact on businesses, workers, and consumers.  The CARES Act has provisions allowing access to retirement savings and suspension of required minimum distributions. While the government will be providing further guidance in the coming weeks, below is an initial summary of some of the key provisions.

 

Helping Individuals through Unprecedented Times

Direct Payments to Individuals

Most Americans will receive direct payments of $1,200 ($2,400 for joint filers) and $500 for each child under the age of 17. Payment amounts will be reduced for those with higher incomes. For individuals, the reduction begins at an adjusted gross income (AGI) of $75,000 per year and the payment is completely phased out at $99,000. For joint filers, the reduction begins at $150,000 and the payment is completely phased out at $198,000.

Do not be fooled by scams attempting to take advantage of uncertainty regarding the logistics of these payments. The vast majority of Americans will receive these payments without taking any action. The government will use your payment information and AGI from your 2019 tax return, or from 2018 if you haven’t filed for 2019.

Tax Deadlines

The deadline for filing and payment of 2019 federal income taxes has been moved from April 15th to July 15th, 2020. Many states, including Wisconsin and Minnesota, have extended their payment and filing deadlines to coordinate their due dates with the new federal due dates. However, in many cases 2020 estimate payments are still required prior to July 15th. Please consult with your tax professional for guidance regarding your circumstances.

Charitable Giving

The CARES Act provides new tax incentives for providing cash contributions to public charities. Tax payers who take the standard deduction will be entitled to a $300 above-the-line deduction, while tax payers who itemize will be able to deduct 100% of their AGI (rather than 60%).

Note that noncash contributions and contributions to private charities, supporting organizations, and donor advised funds are not eligible for either of the above enhanced deductions.

Paid Leave & Unemployment Insurance

Congress has extended paid leave and unemployment insurance to cover most Americans, including those that are self employed or part time workers. Unemployment benefits have been extended in duration and increased in amount, with a goal of replacing 100% of the average worker’s paycheck rather than the typical 40-45 percent. Coupled with subsidized loans and other measures to encourage small businesses to retain their employees, these provisions are intended to mitigate the negative effects of employment changes caused by the coronavirus to individuals and the economy as a whole.

Relief for Mortgage and Student Loan Borrowers

The federal government has also provided relief to mortgage and student loan borrowers. Federal regulators have ordered mortgage lenders to offer reduced or suspended payments for up to 12 months to those who have suffered a loss of income related to the coronavirus. The regulations specifically apply to lenders who work with Fannie Mae and Freddie Mac, but regulators expect that the entire mortgage industry will adopt similar policies for loans that are not connected to those programs. Borrowers should contact their loan servicer to explore options.

Interest is waived on all federal student loans through September 30, 2020, and borrowers may elect to not make payments during this time. The bills also permit employers to provide a tax free payment in 2020 of up to $5,250 towards an employee’s student loans. Lastly, the federal government has suspended all involuntary collection of student loan debt during this period, including garnishment of wages, tax refunds and Social Security benefits.

 

Flexibility for Retirement Savers

Contribution Deadline Extended

The deadline to make 2019 contributions to IRAs and health savings accounts (HSAs) will be extended to the new tax date of July 15th. However, deadlines associated with contributions to workplace savings plans have not been extended.

Temporary Waiver of RMDs

Required minimum distributions (RMDs) for 2020 are suspended for most defined contribution plans and IRAs. This includes distributions that would have been required by April 1, 2020, due to the account owner deferring their initial RMD after turning age 70 1/2 in 2019. Suspension of these RMDs allows account holders to delay withdrawals of investments that may have temporarily fallen in value. If you don’t need the money now, you can now delay withdrawals until after your investments have had an opportunity to recover.

Waiver of Withdrawal Penalties

Individuals financially impacted by the coronavirus are also eligible for hardship withdrawals in 2020 of up to $100,000 from their retirement plans and IRAs without incurring the usual 10% early withdrawal penalty. This applies only to participant/owners that have been diagnosed with the virus or experience adverse financial consequences as a result of the virus (e.g., quarantine, furlough, lay-offs, reduced work hours, no available childcare, etc.). This exception also applies where the participant/owner has a spouse or dependent affected by the coronavirus. While the withdrawals will still be treated as taxable income, the income tax on the distributions may be spread evenly over 3 years. Alternatively, tax can be avoided entirely if the distribution is repaid to the retirement plan within a 3-year period.

Loan Extensions

Rules surrounding 401K loans have also been extended. For a 180-day-period beginning on the date of enactment, affected individuals can also receive loans from retirement plans up to the lesser of $100,000 or the present value of their vested benefits. Usually you can’t take out more than half your balance, but that rule is suspended. In addition, loan repayments for affected participants may be delayed for one year.

Please note that your employer sponsored retirement plans must be amended to incorporate these new rules before you can take advantage of them. Please contact your plan sponsor if you have questions about your plan.

 

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Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.