What Does The CARES Act Mean For You?

With so much focus on the size and scope of the CARES Act (it totals almost $2 Trillion, or 10% of GDP), it’s difficult to tease out the important details. What does this bill do for you, right now? How do you access the opportunities it outlines? Here’s what every American needs to know about the CARES Act.

Show me the money!

Unless you’ve been sheltering in place under a rock, you know the government is sending recovery checks. What people are less certain of is when those checks are coming.

The good news is, if you’ve opted to pay your taxes with direct deposit in the past, the government will use that information to direct deposit your recovery check, speeding the process. Look for that money to appear in the third week of April. If you don’t have direct deposit set up, then you will see a check in your mailbox sometime in May. 

As far as how much you can expect to get: The act provides cash assistance up to $1,200 ($2,400 for those married filing jointly) to many U.S. taxpayers. The amounts increases by $500 for each qualifying child.

That’s the baseline. Payments are reduced for those making more money — these calculations are based on the Adjusted Gross Income you reported to the IRS. Payments begin phasing out for individuals making more than $75,000, for heads of household making more than $112,500, and $150,000 for those married filing jointly. The IRS will base these amounts on the taxpayer’s 2019 tax return, or 2018 tax returns if 2019 has not yet been filed.

If you’ve been laid off, furloughed or fired…

The first thing you need to do is go online and file for unemployment benefits, since this makes your unemployment status “official” with the government. If there are problems with filing in your state, keep trying, and document all of your attempts to file, particularly if they haven’t worked. This is a critical step.

The CARES Act expands unemployment insurance provisions to include an additional $600 per week per recipient for up to four months. It also extends benefits to self-employed workers, independent contractors, and those with limited work history.

The federal government will provide temporary full funding of the first week of regular unemployment for states with no waiting period and extend benefits for an additional 13 weeks through December 31, 2020 after state benefits end.

You may be able to tap your savings…

While it should always be a last resort, Individuals may withdraw up to $100,000 from qualified retirement accounts for coronavirus-related purposes. Essentially, the CARES Act expanded the hardship provision that lets you tap into these accounts without paying the 10 percent early withdrawal penalty.

The money you withdraw will still be subject to income tax, but the tax rate is determined over a three-year period, so if you repay the funds to your accounts within three years, you won’t have to pay the income tax. (Repayment does not count toward that year’s contribution limit.)  Individuals may re-contribute amounts withdrawn to eligible retirement funds within three years.

If you’d prefer to take a loan from your account, instead of a withdrawal, the act provides for that too. It increases retirement plan loans to either $100,000 or the vested account balance. You have a year to start repaying.

Required Minimum Distributions are on hold

 The IRS has also suspended the Required Minimum Distributions for people who are over 72.  This is a big deal for folks that don’t need the money they can allow it to continue to grow.

Charitable giving is encouraged

The CARES Act creates an above the line deduction of up to $300 for charitable contributions. That means you don’t need to itemize too for this deduction to count. If you do plan to itemize, the Act suspended the cap on charitable contributions (previously, it maxed out at 50% of AGI.

While these steps don’t solve all the economic problems that Covid-19 has created it is a good step to help bridge the gaps that have been created. As always, we’re here to help. If we can’t answer your questions, we’ll put you in touch with people who can.