Highlights of the CARES Act

On March 27th, 2020 President Trump signed into law the largest economic relief package in American History. While the bill will no doubt receive criticism, it does provide some much-needed assistance to workers, small businesses and hospitals.

At an estimated $2.2 trillion, the Act is the equivalent to about 10% of U.S. GDP. Compared to the 2008 TARP “bail-out” of $700 billion, it is enormous. The focus of the CARES Act is aimed at individuals, businesses and industries outside of the financial sector. The goal of this package is to help stimulate the U.S. economy due to the effects of COVID-19 and put cash directly into the hands of Americans. We believe that the Act also creates financial planning opportunities for our clients.

Highlights of the Coronavirus Aid, Relief and Economic Security Act for Individuals and Families:

Cash Payments
It has been estimated that three-quarters of tax filers will qualify for aid, and that the total amount of all those checks will reach $507 billion. Most individuals can expect a one-time payment of $1,200 if you make less than $75,000. For married couples making less than $150,000, the payment will be $2,400. Families will receive an additional $500 for each dependent under age 17. Of course, the payments start to phase out for those making more than $99,000, and for couples making more than $198,000. The payments will be classified as tax credits, and will not be included in your income – you will not have to pay tax on the payments. The Act instructs by law to get these payments out to taxpayers ASAP and the goal is within the next 3 weeks. In reality the beginning of May is most likely.

Expanded Unemployment
The CARES Act extends and expands unemployment assistance in every way. The Act expands the duration of unemployment insurance benefits by 13 weeks, and increases payments by $600 per week, in addition to whatever regular unemployment compensation the unemployed person is entitled to under state law, through July 2020. It makes so-called ‘gig economy’ workers and the self-employed eligible for unemployment benefits for the first time.

Coronavirus- Impact Related Distributions
If you have been impacted by COVID-19, you may be eligible for a Coronavirus-Related Distribution from your retirement plan. These distributions have significant tax advantages that do not currently exist:

  • Waiver of the 20% tax withholding
  • Waiver of the 10% early withdrawal penalty
  • Tax-free rollover treatment
  • The ability to spread out the income taxes over a three-year period

RMD Waiver
The CARES Act allows you to waive your RMD for 2020. This is not a deferral. On top of that, if you have delayed your 2019 first time RMD payment, that one is waived too. If you’ve already taken your 2020 RMD, the Act may allow you to return it if it is unwanted. Please speak with your advisor to determine your eligibility.

Charitable Donations
The Charitable Giving Incentive allows non-itemizers a total charitable contribution of up to $300 and removes the AGI cap for those who do itemize. These contributions have restrictions. They must be in cash and they must go directly to the organization and not through a Donor Advised Fund.

Student Loans
There will be an automatic suspension of federally held student loans through September 30, 2020. The interest on these loans will also be suspended during that time. Privately held student loans are excluded.

Willow Creek is looking for opportunities for our clients to take advantage of any of these provisions in 2020. If you have any questions about how you may benefit from the CARES Act, please reach out to your advisor.