Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was a roughly $2 trillion economic relief package passed by Congress and signed into law by President Trump on March 27th, 2020.  Some of the highlights of the CARES Act applicable to individuals are as follows:

·       $1,200 advance refundable credit. There is a $1,200 advance refundable tax credit for individuals ($2,400 if filing jointly), plus $500 per qualifying child, with phaseouts beginning at $75,000 in adjusted gross income  for individuals ($150,000 if filing jointly).

·       Expanded unemployment benefits: The CARES Act extended the unemployment insurance program and expands eligibility and offers workers an additional $600 per week through July 31, 2020, on top of what state programs pay (e.g., in Michigan, the new maximum amount would be approximately $962 per week). It also extends the unemployment benefits by 13 weeks for eligible workers through December 31, 2020.

·       Retirement funds. The CARES Act waives the 10% early withdrawal penalty for distributions of up to $100,000 for Coronavirus-related purposes, retroactive to January 1, 2020. Withdrawals are still subject to income tax, but the taxes are spread over three years, or the taxpayer has the option to roll the distribution back over within the three-year period.

·       Loans from 401(k)’s: The CARES Act increases the loan limit on 401(k) accounts from $50,000 to $100,000.

·       Waiver of Required Minimum Distributions (RMDs). The CARES Act waives RMD’s for IRA’s and defined contribution plans (e.g., 401(k), 403(b), and 457(b) plans) for calendar year 2020, including RMDs for 2019 that must be taken on or before April 1, 2020, by individuals who turned 70 ½ in 2019, but only if the  RMD was not distributed before January 1, 2020.

·       Student loans. The CARES Act temporarily suspends payments due on federal student loans and enables employers to contribute up to $5,250 to an employee’s student loan payments per year and such contributions are excluded from the employee’s income.