The CARES Act has been passed by the Senate on March 25, 2020, the House of Representatives on March 27, 2020 and currently pending signature by the President. CARES Act provides assistance to individuals who have been affected by COVID-19.
Pandemic Unemployment Assistance
The CARES Act has created the Relief for Workers Affected by Coronavirus Act to expand unemployment benefits to workers who have lost their jobs due to COVID-19 and includes additional individuals who have traditionally not been eligible for unemployment benefits.
In the expanded unemployment benefits, the following individuals are eligible:
- An Individual who has been diagnosed with COVID-19 or is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- A member of an individual’s household who has been diagnosed with COVID-19.
- An individual caring for a family member or household member who has been diagnosed with COVID-19.
- An individual whose child’s school or care facility is closed due to COVID-19 and the individual becomes unable to work.
- Individuals who are unable to reach their place of employment as a result of a quarantine because of COVID-19.
- An individual who is unable to reach his/her place of employment because the individual has been advised by a health care provider to self-quarantine.
- An individual about to start a job and now does not have a job or is unable to reach the place of employment because of COVID-19.
- An individual who has now become the breadwinner in a home where the head of household died as a direct result of COVID-19.
- A person who has to quit their job because of COVID-19.
- The individual’s place of employment is closed because of COVID-19.
- A person who is self-employed, seeking part-time employment or does not have sufficient work history to traditionally qualify for regular unemployment and is unemployed, partially unemployed, or unable to work because of COVID-19.
Individuals who have the ability to telework with pay or that are receiving paid sick leave or other paid benefits do not qualify for the expanded unemployment.
The assistance is available for weeks of unemployment, partial unemployment or inability to work because of COVID-19 from January 27, 2020 through December 31, 2020. The Act eliminates any waiting period required by a state to receive unemployment benefits.
Eligible individuals will receive the amount of state unemployment allowed by law and an additional amount of $600 per week for Federal Pandemic Unemployment. The Federal Unemployment Pandemic increase will be provided for four months. Louisiana residents could receive up to $847 per week.
Under the CARES Act, Individual Recovery Rebate payments are going to be paid to individual taxpayers. Any individual with adjusted gross income under $75,000 ($112,500 for head of household, $150,000 for married filing jointly) will receive a $1,200 rebate payment. A married couple will receive $2,400. These payments phase out with incomes over those thresholds and completely phase out at $99,000 for an individual ($146,500 for head of household, $198,000 for married filing jointly). Individuals under those income limits will also receive a $500 rebate payment for each child. The amount will be determined based on 2019 adjusted gross income if a federal income tax return has been filed, otherwise the IRS will use 2018 adjusted gross income. Retired individuals who have not filed federal income tax returns who receive Form SSA-1099 from Social Security will receive rebate checks.
The Recovery Rebate checks will not count as taxable income. The IRS is currently determining how the rebates will be paid to individuals.
Use of Retirement Funds
An individual who is diagnosed with COVID-19, whose spouse is diagnosed with COVID-19, or who experiences adverse financial consequences from COVID-19 is allowed to withdraw up to $100,000 from their IRA account or other eligible retirement plan, without incurring the 10% early withdrawal penalty. Under the Act, “coronavirus‐related distribution” includes from qualified plans. “Eligible retirement plan’’ has the meaning given such term by section 402(c)(8)(B), which includes IRAs and exempt trusts.
The tax on the corona-virus related distribution can be paid over a three-year period, starting in 2020. Additionally, “coronavirus‐related distribution” (both IRA and qualified plan) can also be repaid within 3 years and qualify as rollover.
The CARES Act also amends provisions for loans from retirement plans. The maximum allowed loan from retirement plans has been increased to $100,000 and individuals have a one-year delay to begin repayment.
Waived RMD Distributions
All required minimum distribution payments from 401(a), 403(a), 403(b), and 457(b) plans and individual retirement accounts will be suspended for 2020.
Taxpayers will receive a $300 charitable contribution above the line deduction for 2020. Additionally, the 60% of adjusted gross income limitation on charitable contributions for individuals will be removed for 2020.