CARES Act Overview:

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was recently signed into law to help provide financial stability and relief for individuals and business affected by COVID-19.  While the bill is very broad and addresses a number of areas and industries, and many of the specific details will still need to be analyzed, the following are important to highlight for both business owners and employees/individuals:

Affected Employees and Individuals:

Qualification: To qualify for benefits under the CARES Act as an individual, you must have been affected by (not necessarily infected by) COVID-19.  Affected people are those either diagnosed themselves, a spouse or a dependent or have experienced adverse financial consequences including layoffs, business closures, quarantines, reduction of hours, or childcare responsibilities.

No Penalty Early Withdrawals: Typically, you would have to pay a 10% early withdrawal penalty for distributions from retirement accounts before the age of 59 ½.  If you qualify for COVID-19 relief under the CARES Act, this penalty is waived for up to $100,000 of withdrawals taken in 2020.  Income tax on these distributions otherwise subject to tax could be paid over a three- year period or returned to the retirement account before the three-year period is up.

Increase of Retirement Loan Limit: If you qualify for COVID-19 relief under the CARES Act, the amount you can borrow from a qualified retirement plan has been increased from $50,000 to $100,000 in 2020.  Any increased loan amount must be taken within 180 days of the date of enactment.  However, the deadline to make payments on already-outstanding retirement loans due between March 27^th and December 31^st, 2020 has been extended for one year.  If a loan is taken and not repaid, any amount taken is taxable as income and may be subject to a 10% penalty.  Contact your plan administrator to determine whether your plan allows for loans.

Required Minimum Distributions (RMDs) Waived for 2020: The good news with this change is that you do not need to meet COVID-19 qualifying criteria to waive RMDs for 2020.  Under the CARES Act, your RMD is no longer required for 2020.  This also applies to RMDs due in 2020 but attributable to 2019.  If you have already satisfied your RMD for 2020, there are different ways you may be able to put back this distribution, each with their own limitations.

Mortgage Relief for Homeowners: The bill requires the servicers of federally backed mortgages to postpone mortgage payments at the request of the borrower, provided the borrower affirms financial hardship due to COVID-19.  The postponement must be granted for up to 180 days and extended for an additional period of up to 180 days at the request of the borrower.

Foreclosure Moratorium: The bill prevents the servicer of federally back mortgage loans from initiating any foreclosure process for at least 60 days beginning on March 18^th, 2020.

Eviction Relief for Renters: Through July 25, 2020, landlords with mortgages backed by the U.S. Department of Housing and Urban Development (HUD), Fannie Mae, Freddie Mac, and other federal entities cannot pursue eviction of their tenants.  Landlords also can’t charge any fees or penalties related to non-payment of rent.

Student Loans/Education:  The bill suspends payments automatically for federally held student loans through September 30,2020, with no interest accruing or penalties during the period of suspension.  The bill also contains a variety of other emergency-specific provisions related to education, and specifically the impact of many students being sent home mid-semester.  For example, it allows universities to make payments to students who were unable to complete work-study programs.

Enhanced Tax Benefits for Charitable Gifts: The bill includes the ability for an above-the-line deduction of up to $300 of cash contributions to charities, regardless of whether the individual itemizes deductions.

Individuals: For those who itemize deductions for charitable giving, the 60% of adjusted gross income limit for cash gifts is suspended for 2020.

Corporations: The 10% limit on charitable contributions in increased to 25% of taxable income.

This material is for general education only and any specific questions related to your individual circumstances should be discussed with your personal financial, tax, or legal advisor, as appropriate.

For additional information, please feel free to contact:

J.P. Northrop
Financial Advisor – ACS Philadelphia
Edward Jones Investments
(267) 663-7286
Jp.northrop@edwardjones.com