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The CARES Act Benefits for Individuals

The recent pandemic has resulted in a flurry of legislation, much of it with wide-ranging impacts for individual Americans and businesses. The result is an 880-page Act that gives Americans significant benefits and exemptions to help navigate the crisis, known as The Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

While the Act focuses on many different aspects of the economy, including Small Businesses, the following are some of the important considerations given to individuals that may be helpful

Direct payments to Americans will be made under the CARES Act, subject to income thresholds. Households can expect to receive $1,200 per adult and $500 per dependent calculated based on their most recent tax return. For example, a family of 2 adults and 3 children could expect to receive $3,900 in direct payment. There are income limitations associated with these payments. For single filers, the amount is reduced for income levels above $75,000 and eliminated above $99,000. For married filers, the amount is reduced for income levels above $150,000 and eliminated above $198,000.

In addition to direct payments, the CARES Act is also providing additional unemployment benefits for those individuals who file an unemployment claim. An additional $600 per week, until July 31st, will be added on top of the state-provided unemployment benefit. The Act also extends the state unemployment benefit period by 13 weeks.

Required Minimum Distribution (RMD) rules for IRA’s and retirement accounts are also changing once again. For 2020, individuals subject to an RMD will not be required to withdraw that amount from their IRA or retirement plan. Additionally, anyone that took an RMD at the beginning of the year (and was therefore past the 60-day rollover window when the CARES Act was initially passed) now has until August 31st to put the money back. This includes Beneficiary IRA’s.

The 10% penalty for early withdrawals from IRA’s and retirement accounts is also being waived for 2020. This is subject to a maximum allowable withdrawal of $100,000. However, that’s not the only provision that is receiving significant leniency during the pandemic. The CARES Act allows for Coronavirus-related Distributions (CVD), which grants participants in retirement plans and IRA’s the ability to take a qualifying withdrawal and pay those funds back without tax or interest over a 3-year period. Again, the withdrawal is subject to a $100,000 limitation from all sources. To qualify for a CVD, an individual must experience adverse financial conditions due to one of the following:

  • Either themselves, their spouse, or dependent is diagnosed with COVID-19
  • They are quarantined, furloughed, laid off, or have work hours reduced by COVID-19
  • They are unable to work due to lack of childcare due to COVID-19
  • They own or operate a business that is closed or has operating hours reduced due to COVID-19
  • Any other factors later specified by the IRS

For those that do not meet the above criteria, the ability still exists to take withdrawals from retirement plans in the form of a loan. Traditionally, those loans would be repaid back over a period of 5 years and would not be allowed to exceed $50,000 or half the vested account value, whichever is less. Now participants can take a loan up to $100,000 or half of the vested account value, whichever is less. While the loan still must be repaid, payments can be deferred up to 1 year after the loan is taken.

This is just a brief summary of the provisions that have been enacted as a result of the CARES Act. Many of these provisions have important qualifiers or recordkeeping requirements. Preview our next article, The CARES Act Benefits for Business, for more information. If you have questions about your specific situation, please do not hesitate to reach out to our firm.

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