The CARES Act - Marty Moore, Carroll Financial - Charlotte, NC
Client Login Form CRS
April 2, 2020


    Author: Marty Moore, CFP®


In response to the unfolding COVID-19 global pandemic, Congress passed the CARES Act, a $2 trillion emergency relief package in order to help ease the effects of the resulting economic damage.  It is a wide sweeping bill that includes a host of provisions in the form of direct cash payments, tax credits, loans and rebates aimed at helping individuals, business, healthcare entities, and state and local governments.


Here are just a few of the many provisions that are applicable to the majority of our clients.


Recovery rebates for individuals

By now you’ve heard that direct payments to individuals will be made IF you qualify.


The IRS will look at your 2019 tax returns (or 2018 if you have not yet filed a 2019 return) and send $1,200 to single filers with an Adjusted Gross Income below $75,000 or $2,400 to joint filers with an AGI below $150,000. The government will add $500 for each dependent under the age of 17.  These benefits will phase out at higher income levels – you lose $5 for every $100 in income above the threshold.  For example, for a single filer with no children you would be ineligible for any rebate once their AGI reaches $99,000.


Taxpayers who did not file a 2018 or 2019 tax return because they earned less than the standard deduction might qualify. For example, the government will determine the check eligibility for people who receive Social Security benefits based on their Form SSA-1099.


What if you earned above the threshold amount for 2018/2019 but have since been laid off, furloughed, or had your income substantially decrease for other reasons?  You’ll be eligible to receive the rebate based on your income this year but you won’t receive it until you file your 2020 tax return in early 2021.


How will you receive the payments?  That depends.  There could be changes to the preliminary plan but at this point it looks like individuals receiving social security benefits will receive their benefit in the same way they are receiving their social security.  If you’re not yet receiving social security it looks like your rebate will be deposited in the same account into which your 2018/2019 income tax refund was made.  Other payments will be mailed to the last known address on file.  Actually receiving the money could be problematic, to say the least.  What if you’ve changed bank accounts?  What if you’ve recently moved?  Etc., etc.  Stay tuned for more information as it comes out.  The IRS promises to make a phone number available to address these issues.


The Act calls for payments to be made as soon as possible but indications are at this point that it won’t happen until sometime in May.


There are potentially a lot of situational “what-if’s” in regards to these rebates.  Call us if you have questions.  Some we’ll have the answer to, some we may not, at least not yet.


Required Minimum Distributions are waived in 2020

This applies to Traditional IRAs and SEP IRAs, as well as 401(k), 403(b), and 457 plans.  Furthermore, this applies not only to retirement account owners themselves, but to beneficiaries of IRAs taking stretch distributions.


What if you’ve already taken some or all of your RMD (i.e., what we all thought was going to be the required RMD) out this year?  You can put back the money you’ve withdrawn in the last 60 days if you’d like and avoid paying tax on this income.  For money that has been withdrawn since January 1 but outside of the 60 day window, you may be able to put this money back as well if you can prove that you have been directly impacted by COVID-19 in some way.  This provision, unfortunately, is only available to account owners taking distributions from their own IRA, not beneficiaries receiving distributions form an inherited IRA.


Note also that if you have been making charitable contributions from your IRA you can still do so.  The contribution will not count as income; however, it will not offset any other distributions that you receive directly from your IRA.


Penalty free distributions from IRAs and employer plans

The CARES Act allows those not yet age 59 ½ who have been impacted by the Coronavirus to withdraw up to $100,000 without the 10% premature distribution penalty.  There is a list of criteria that would enable someone to be eligible but it is very broad and the IRS will likely be very liberal in its interpretation of who and how you would qualify.  The distribution avoids the 10% penalty but not federal and state income tax.


Additionally, any withdrawal can be contributed back into the IRA if done so within 3 years.  An amended tax return would have to be filed if the put-back was done in a year after the withdrawal is made.


By default, the income from the distribution is automatically distributed evenly over 2020, 2021, and 2022.  You can elect, however, to include all of the income in 2020.


2019 tax return deadline extended

You’ve probably already heard that this year’s deadline for filing 2019 taxes has been extended to July 15.  The deadline for estimated payments has been extended as well. It is important to note that not all states have adopted the same changes for state income taxes.


North Carolina adopted the July 15th due date for 2019 tax returns. The state will charge interest on any April 15th balance due at a rate of 5%. This rate may be adjusted on June 30th, but is likely to stay the same. North Carolina did not change the due date for 2020 estimated taxes.


South Carolina adopted the July 15th due date for 2019 tax returns with no penalties or interest. South Carolina did not change the due date for 2020 estimated taxes.


Other states: Please check with your local tax advisor.


Other provisions

There is a long list of extensive benefits that apply to small business owners in order to help them survive and recover from the hardships that many small businesses have and will surely face.  If you or someone you knows owns a small business, probably the best idea at this time is to contact your banker to see what benefits would apply and would be most helpful.  Most tax experts recommend doing this as soon as possible.  Even though the funds provided for in the CARES Act are not specified to be on a first-come, first-serve basis, there is concern that once the money runs out there’s no guarantee Congress will approve more.


Required student loan payments are deferred until September 30, 2020.  This deferment applies to Federal loans only.


There are provisions in the CARES Act that pertain to unemployment benefits, both increasing the amount and extending benefit payments.


The CARES Act, officially named the Coronavirus Aid, Relief, and Economic Security Act is a $2 trillion dollar emergency fiscal stimulus package designed to ease the effects of the economic damage we’re facing in light of combating COVID-19.  Let us know if you have any questions.  At this time, there are more questions than answers it seems but we’ll do our best to provide guidance.


As always, thanks for reading.





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