The recently approved Coronavirus Aid, Relief, and Economic Security (CARES) Act creates some much-needed financial support for American households. However, amidst working remotely, homeschooling, and constant hand washing, who has time to read through lengthy legislation? We’ve done it for you and have recapped below the top five ways the CARES Act could benefit your household.
Cash in your pocket. Direct cash payments will be delivered to individuals and families based on your income at the time of filing your most recent tax return. Individuals who made $75,000 or less will receive $1,200, and couples who made less than $150,000 will receive $2,400. Additional payments are available for households with children – $500 per child up to two children. Essentially, these are advance payments of a credit that will be computed again on your 2020 tax return. Here’s the fine print on payouts:
- The amount you receive is reduced $50 for every $1,000 earned over the $75,000 or $150,000 thresholds. Those who file taxes as heads of household will start to experience the phase out at $112,500.
- Single taxpayers receive no payment if they make $99,000 or more. Couples with no children will not receive payments if they make $198,000 or more.
- Payments are considered refundable tax credits, and therefore, do not count as taxable income (whoop whoop!).
- If you made over the specified thresholds when you last filed your taxes (2018 or 2019), you won’t receive a payout. However, if your 2020 income is lower than 2019, it’s possible you’ll receive a higher payment upon filing.
No penalty for withdrawing from retirement accounts early. You can take up to $100,000 from your retirement plans without penalty to help with unexpected financial needs related to the impact of COVID-19. You’ll still pay taxes on your withdrawal, but they can be paid over the course of three years. During that time, you can recontribute funds to your retirement accounts without any contribution limitations. Although this allows important flexibility for those in dire circumstances, withdrawing from retirement accounts should be a last resort.
No required minimum distribution for 2020. Deferring required minimum distributions from your retirement accounts is beneficial because the amount and tax calculated at the end of 2019 are likely much higher than your account values today given the recent market volatility.
Tax savings for “above the line” charitable contributions. If you’re able to continue supporting charitable causes during these tough economic times, there may be some tax savings when you file your 2020 return. If you take the standard deduction, you can take advantage of an “above the line” credit up to $300.
New or extended access to unemployment benefits. The CARES Act extends unemployment benefits by $600 per week for up to four months and adds 13 weeks of unemployment benefits through the end of 2020 if you’re still unemployed when state benefits expire. Additionally, unemployment benefits are now available to self-employed “gig workers” such as consultants, Uber drivers and others.
With non-essential business and school closures, restrictions on entertainment gatherings and required social distancing, many families have been impacted by a coronavirus-related economic slowdown. The CARES Act offers support for most Americans, but if you have questions about which benefits will set your family up for greater financial advantages long term, chat with one of our wealth advisors soon.
Category: Financial Service Team, Tax and Accounting Team