What is the CARES Act?
The CARES Act is a 2 trillion-dollar coronavirus economic stimulus bill signed into law on March 27, 2020. It is designed to offer relief for businesses, families, and individuals who have been negatively impacted by COVID-19.
From direct payments to unemployment to student loan relief and more, the bill is aimed at combating the economic ramifications of the coronavirus. Let’s take a closer look at some of the highlights.
An overview of CARES Act provisions
There are many provisions associated with the CARES Act. Below is a list of the top changes that could impact you.
Direct payments to Americans
Probably the most widespread aspect of this bill is its stipulation to make direct payments to American citizens. All taxpayers will receive $1,200 if they filed single or $2,400 for married couples, with an additional $500 per child. There is an income threshold for direct payments which is $75,000 or under for those who filed single and $150,000 or under for those who are married and filed jointly. If your AGI is above those numbers, the payments begin to phase out.
The CARES Act provides an additional $250 billion for extended unemployment insurance programs. It expands eligibility while also providing qualified workers with an additional $600 per week for 4 months. Unemployment benefits will also be extended through December 31, 2020.
Who does this apply to?
- gig economy workers
The CARES Act and your retirement funds
The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus related purposes. This applies retroactively to distributions as early as January 1, 2020. Even though the penalty tax is waived, you will still need to pay income tax on the withdrawals, but it is spread over a three year period.
The 401(k) loan limit has also increased from $50,000 to $100,000.
• There will be no Required Minimum Distributions (RMDs) for retirement accounts in 2020. Read our updates regarding RMDs.
To further incentivize charitable contributions, the CARES Act establishes a new above-the-line deduction for cash contributions up to $300 made in 2020 to be put on next year’s filing. The limits on deductions for charitable contributions are also changing which especially impacts individuals who itemize deductions.
Business owners have had a difficult time navigating the changes to their business in light of the coronavirus. The bill allows employers to delay the payment of their portion of 2020 payroll taxes until 2021 and 2022.
The bill also provides $350 billion dollars to help prevent layoffs and business closures. Companies with 500 employees or less who remain in business are eligible for up to 8 weeks of cash flow assistance.
Several other pieces of the CARES Act impact larger businesses and corporations as well.
Hospitals and healthcare
With the potential for our health care system to be overwhelmed, the bill provides $140 billion in appropriations to the US health system. $100 billion+ will go directly to the hospitals while the remaining amount will be allotted for providing equipment, testing, Medicare, and other health initiatives.
All coronavirus testing and potential vaccines will be covered to patients at no cost.
State and local government
These branches of government, including tribal governments, will receive a total of $150 billion for education institutions ($30 billion), disaster relief ($45 billion), and transit ($25 billion).
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