A Quick Glance at the CARES Act

For a full analysis of all that the CARES Act entails, check out T. Rowe Price's article: Coronavirus Relief: What You Need to Know

The recent passage of the CARES Act involves several moving parts. Listed below is our synopsis of the six different ways the Act could affect you individually.

Disclaimer: For any decisions involving taxes, we recommend that you consult with your tax professional on considerations and impacts to your specific situation. We are happy to contribute any additional financial information that will help them in the decision-making process.

1) Recovery Rebate — Tax Credit

A $1,200 check is coming for individuals ($2,400 for joint taxpayers). Additionally, taxpayers with children will receive a flat $500 for each child. This will not be counted as taxable income for recipients, as it is considered a tax credit. The rebate begins to phase out for incomes above $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers. This payment will also be made to those who have no income, or whose income stems entirely from non-taxable benefit programs such as Social Security.

2) Suspension of RMD Rules for IRA and 401(k) accounts in 2020

The Act permits a one-year waiver of required minimum distributions (RMDs). This is a waiver, not a deferral. If the taxpayer waives his or her 2020 RMD, he or she is only required to take the normal 2021 RMD in the following year.

3) Relaxed Penalties on Early Retirement Account Withdrawals for Virus-Related Hardship

The Act allows for a withdrawal of up to $100,000 from retirement accounts in 2020 without paying the normal 10% tax penalty if the account holder, their spouse, or dependent(s) are diagnosed with COVID-19, or if the family experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced due to the virus.

4) Enhanced Charitable Deductions in 2020

The Act allows taxpayers to take an above-the-line tax deduction for charitable contributions of up to $300 for the 2020 tax year.

5) Expanded Unemployment Insurance Provisions and Benefits

The Act expands eligibility for unemployment benefits, including those furloughed or otherwise out of work as a direct result of COVID-19, those who are self-employed or gig-workers, and those who have exhausted existing state and federal unemployment benefit provisions. The Act increases the per-week amount generally available by $600. This increase applies for unemployment payments made from the date of the Act’s enactment through July 31, 2020.

6) Small Business Emergency Loans and Grants; Tax Rules Relaxed or Tax Credits Granted to Businesses Affected

For more information on how the CARES Act affects small business owners, click here.

For more information about emergency loans and grants for small business owners, click here.

The information on this site is for general informational and educational purposes only and is not to be considered an individualized recommendation or personalized investment advice. Waddell & Reed does not provide legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation.