The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law by the President on March 27, 2020.

Please see below a summary of the major individual tax provisions in the Act which may apply to you:

Recovery rebate credit (stimulus payments)

  • A one-time refundable, advanceable credit of $1,200 per individual ($2,400 for joint filers), plus an additional $500 per child who qualifies for the child tax credit.
  • Most taxpayers are eligible for the credit, however, non-resident aliens, anyone claimed as a dependent, and taxpayers who do not have SSNs are ineligible.
  • The credit is based on adjusted gross income (AGI) and household composition information on the taxpayer’s 2019 tax return. The payment amount falls by $5 for every $100 in income above $75,000 ($112,500 for head of household and $150,000 for joint filers).
  • The Treasury Department will advance the credit as soon as possible. It will be mailed to the taxpayer’s last known address, unless the taxpayer authorized direct deposit or direct debit on their 2018/2019 US tax return, in which case they’ll receive the payment electronically.
  • People on Social Security are also eligible for the stimulus (coronavirus relief payment), as long as their total income does not exceed the limit. Low income Americans on Social Security who do not need to file a tax return, as long as they received an SSA-1099 FORM (THE Social Security benefit statement), will receive the payment via the usual way they get their Social Security payments.
  • People excluded from the payment are the wealthy, non-resident aliens (foreigners who do not hold a green card) and dependents who can be claimed on someone else’s tax return.

Retirement provisions

  • Eligible individuals may take penalty-free COVID-19 related distributions of up to $100,000 from retirement plans or IRAs during 2020. Distributions can be repaid within the three-year period beginning on the day after the distribution is received.
  • An eligible individual is one who is diagnosed with COVID-19 by a CDC-approved test, or whose spouse or dependent is diagnosed with the illness, or who is experiencing adverse financial consequences as a result of being quarantined, furloughed, or laid off; or having to provide childcare because of a school or day-care closure, or having to close or reduce operating hours of a business.
  • Retirement plan loan limits are increased from $50,000 to $100,000 and loan repayment may be delayed up to one year. This provision is effective starting from March 27, 2020 through to September 23, 2020 (i.e. 180 days after the date of enactment).
  • The requirement to take required minimum distributions (RMDs) is waived for tax year 2020. The temporary waiver applies to IRAs and 401(k)s, 403(a) annuity plans, 403(b) tax-sheltered annuity plans, and 457(b) state and local government plans.
  • The waiver also applies to taxpayers with a required beginning date in 2019 who opted to take their first RMD in 2020 (by April 1) but have not yet done so.
  • Beneficiaries subject to a five-year distribution requirement from an inherited IRA will get an extra year to distribute all funds.

Charitable provisions

  • Starting in 2020, taxpayers who do not itemize deductions may take an above-the-line deduction up to $300 for cash contributions to qualified charities. This is a permanent change.
  • The 50% of AGI general limitation on cash contributions to qualified charities is temporarily increased. For tax year 2020, taxpayers may contribute up to their AGI. Excess amounts may be carried forward.

Student loans

  • Taxpayers may exclude up to $5,250 from taxable income student loan principal or interest amounts paid by employers.
  • The $5,250 cap applies to student loan payments and employer education assistance payments combined.
  • Taxpayers may not claim the student loan interest deduction for employer-paid interest.
  • The provision is effective starting from March 27, 2020 through to the end of 2020.