The CARES (Coronavirus Aid, Relief, and Economic Stability) Act is a bill passed by Congress providing funding relief to large and small businesses, families, local governments, states, municipalities, hospitals, healthcare providers, and unemployed individuals.
How Does the CARES Act Impact Me?
According to the IRS, U.S. citizens and U.S. resident aliens filing as single, head of household, or married filing separately will receive $1,200 if they have adjusted gross income up to $75,000 for single (or married filing separately) or $112,500 for head of household. U.S citizens and U.S. resident aliens filing as married filing jointly will receive $2,400 if they are not the dependent of another taxpayer, have a social security number, and have adjusted gross income up to $150,000. Taxpayers with adjusted gross incomes above those thresholds will receive reduced payments. Individuals with children may receive $500 per child if their adjusted gross income is under $75,000 ($150,000 for couples). For more information, please refer to the IRS Frequently Asked Questions.
Individuals do not have to take Required Minimum Distributions (RMDs) from IRAs or 401(k)-type accounts for the tax year 2020.
Tax Deadline Extension
The federal tax deadline has now been changed to July 15. Individuals should note that not all states have extended their tax deadlines.
Additionally, the deadline to make an IRA contribution has also been changed to July 15.
Special Withdrawals from Retirement Accounts
Individuals affected by COVID-19 may take a penalty-free withdrawal of up to $100,000 from his or her retirement account in 2020. Although the individual would still owe tax, he or she may spread the tax due over three years.
The individual may choose to repay the withdrawal over those three years. Repayment will not count toward his or her retirement account contribution limit for that year. Individuals who repay the withdrawal may qualify for a refund of taxes paid on the withdrawal.
For more information, please view “The CARES Act Explained,” a piece by Michael Townsend of Charles Schwab.
Increased Loan Maximums
Under the CARES Act, an individual may take a loan from his or her retirement account up to $100,000. Typically, retirement account loans are limited to the lesser of 50% of the account balance or $50,000. Under the CARES Act, the 50% limit does not apply and the $50,000 limit is increased to $100,000. This loan must be taken within 180 days from March 27, 2020. There is no repayment required for the first year after the loan is taken.
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