Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

This update summarizes the developments of the most massive stimulus bill in American history, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the COVID‐19 coronavirus in the United States.


Even though the program passed as a $2.2 trillion program, the impact is estimated to be closer to $7 trillion based on direct relief, grants, and government‐supported loans. One key component of the package is the stimulus payments that hopefully will start going out to taxpayers in the next few weeks.

  • The standard check payment is $1,200 per individual or $2,400 for married couples who file a joint tax return.
  • In addition, a family will be entitled to receive an extra $500 per child. For this purpose, a “child” is defined as dependent children under age 17 who lived in the household for more than half of the year.
  • However, the checks will phase‐out for higher‐income taxpayers. The phase‐out begins at $75,000 of adjusted gross income (AGI) for single filers and $150,000 of AGI for married couples filing jointly ($112,500 for heads of household).
  • The phase‐out is complete once a single filer reaches $99,000 of Adjusted Gross Income and $198,000 for a married couple filing jointly ($146,500 for heads of household). For every $100 of income above the threshold, the payment drops by $5. Therefore, if you are a single filer earning $75,500, your check will be reduced to $1,175 ($1,200 ‐ $25).
  • Note there are no such phase‐outs for children.
  • The only people excluded are those who are behind on child support payments.
  • If your income starts to exceed these limits, you will not be required to repay the funds.
  • Payments are due to be made as soon as possible, but no later than December 31, 2020.

To receive a check, the taxpayer must have a Social Security number (SSN). For adopted children, an adoption taxpayer identification will suffice.

Tax Implications: These payments are exempt from federal income tax. However, the checks are technically advances of refundable credits. The U.S. Treasury will pay the amount owed based on the tax return most recently filed by the taxpayer. That will typically be a 2018 return or the 2019 return just filed in 2020. Alternatively, the IRS will rely on information from the Social Security Administration (SSA).

Importantly, the payment will not have any effect on 2019 tax returns. Many taxpayers have already filed their returns based on the initial April 15th tax deadline. Note that the due date for payment and filing 2019 individual tax returns has been extended to July 15th.

Major Changes in RMDs and IRA Contributions

Extended Deadline for 2019 IRA Contributions

Given the above‐mentioned 2019 tax return filing date extension by the Treasury from April 15th, 2020 to July 15th, 2020, the date for making 2019 IRA and Roth IRA contributions is also extended to the same date. Normally, IRA contributions for a prior year must be made by April 15th of the following year.

For eligible clients, these changes give you more time to decide if you wish to make a contribution. Therefore, if you have any questions about contributing, please contact your Portfolio/Relationship Manager so we can help you determine if an IRA contribution is right for you as we have an extra 90 days to make a determination.

If you decide to make a contribution on your own, please note on your IRA contribution check that the contribution is for the “2019 Tax Year”, especially if the contribution is made after April 15, 2020. Custodians generally (like Fidelity or Charles Schwab) automatically code IRA contributions as 2020 contributions if made after April 15th. We recommend you follow up with the custodians to confirm that the contributions are posted for 2019. In addition, the extended deadline applies to 2019 Health Savings Account (HSA), Archer Medical Savings Account, and Coverdell Education Savings Account (ESA) contributions.

RMDs Waived for 2020

A provision that will affect most retirees is the waiver of Required Minimum Distributions (RMD) for 2020.

This will be a huge help because 2020 RMDs were generally based on substantially higher account values as of December 31, 2019. Here is why this matters: the Dow Jones Industrial Average closed at 28,462 on December 31st. As of March 31st, this average was at 21,917. If not for this relief, IRA owners would be forced to withdraw and pay tax on a much higher percentage of their IRA balance. Eliminating the RMD for 2020 can help clients reduce their 2020 tax bill and allow time for the retirement account to potentially recover. However, this will not help those who need the funds and must take withdrawals anyway.

What it Means for 2019 RMDs Not Yet Taken

The RMD waiver also provides relief to those taxpayers who have first time 2019 RMDs that are normally due to be taken by April 1, 2020 (i.e. IRA owners who turned 70 ½ in 2019). This could be a surprise to some because the recently enacted SECURE Act had increased the RMD age to 72 for those who turn 70 ½ in 2020 or later. Those who turned age 70 ½ in 2019 were still required to take their first RMD by April 1, 2020. Now, that RMD requirement is waived. When clients begin taking RMDs, they have an option of taking all or part of the first year distribution in the year they turned 70 ½ (under pre‐SECURE Act rules) or deferring any part of that RMD until April 1st of the following year. However, if you wait until the following year, you must take your first two RMDs in the same year, resulting in a bunching of RMD income in that same year and an increased tax bill. If a client did not take their first RMD last year, the CARES act waives both the 2019 and 2020 RMDs.

Can You Undo RMDs Already Taken?

One question is whether RMDs already taken in 2020 can be put back in the IRA and have the tax bill eliminated. The relief package does not include any repayment provisions, so the IRS may have to issue guidance on this issue. Pending IRS guidance, there may be a way for some clients to undo 2020 RMDs already taken this year (such as electing a 60‐day rollover). Please inquire with your Portfolio/Relationship Manager for more details.

Additional Relief Provisions for Retirement Accounts

The new act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans (i.e. 401K or 403B) for “affected individuals”. The tax would be due, but could be spread evenly over three years. The funds could also be repaid over the three‐year period, thus eliminating its taxability.

While the 10% early distribution penalty is waived, the amount withdrawn is still subject to tax and it removes funds that may be needed for retirement. This should be used only as a last resort. We’ve seen this provision in previous disaster relief bills, but that relief only applied to people affected by the particular hurricane, wildfire or other disaster.

For those retirement account owners over age 59½, the 10% early distribution penalty is not an issue, but for those facing financial hardship, the ability to take a distribution now and spread the taxes over three years may be helpful. If your situation improves, the opportunity to repay the funds during the three‐year period could be a useful way to rebuild otherwise lost retirement savings.

Finally, the new law affects company plan loans taken by affected individuals. First, it increases the maximum amount of plan loans to the lesser of $100,000 (reduced by other outstanding loans) or 100% of the retirement account balance. The usual limit is the lesser of $50,000 (reduced by other outstanding loans) or 50% of the account balance. This rule applies to loans taken within 180 days from the bill’s March 27th date of enactment. Second, any loan repayments normally due between date of enactment and December 31, 2020 could be suspended for one year.

Student Loans

For any student loan held by the Federal government, you will not be required to make any payments of either principal or interest through September 30, 2020 and interest will not accrue on the loan during the suspension period. If your employer makes payments on your student loan on your behalf, it will be a tax‐free benefit to you for up to $5,250. However, this will need to be decreased by any other educational assistance programs you may benefit from. And, of course, you cannot deduct the loan interest paid by the employer. All such payments will need to be made by January 1, 2021.

Highlights of the Provisions That Impact Small Businesses

Paycheck Protection Program

  • The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID‐19 crisis. All loan terms will be the same for everyone.
  • The loan amounts will be forgiven as long as:
    • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8‐week period after the loan is made; and
    • Employee and compensation levels are maintained.
  • Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to the likely high participation rate, it is anticipated that not more than 25% of the forgiven amount may be for non‐payroll costs.
  • Loan payments will be deferred for 6 months.
  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Starting April 10, 2020, independent contractors and self‐employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

Employee Retention Payroll Tax Credit

  • Employers who are at risk for closure due to COVID‐19 can receive a payroll tax credit against eligible payroll taxes for each calendar quarter equal to 50% of the qualified wages paid to each employee. The credit is available for an employer whose operations were fully or partially suspended due to a COVID‐19 related shut‐down order from an appropriate governmental authority, or if gross receipts declined by more than 50% when compared to the same quarter in the prior year.
  • The eligible wages for an employee are up to $10,000 for all calendar quarters. Qualified wages include wages and health benefits paid to an eligible employee.
  • This credit is also available to nonprofit organizations.
  • Employers taking advantage of other credits or taking a small business interruption loan are not eligible for this credit.
  • Delay of Employment Tax Payments.

Deferral of the employer portion of payments of certain payroll taxes

  • The Act allows employers and self‐employed individuals to defer payment of the employer share (6.2%) of the Social Security tax on wages through the end of 2020. 50% of the deferred tax payments will be due by December 31, 2021, and the remaining portion due by December 31, 2022. Businesses who have debt forgiven from Payroll Protection Program loans (PPP) are not allowed to delay their payments.

Unemployment Compensation Under the CARES Act

  • Expansion of unemployment benefits, including for self‐employed and gig‐economy workers.
  • Jobless workers receive an extra weekly boost from the federal government of $600/week in addition to state aid. Self‐employed workers, independent contractors and those who typically don’t qualify for unemployment benefits would be eligible.
  • Unemployment benefits, which run out after six months in most states, will be extended for an additional 13 weeks.
  • Federal funding of the first week of unemployment benefits if the taxpayer’s state of employment waives the one‐week waiting period to apply. Massachusetts has waived this waiting period.