What You Need to Know About the CARES Act

March 31, 2020

I don’t know about you, but the last four weeks, I have received a whirlwind of information. That did not change when the CARES Act was signed into law last Friday. The CARES Act has implications for nearly everyone in the country, but Syverson Strege felt it was important to distill down some important aspects that will likely impact you.

Recovery Rebates

The recovery rebate (AKA stimulus check) is the most discussed provision of the CARES Act. It represents about $500 billion of the over $2 trillion stimulus package. It will provide $1,200 per individual or $2,400 for a married couple. In addition, it will provide $500 for each child claimed by the taxpayer who is under 17. It does come with some strings attached. To qualify for the full amount, an individual/joint filer has to have $75,000/$150,000 or less of adjusted gross income. The amount of the rebate will be reduced for incomes over those thresholds by $5 for every $100 of income. A married couple without dependents will be entirely phased out at $198,000 of gross income. To see how it will affect you, click here for a stimulus package calculator. 

Income will be based on your 2018 or 2019 tax return (whichever is the latest the IRS has on file). It will eventually be “trued up” based on income from your 2020 tax return, but it will only be to the individual or couple’s benefit (i.e. if 2018/2019 income was lower than the thresholds, and it was higher in 2020, they won’t reclaim any recovery rebate).

Required Minimum Distributions (RMDs) Waived in 2020

A surprise provision in the CARES Act was the suspension of RMDs in 2020. This means that individuals already taking RMDs can suspend their distribution for 2020 without penalty (please see my article about the SECURE Act that addresses moving the RMD age from 70 ½ to 72). This applies to any type of retirement plan (IRA, 401k, 403b, etc.). It also applies to inherited IRAs that are “stretching” out RMDs or utilizing the 5-Year Rule. However, voluntary distributions for personal use or Qualified Charitable Distributions (QCDs) are still allowed. Depending on your situation, it may still make sense to take out your RMD this year. 
For those who have already taken RMD this year, there may be an option to roll the funds back into the retirement plan and avoid the recognition of income. 

Charitable Provisions

Qualified Charitable Contribution

A Qualified Charitable Contribution is not to be confused with Qualified Charitable Distribution, which pertains to gifts to charity from your IRA. This provision allows individuals or couples who do not itemize on their tax return to take an above-the-line deduction of $300 for gifts to charity. Please note that this must be a gift of cash and cannot be gifted to a Donor Advised Fund. It must go directly to a charitable organization.

AGI Limits Increased for Cash Gifts

Gifts of cash were previously limited to 60% of Adjusted Gross Income (AGI), but the CARES Act has increased this limit to 100% of AGI. Like the Qualified Charitable Contribution, any amounts gifted over 60% of AGI cannot go to a Donor Advised Fund.

Business Provisions 

There are a number of provisions for small businesses. They are complex, and beyond the scope of this article, but here is a high-level summary of what is available for businesses affected by the COVID-19.
• Paycheck Protection Program: Loans available to cover wages, health insurance, rent, utilities 
• Employee Retention Credit: Payroll tax credit as an incentive to retain employees
• Deferral of Payment of Payroll Taxes: 50% can be delayed to 2021, with the remaining due in 2022
• Net Operating Loss (NOL) Rules Loosened: NOLs can been carried back for up to five years instead of two

You can read more about all of the provisions of the CARES Act here.

Our team at Syverson Strege is here to help you through this. Please reach out to us at 515-225-6000 if you have any questions or concerns during this very difficult time. 

Take care and stay healthy!

Matt Roberts, MFP, CFP®
Chief Planning Officer