Breaking Down the CARES Act

Scan Alert Image.jpg By Jon Flaherty CFP®, Thomas Rueger J.D. CFP®

The latest major governmental action comes amid heightened uncertainty caused by the COVID-19 virus and subsequent economic chaos.  The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is a $2T economic stimulus plan addressing the immediate fallout in the business world and in peoples’ personal finances, an attempt to cushion the impact of social distancing and the loss of work and business that it entails. There are five “groups” that will directly benefit from the package: individuals, large corporations, small businesses, state & local governments and public services.

The largest group is individuals with $600 Billion, or 30%, allocated towards cash payments, increased unemployment benefits and student loan relief.   The cash payments are the most talked about benefit, where single filers may expect to receive $1,200 and $2,400 for married couples, along with $500 for each qualifying dependent.  As always there are thresholds that must be met.  Phaseouts of single filers begins with Adjusted Gross Income of $75,000, $150,000 for joint filers.  Initial benefits will primarily be determined based on your 2019 tax return, or 2018 if you have not yet filed.  In some cases, tax filers that may not qualify for the initial benefit could receive a credit on their 2020 taxes if their circumstances change.  

Some workers will find the CARES Act expansion of unemployment insurance more helpful, financially.  The Act expands the duration of unemployment insurance benefits by 13 weeks and increases payments by $600 per week for four months.  It makes so-called ‘gig economy’ workers and the self-employed eligible for unemployment benefits for the first time.  Meanwhile, people who took out Federal student loans will be allowed to suspend payments through September 30th, and no interest will accrue on this debt.  And all involuntary debt collections are suspended for the same period, including wage garnishment or the reduction of tax refunds.

The other groups largely received benefits to ensure that day to day operations will be minimally impacted through the quarantine period along with assistance in maintaining certain payroll obligations.  Some of the bigger items include; $425B in loans to large corporations, $350B to small businesses, $274B to the states to help fight COVID-19, $100B directly to hospitals, $58B in aid to airlines and $20B to ensure that Veterans maintain their current healthcare.  Depending on how long this environment continues, Congress has not ruled out the potential of adding on to the CARES Act or even creating a new stimulus package for consumers and businesses.

Along with the $2T stimulus plan there were a few key tax planning topics included.  First and foremost, the 2019 tax filing deadline has been delayed to July 15th, from April 15th.  The CARES Act also declared a moratorium on taking required minimum distributions from IRAs and other plans, and people who took a distribution this year will be allowed to return the money to their tax-deferred account.  However, people who inherited IRAs and already took distributions are not eligible to return the money back into the account. Finally, this year, individuals under age 59 1/2 will be able to take out IRA or other retirement plan funds without the normal 10% penalty that would otherwise apply.  If they take a “Coronavirus-Related Distribution,” they will have up to three years to repay that distribution back into the retirement account.  Otherwise, taxpayers can elect to spread the income from that Coronavirus-Related Distribution over a three-year period or include it in their 2020 income.

There are many layers to this Act.  The opportunities and requirements can be complex. We recommend reviewing your opportunities with a trusted advisor.  Contact us with your questions or to learn more.  The Team at Vantage continues to pray for all impacted by the COVID-19 virus, medically or financially, and we hope good health and peace for everyone through these difficult times.


The facts and opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Where applicable, all data and information has been gathered from sources believed to be accurate such as the internet, nonaffiliated 3rd parties, news articles and professional subscriptions but this information is not warranted to be correct, complete or true. Vantage Financial Partners Limited, Inc. and its agents are not tax advisors or accountants. We strongly encourage you review your tax situation, opportunities and liabilities with your tax advisor before making any changes. This article is not intended as tax advice.


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