Written by Nathan Harro CFP®
This past Friday, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. At nearly 900 pages, reading it front to back could be a good way to pass the time during a long layover in Paris since you can't go outside your room. But I imagine you'd rather spend that time doing just about anything else. So instead, here are about 900 words on what FedEx pilots need to know about the CARES Act.
Filing and Payment of 2019 Taxes
Though not covered in the CARES Act, the deadline for filing and paying your taxes for 2019 has been moved to July 15. If you expect a refund, you can still file and get it now. One thing to remember is that 2019 IRA and HSA contributions can be made up until July 15 as well. If you wait until then to make them, double-check that your custodian codes them correctly as 2019 contributions.
To determine whether you get a check, the government will take a look at your 2019 return if you've already filed. If not, they will look at your 2018 tax return. If you are under the limit, you will receive $1,200 ($2,400 for joint filers). For a single filer, the phase-out begins a $75,000 and is phased-out completely at $99,000. For joint filers, the phase-out begins at $150,000 and is phased-out completely at $198,000. In addition, for each qualifying child in your household (under age 17), you will receive an additional $500 per child.
In the end, the actual number that matters will be your 2020 income. If you don't receive a check because your income was above the limit in 2018 or 2019, but your 2020 income ends up below the limit, you will get the difference when you file for your 2020 taxes next year. But, if you do receive money because your income was below the limit in 2018 or 2019, you will not (at least at this point) be required to pay it back or pay a tax on it. Any rebate money received will not be taxed.
If you claim the standard deduction on your taxes, starting in 2020 you can claim an additional above-the-line deduction for cash contributions made to qualifying charities. Try not to spend the new tax savings all in one place! If you do itemize, there will be no AGI limit for cash contributions in 2020.
If you have a college student that has Federal student loans, required payments are suspended through the end of September. During this time interest will not accrue. However, the intervening months will count toward any Loan Forgiveness programs (such as the Public Service Loan Forgiveness program).
For what it's worth, over-the-counter medications can now be purchased with HSA or FSA money. Also, if you (or a family member) are on Medicare, you will be able to get a COVID-19 vaccine at no cost whenever it becomes available.
Retirement Account RMDs
Required Minimum Distributions (RMDs) have been waived for 2020. If you were required to take money out of your IRA or 401(k), you won't have to at the end of this year. Importantly, this also applies to inherited IRAs. If you are taking distributions under the 5-year rule, you have an extra year to before the account has to be fully distributed.
First, it's important to note that these rule changes only apply to "affected individuals." You qualify if you, a spouse, or a dependent are diagnosed with COVID-19 and experience adverse financial consequences from being quarantined, furloughed, laid off, work hours reduction, inability to work due to lack of child care, closing or reducing hours of a business that you own or operate due to COVID-19 or other factors as determined by the IRS.
The maximum loan amount allowed by law went up to the lesser of $100,000 or 100% of the balance (changed from lesser of $50,000 or 50% of the balance). This only applies to loans taken within 180 days of the passage of the bill (September 23, 2020). In addition, any loan payments due in 2020 can be delayed for up to a year.
If you are affected and you prefer to withdraw instead of taking a loan, you can take $100,000 of combined distributions from your 401(k)s and IRAs in 2020 with relaxed tax implications. If you are younger than 59 1/2, the 10% early distribution penalty will be completely waived. Regardless of your age, regular income taxes will still be due, but that tax burden will be spread out over the 2020-2022 tax years. However, you can reduce or eliminate those taxes if you roll any or all of the distribution back into a retirement account within 3 years from the date that you receive it.
There are a plethora of items for businesses packed into the CARES Act as well. If you or a family member own a business, the US Chamber of Commerce has an excellent guide, which can be found here.
So there it is; 900 pages in 900 words (ok, 1000). Of course many of those pages devoted to corporations getting assistance as well. Of particular interest is the $32 billion in grants to both passenger and cargo airlines to preserve employment, as well as an additional $29 billion ($25 billion for passenger airlines and $4 billion for cargo airlines) available for loans. Time will tell what the impact of the CARES Act will be, both for companies and individuals. While we wait for the answer, please stay safe!