On Friday, March 28th President Trump signed the historic $2 trillion emergency aid bill known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The bill will provide funds to employers and employees to help cushion the impact of the COVID-19 pandemic.
Anticipation of the 880-page legislation provided a welcomed relief to the financial markets prior to its approval by both chambers of Congress, as the Dow Jones Industrial Average experienced its largest three-day rally since 1931. This rally occurred despite the Labor Department report showing 3.28 million workers filed for unemployment benefits in the prior week: the largest single jump in claims on record.
With the CARES Act approved, we anticipate markets shifting their attention back to the mounting number of new COVID-19 cases and increased volatility.
As you know, many state and local governments have ordered businesses to curtail or temporarily shut down operations to reduce the spread of new COVID-19 cases. These actions are having an understandably negative impact on employment and consumer spending.
The CARES Act is a substantial piece of legislation to address this unprecedented disruption. Its primary objective is to help individuals and employers weather temporary shut downs by putting money into individuals’ pockets until these shut down and shelter-in-place orders are lifted.
To help you understand how the CARES Act may impact you, we’ve summarized the key points of legislation and other related actions that affect individual taxpayers. We will provide a summary of the business stimulus provisions of the bill in a separate update.
Extended tax-filing deadlines: The federal income tax deadline for filing 2019 tax returns has changed from April 15 to July 15, 2020. The deadline for making 2019 IRA and HSA contributions has also been moved to July 15, 2020. Ohio and Kentucky have extended their filing deadlines for state tax returns. We anticipate that most other jurisdictions will make changes to mirror the changes to the federal deadlines.
Expanded unemployment insurance (UI): Displaced workers can collect benefits. Such benefits include a federally funded $600 per week increase in addition to normal state unemployment benefits for up to four months through July 31. Eligibility of UI benefits is expanded to include those not usually eligible for UI, such as the self-employed, independent contractors, and those with limited work history.
The federal government will fund the first week of UI for states that waive their normal one-week waiting periods. What’s more, the federal government will fund an additional 13 weeks of benefits through December 31, 2020 if workers exhaust state unemployment benefits which typically expire after 26 weeks.
Recovery rebate for individual taxpayers: The CARES Act provides a $1,200 refundable tax credit to qualifying individuals and $2,400 to qualifying joint taxpayers. Taxpayers with children will receive an additional flat $500 for each child. The rebates do not count as taxable income, as the rebate is a credit against your 2020 tax liability and is refundable even for taxpayers with no tax liability to offset.
The rebate begins to phase out at $75,000 for single taxpayers, $112,500 for heads of household, and $150,000 for joint taxpayers. The phase out is 5 percent for each dollar income over the threshold, or $50 per $1,000 earned. It phases out completely at $99,000 for single taxpayers with no children and $198,000 for joint taxpayers with no children. Your last federal tax return filed will be used to calculate the rebate sent to taxpayers. If you have not filed your 2019 taxes, you may be better off waiting if your 2018 income was lower. If your 2020 taxable income is lower than your last filed return and you qualify for the rebate, you will receive any additional amount when you file your 2020 tax return. Taxpayers with higher incomes in 2020 will have any overpayment associated with their rebate forgiven.
Availability of charitable contribution deduction: Taxpayers will be able to deduct $300 of charitable contributions in 2020 regardless of whether or not they are eligible to itemize deductions.
New rules for retirement account distributions: Eligible participants in workplace retirement plans and IRA owners can take an aggregate distribution in 2020 of up to $100,000 from all retirement accounts combined without incurring the usual 10% early withdrawal penalty.
The affected participant or IRA owner (including a spouse or dependent) would need to either be diagnosed with COVID-19 or SARS-COV-2 or experience adverse financial consequences as a result of an event, including but not limited to quarantine, furlough, lay-offs, reduced work hours, no available childcare, business closing, reduced business hours (self-employed), or other factors determined by the Secretary of the Treasury. In addition, the income tax on the distributions may be spread evenly over 3 years or repaid to an eligible retirement plan within a 3-year period.
Loan repayments for affected participants in workplace retirement plans may be delayed for one year. These changes will be in effect through 2020.
Required minimum distributions (RMDs) for 2020 are suspended for certain defined contribution plans such as 401(k) and IRAs to help retirement accounts try to recover from stock market losses. This includes the first RMD that individuals who turned 70.5 in 2019, may have delayed from 2019 until April 1, 2020.
There is conflicting guidance on whether inherited IRAs are included in the waiver. If you have an inherited IRA, please contact us directly so that we may keep you apprised on the treatment of such accounts.
Waiver of federal student loan payments and interest: The CARES Act suspends principal and interest payments on federal student loans for six months. The act also waives interest accruals on the loans for six months. The suspended payments will be counted as having been made for the purposes of loan forgiveness programs. Please note, these waivers only apply to federal student loan programs. If you have a private student loan or have refinanced your federal student loans, you should reach out to your lender to see what relief they may be willing to offer.
Students who are forced to withdraw from school due to the outbreak may have the portion of their loan covering that semester canceled. The requirement to return portions of grants or loan assistance will be waived for students who were forced withdraw from school as well.
Employees are now eligible to exclude up to $5,250 in employer paid student loan payments from their income. This will expire at the end of the year, but may be extended. If you have student loans, it might be worthwhile to discuss a temporary income reduction and have your employer make payment(s) on your student loan.
We continue to work extended hours to keep you informed of planning items relevant to your individual situations. Please feel free to reach out to us at any time with questions, concerns, changes in circumstances, or to discuss any provisions that may impact you directly. We have included a list of our team members below with e-mail addresses and extensions.
Some of you have not yet met the two newest members of our team: Tom Cooney and Tom Schiller. Tom Cooney joined us in the second half of 2019, having spent the last 20 years at MCM CPAs & Advisors and its predecessor organization, Cooney, Faulkner, and Stevens LLC, where he was a founding partner. Tom is a CPA, a CERTIFIED FINANCIAL PLANNERTM and holds a masters degree in financial planning. He has extensive experience and expertise advising privately held business owners on a broad array of tax and financial issues.
Tom Schiller joined us earlier this year and holds both the CPA and CFP® designations. Both advisors are also available to answer questions you may have as it pertains to the CARES Act or other financial planning matters.
Our client service team is available to assist you. You can reach out to them by calling our main number, (513) 554-6000, during business hours. Our systems and processes are fully functioning during this time.
You can reach out to our advisors and planning team anytime via email, or by simply calling our main number and then their extension. All phone lines are redirected to our respective cell phones as we continue to work remotely and are always available to you at anytime.
Doug Loftus email@example.com Ext 1020
Tom Curti firstname.lastname@example.org Ext 1001
Dan Vogelpohl email@example.com Ext 1015
Tom Cooney firstname.lastname@example.org Ext 1010
Eric Loftus email@example.com Ext 1003
Erik Smith firstname.lastname@example.org Ext 1008
Julie Kist email@example.com Ext 1017
Tom Schiller firstname.lastname@example.org Ext 1018
Despite these unique and challenging times in our country, we are strong and resilient. While we anticipate continued volatility in the financial markets and uncertainty for the near term due to a rise in COVID-19 cases, we are confident we will experience a strong rebound and full recovery once the COVID-19 crisis is contained and the economic disruption comes to an end. In the meantime, we are working to position you to capture the opportunities that unfold during these times of market disruption.
We wish you and your family good health and good fortune. Thank you for your continued confidence in our services.
Your Wealth Dimensions team
For informational purposes only. Not intended as legal or investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000.
Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.