What’s in the CARES Act and Why It’s Important for Everyone

Fiscal policy, and often fiscal stimulus, are the backbone of dealing with economic events in the U.S. and globally. While the catalyst we are experiencing is new, the outcome and remedies are known. As economic activity takes a pause during our collective stay-in-place orders, governments around the globe will take action to fill in the gap of our lost productivity and income.

On top of the Federal Reserve adding large amounts of financial stimulus and liquidity, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on Friday, March 27. The CARES Act is an initial response to closing the gap on our collective coronavirus-related financial losses. We anticipate more stimulus will be needed if our stay-in-place orders continue for longer than expected.

Below is a summary of what the CARES Act could mean to you personally.

Economic Impact Payments. Checks of up to $1,200 ($2,400 for married filing jointly) will be sent to many U.S. taxpayers. Payments begin phasing out for taxpayers with adjusted gross income of $75,000 for single and $150,000 for married filing jointly. No action is needed by most people. For more info: see IRS, Economic Impact Payments: What you need to know.

Required Minimum Distribution (RMD) Holiday. RMDs which were due for 2020 are now waived, but you can take them if you need the money. This applies to first time RMDs held over from 2019 (due April 1), 2020 RMDs due December 31, inherited 401(k)s and inherited IRAs. 2020 RMDs already taken can be returned within 60 days of the distribution or anytime for the next three years. For more info: see this AARP article.

Tax Relief for Retirement Plan and IRA “Coronavirus-Related Distributions”. The 10% early-withdrawal penalty is waived for up to $100,000 withdrawn in 2020 if you or a spouse/dependent were diagnosed with COVID-19, or if you experience financial consequences from quarantine, furlough, layoffs or having hours cut due to coronavirus. Income taxes on the withdrawals can be spread over a three-year period and withdrawals can be returned within three years (taxes already paid will be refunded).

Unemployment Insurance. The Act expands unemployment insurance eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. For more info, see US House Ways & Means Committee, Unemployment Insurance Questions Answered.

Small Business Relief. Companies with 500 or fewer employees that maintain payroll during coronavirus can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven. For more info, see Treasury.gov.

Applications for many of these programs start April 3. We will be watching closely as programs are rolled out. This is a monumental task and there are likely to be stories of issues and abuse. Don’t let those stories overshadow the key element of what CARES needs to accomplish: putting money in the hands of our fellow citizens so when we are able, we can all get on with our lives with limited financial disruption.

Optimism can be hard to come by today, however, many of us have seen or heard stories of the best of humanity emerging around us. A recent BBC News article, “Coronavirus: From Clapping to Kindness, Five Reasons to be Hopeful,” nicely illustrates the humanity in all of this.

At Charter Oak we strive to keep our clients educated and informed, and we will continue doing just that in the coming weeks and months. Our transition to a remote office environment has been seamless. We are proud to continue serving our clients the Charter Oak way via telephone, email and online meeting and we are grateful for the opportunity to work with you.