The CARES Act: 6 Things to Know For Individuals

The $2 Trillion CARES Act is the largest economic stimulus package passed to date. The economic package was passed through the House of Representatives and later signed by President Trump to become law on March 27, 2020. The legislation is aimed at providing relief for individuals and businesses that have been greatly impacted by COVID-19. The emergency relief bill is nearly 900-pages. The original bill can be found here for those who enjoy self-torture. For everyone else, here are 6 things to know about the CARES Act:


Direct Payments to Individuals

Direct payments to individuals has garnered the most attention from the general public. Here is how the direct payments break down:

Tax Return Filing Status for 2018/2019 Direct Payment Amount Additional Payment for Each Child of Taxpayer under age 17 in 2018/2019
Married Filing Jointly Up to $2,400 Up to $500
All Others Up to $1,200 Up to $500

For example, married taxpayers with two children would be eligible for a direct payment up to $3,400. Note, payments received are not taxable.


Payment Phaseout

Payments received are subject to a phaseout based upon an individual’s Adjusted Gross Income (AGI). In general, for those who have not yet filed their 2019 tax return, information from their 2018 return will be used to determine direct payment amounts. It’s unclear if there is a cut-off date when the Treasury will decide to consider the 2018 or 2019 return, if both have already been filed. If an individual’s 2019 income is substantially lower than 2018 it would be wise to file the 2019 as soon as possible!

Adjusted Gross Income (2018/2019) Phase Out Begins
Married Filing Jointly $150,000
Head of Household $112,500
All Others $75,000

When the benefit payment will “phase-out” depends if individuals can claim any qualified children under age 17. Those able to claim qualified children and receive up to $500 per child will have a bigger phase out range than those who cannot.

Understandably, there will be some individuals who will have a 2018/2019 AGI that will disqualify them from receiving benefits, yet have been impacted in 2020 by COVID-19. Since the program is technically an advance of a new credit for 2020, it will be possible to receive the credit when 2020 taxes are filed. Unfortunately, in this situation, those impacted will receive the credit in 2021 even though they may need the payment now. 

On the flipside, those who had an AGI in 2018/2019 which qualified them to receive benefits, yet their 2020 AGI is within or above phaseout limits, will not have any benefits clawed back. 


Estimated Benefits Calculator

There are several tools that can be used to calculate an estimate of benefits. This is especially helpful to understand how much an individual can expect to receive and be on the lookout for payments. Intuit has created a free tool to use.


Timeline of Receiving Payments

After announcement the Treasury would be sending checks directly to individuals, questions began piling up about when and how payments would be received.

Payments will be electronically deposited for individuals who used direct deposit for tax refunds on their 2018/2019 return, as well as those receiving Social Security payments via direct deposit into their bank account. In the coming weeks, the Treasury plans to develop a web-based portal for individuals to provide (or update) their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail. 

For taxpayers who receive tax refunds via physical check, the rebate will be sent to the individuals address on file. For those who have moved recently, IRS Form 8822 can be used to update their address.

According to a House memo obtained by CNN, direct payments could be distributed as early as the week of April 13th and paper checks distributed as early as the week of May 4th. But that doesn’t mean all paper checks will be sent at the same time. Each week after May 4th approximately 5 million paper checks will be issued.

Additional information can be found here.


Suspension of Required Minimum Distributions

The suspension of Required Minimum Distributions (RMD) is of special interest to retirees. This allows individuals who do not need the income to continue deferring taxation and avoid withdrawing from accounts that have likely declined in value. As a quick recap, the recently passed SECURE Act increased the age of RMDs from age 70.5 to 72.

Accounts eligible for suspension include IRAs, 401(k) and 403(b) plans, etc. This suspension applies to RMDs for 2020 and does not need to be ‘caught-up’ in future years. Individuals who wish to suspend their RMD for 2020 would be wise to ensure any systematic distribution they have setup with their investment institution be “suspended.” Established instructions to take withdrawals will not automatically be suspended.


Returning Withdrawals

It’s possible to return RMDs for individuals who have already taken their distribution for 2020. This is possible via a 60-day rollover. In short, this allows an individual to “return” a withdrawal from an IRA and avoid taxation if the original withdrawal is returned back to the account within 60 days. It’s important to note only one 60-day rollover is allowed within a 365 day period. Multiple withdrawals cannot be combined into one 60-day rollover back into the account.

If an individual wishes to return the funds via a 60-day rollover, the entire distribution must be returned to ensure the initial withdrawal is not taxable. This means individuals who typically have tax withheld from their accounts must return the entire withdrawal, including any amounts withheld for Federal and State taxation.

Individuals who have taken withdrawals and have passed the 60-day mark can still return the funds but it will require additional documentation due to the impact of COVID-19.


Inherited Accounts

The rules are slightly different for Inherited accounts. Any Required Minimum Beneficiary Distributions (RMBD) can not be returned to the account once withdrawn. There are exceptions for spouses who inherited an account from a spouse and chose to remain a beneficiary.

Additional information can be found here.


Charitable Giving

Charitable giving has declined and will likely continue to decline in the coming months, putting pressure on non-profits that rely upon generous donations. Individuals who are able to continue giving are provided additional benefits for 2020. While RMDs have been suspended for 2020, Qualified Charitable Distributions (QCDs) are still available.


New $300 Deduction

After the passing of the Tax Cuts and Jobs Act (TCJA), the standard deduction was nearly doubled, meaning fewer people itemized deductions. The CARES Act introduces a new deduction for taxpayers who give charitably and do not itemize. This deduction is available to those who give at least $300 in cash to a qualified charitable institution. It’s important to note that the contribution cannot be used to fund a Donor Advised Fund (DAF) to qualify.


Charitable Deduction Limits

Typically, giving to qualified charities in the form of cash is limited based upon an individual’s Adjusted Gross Income (AGI). In short, the amount an individual can deduct has been increased to 100% of their AGI for 2020. These contributions cannot be used to fund a DAF to qualify.

For most individuals, giving an amount equal to 100% of their AGI would be a stretch. However, for big givers with cash on the sidelines, this presents an opportunity to completely wipe out their 2020 tax liability.

Additional information can be found here.


Student Loans

The amount of student loan debt within the United States is staggering. Adding the economic slowdown as a result of COVID-19 exacerbates the issue of monthly student loan payments. Thankfully the CARES Act has addressed this issue. Unfortunately, the provisions below are only applicable to Federal student loans owned by the Education Department:

  • Defaulted and non-defaulted Direct Loans
  • Defaulted and non-defaulted FFEL Program Loans
  • Federal Perkins Loans

While the CARES Act does not apply to private student loans, many lenders are offering some form of relief benefits. Individuals can contact their loan servicer online or by phone to determine if their loans are eligible for relief.


Deferment of Payments and Interest Accrual Suspension

Federal student loan payments are in administrative forbearance and loan interest is temporarily set to 0% from March 13, 2020 until September 30, 2020. This means monthly payments are temporarily suspended and no interest will accrue during the time period.

Typically, loans with a monthly auto-pay will continue unless an individual makes a proactive measure to stop the payments even though payments are not required. Any payments made during the forbearance period can be refunded. Although payments are not required, continuing to make payments will help pay down the loan balance faster.

Additional information can be found here.


Extended Tax Deadlines

Although not technically part of the CARES Act, extended deadlines happened shortly before the bill was enacted and is a significant development.


Federal Deadlines Extended

Individual tax returns have been postponed from April 15th, 2020 to July 15th, 2020 to file for 2019. 

Estimated tax payments for Quarter 1 have been postponed to July 15th, 2020. It’s important to note the other estimated payments are not pushed out, meaning Quarter 2 payments will be due before Quarter 1!

Due dates for 2020
Quarter 1 Payment July 15th
Quarter 2 Payment June 15th
Quarter 3 Payment September 15th
Quarter 4 Payment January 15th (of 2021)

Additional information can be found here.


California Deadlines Extended

California Individual tax returns have also been postponed from April 15th, 2020 to July 15th, 2020 to file for 2019. 

Estimated tax payments for Quarter 1 and Quarter 2 have been postponed to July 15th, 2020.

Due dates for 2020
Quarter 1 Payment July 15th
Quarter 2 Payment July 15th
Quarter 3 Payment September 15th
Quarter 4 Payment January 15th (of 2021)

Additional information can be found here.

For all other states, here is a tracker that is updated regularly.


IRA Contributions Deadlines Extended

Deadlines to make IRA and Roth IRA contributions, for calendar year 2019, have been extended to July 15th, 2020. 


Expanded Unemployment Benefits

Unemployment benefits have been expanded under the CARES Act to include individuals who are unemployed, partially unemployed, or unable to work due to COVID-19. The program increases the weekly benefit amount, increases the benefit period, and typically removes waiting periods.


Benefit Amounts and Eligibility

Under the Federal Pandemic Unemployment Compensation provision within the Act, individuals who are eligible for unemployment benefits will receive an additional $600 per week from April 4, 2020 to July 31, 2020. In California, the current maximum weekly benefit is $450. Eligibility is also expanded to self-employed individuals under certain conditions.



Typically, as is the case in California, there is a waiting period that must be served before an individual becomes eligible to receive unemployment benefits. While the CARES Act does not technically waive the state-law waiting periods, it heavily incentivizes states to suspend that requirement. California has announced it will be waiving the waiting period.

The stimulus bill also adds an additional 13 weeks of total unemployment benefits. Therefore, individuals now may receive up to a maximum of 39 weeks, whereas many states previously capped their benefits at 26 weeks. These extended benefits will be available through December 31, 2020.

Additional information can be found here.


In Summary

The CARES Act provides the US economy with $2 Trillion of desperately needed stimulus. Many of these programs are welcomed with open arms but are still being clarified in the coming weeks. As with any financial topic relating to tax, be sure to consult with your tax advisor.

Retirement Recap.

Join the 1,000+ other retirees and receive weekly articles and videos to help you retire with confidence.

Subscribers also gain access to our exclusive monthly client memo that we don't share anywhere else.

We don’t spam! You can unsubscribe at any time.