How to Guide your Employees During the COVID-19 Crisis [What Individuals Should Know About the CARES Act]
On March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. Your employees may be looking to you, as an employer, for guidance, and the bill provides some important relief for individuals that you can share to help them through this troubling time.
2020 Recovery Rebates for Individuals
According to a summary from the Senate:
“All U.S. residents with adjusted gross income up to $75,000 or $150,000 for a married couple, who are not a dependent of another taxpayer are eligible for the full $1,200 rebate per person. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as long as you have a valid social security number.”
The income requirements will be based on the taxpayer’s 2019 return (or 2018 return if 2019 is not filed). The rebate is phased-out for individuals with higher incomes and is completely phased-out for individuals making more than $99,000 or married couples making more than $198,000.
Special Rules for Use of Retirement Funds
According to a summary from the Senate:
“Consistent with previous disaster-related relief, the CARES Act waives the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020.”
In addition to waiving the penalty, taxpayers can spread the taxation of this withdrawal over three years. Another potential benefit is the option to recontribute the withdrawal within three years to the eligible retirement plan.
According to a summary from the Senate:
“Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief. A coronavirus-related distribution is one made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19 or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.”
Changes Related to Charitable Deductions
The CARES Act is trying to encourage charitable giving. This is done in two different ways. First, the CARES Act is allowing a $300 “above the line” deduction for charitable contributions, regardless of whether you itemize your deductions or not. In addition to the “above the line” deduction for individuals, the CARES Act temporarily modifies the limitations on the deductibility of charitable deductions. For individuals who itemize, the 50 percent of adjusted gross income limitation is suspended for 2020. For corporations, the charitable donation limitation in is increased to 25 percent of taxable income. According to a summary from the Senate, “The Act also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent.”
Exclusion for Certain Employer Payments of Student Loans
Continuing the theme of encouraging employer assistance to employees, employers are able to provide tax-free student loan repayment benefit to employees. Employers may contribute up to $5,250 annually toward an employee’s student loans tax-free to the employees. In addition to student loan repayment assistance, employers can also exclude up to $5,250 from employee income for educational assistance (e.g., tuition, fees, books) provided by the employer. According to a summary from the Senate, “The provision applies to any student loan payments made by an employer on behalf of an employee after the date of enactment and before January 1, 2021.”
Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts
To help individuals in retirement, the CARES Act waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This allows individuals to wait to withdraw funds instead of forcing a withdrawal during a volatile market. According to a summary from the Senate, “The bill also provided a considerable expansion to unemployment benefits.”
Connect with an Advisor
Warren Averett will continue to monitor and provide updates on these and other important provisions of the CARES Act. If you have any questions about how this will affect your employees, please contact your Warren Averett advisor or complete this form to have a member of our team reach out to you.
This article reflects our views at the time this article was written and should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.