CARES Act Individual Taxpayers Implications
Published April 9, 2020

3 Things Individual Taxpayers Need to Know About the CARES Act

Businesses and individuals alike were thrown a financial lifeline Friday, March 27, 2020, when President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The $2 trillion package has multiple provisions aimed at helping individuals struggling through the COVID-19 pandemic. PYA has summarized three of them in the following insight.

Recovery rebates

The CARES Act provides for American taxpayers to receive a nontaxable payment from the Department of the Treasury (Treasury) within the next two to three weeks. The amount of the payment is based on the taxpayer’s 2019 federal income tax return. If the 2019 return has not yet been filed, the Treasury will use information found on an individual’s 2018 tax filing. Individuals who file as single or head of household on their individual tax return will receive $1,200; married couples filing jointly can receive up to $2,400. Additional payments of $500 will be made per qualifying child claimed as a dependent on either the 2019 or 2018 individual tax return.

The recovery rebates are subject to phaseouts based on adjusted gross income (AGI), as reported on the taxpayer’s’ 2019 or 2018 tax return. The phaseouts begin at $75,000 for single filers, $112,500 for heads of household, and $150,000 for those married couples filing jointly. Payments are completely phased out for single filers with AGIs exceeding $99,000 and for joint filers with no qualifying children and AGIs exceeding $198,000. For a head of household with one child, the payment is completely phased out when AGI exceeds $146,500.

Penalty-free early retirement distributions

The CARES Act temporarily waives the 10% early distribution penalty for COVID-19-related withdrawals made on or after January 1, 2020, and through December 31, 2020, from IRAs, 401(k) plans, and certain other retirement plans. It is important to note the waiver applies only to distributions made to an individual who:

  • Is diagnosed with COVID-19,
  • Has a spouse or dependent diagnosed with COVID-19, or
  • Experiences adverse financial consequences as a result of quarantine, furlough, lay off, reduction in work hours, inability to work due to lack of childcare because of COVID-19, or the closing or reduction in hours of a business owned by the individual due to COVID-19.

Waived required minimum distribution rules

The CARES Act waives the required minimum distribution (RMD) rules for certain defined contribution plans and IRAs for calendar year 2020. This will help individuals avoid being forced to make financially imprudent sales of retirement assets during the stock market downturn. The waiver covers both 2019 RMDs required to be taken by April 1, 2020, and RMDs required for 2020. The provision applies for calendar years beginning after December 31, 2019.

If you have questions about the CARES Act and what applies to you, or for other guidance related to COVID-19, visit PYA’s COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.

Disclaimer: To the best of our knowledge, this information was correct at the time of publication. Given the fluid situation, and with rapidly changing new guidance issued daily, be aware that some or all of this information may no longer apply. Please visit our COVID-19 hub frequently for the latest updates, as we are working diligently to put forth the most relevant helpful guidance as it becomes available.

© 2020

Executive Contacts

Interested in Learning More?

Sign Up for Our Insights, Including COVID-19 Bulletins!

    Select Your Subscriptions