CARES Act Overview from BFG Tax Team

CARES Act Overview from BFG Tax Team

On March 27, 2020, Congress enacted and President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act, Pub. L. No. 116-136). The CARES Act includes several provisions for recovery rebates mentioned discussed further below and in the attached notice. Also, the CARES Act includes several provisions affecting qualified plan distributions and loans related to the COVID- 19 virus that we discuss below.

Recovery Rebates: Eligible individuals are allowed a rebate of $1,200 ($2,400 for joint filers), plus $500 for each qualifying child, for the first taxable year beginning in 2020. An eligible individual is any individual who has a Social Security number and who is not a nonresident alien, an individual who can be claimed as a dependent on another taxpayer’s return, or an estate or trust. The allowable rebate is reduced by 5% of the eligible individual’s adjusted gross income in excess of $75,000 (all filers other than joint and head of household), $112,500 (head of household), or $150,000 (joint filers). The credit phases out entirely at $99,000 ($198,000 for joint filers). Please also see the attached notice.

Distributions: Under 2202(a) of the CARES Act, a 401(k) plan or other qualified plan may allow individuals to receive Coronavirus-related distributions for any taxable year from a qualified plan that do not exceed $100,000 in the aggregate from all plans. The 10% additional tax that applies to distributions to individuals who have not attained age 59½ is waived for Coronavirus-related distributions that are received between January 1, 2020, and December 31, 2020.

Coronavirus-related distributions are any distribution from a 401(k) plan or other qualified plan made to an individual (1) who is diagnosed with virus SARS-CoV-2 or COVID- 19 by a test approved by the Centers for Disease Control and Prevention, (2) whose spouse or dependent, is diagnosed for such illness by such test, or (3) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary's delegate).

The individual may repay the amount of any Coronavirus-related distributions that is included in income ratably over the three-taxable-year period beginning with the taxable year the distribution is received. Individuals also may repay the aggregated amount of the distribution (or any portion thereof) by making one or more contributions to their company's plan or any other eligible retirement plan of which the individual is a beneficiary that accepts eligible rollover contributions. Such distributions are treated as eligible rollover distributions if they are repaid within three years following the date of the distribution.

Temporary Waiver of Required Minimum Distributions: Section 2203 of the CARES Act temporarily waives required minimum distributions from 401(k) plans (as well as other defined contribution plans and IRAs) for participants who were required to receive such distributions in 2020. The waiver does not apply to required beginning dates beginning in calendar years after 2020.

Please click the "Learn More" button below to read the IRS news release about this topic.

We know this is an unprecedented time for you, and we hope this letter was helpful. Stay safe!

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