Part two: The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

On Friday, March 27, 2020, President Trump signed into law the CARES Act. It is 335 pages long and covers a wide range of programs, tax credits, and industries.

We read it last weekend, so you don’t have to. It is so long, we’re sending out two blogs this week. This second blog deals with individual benefits and healthcare provisions.

     1. Recovery Rebates for Individuals.

The IRS will issue rebates to eligible individuals (everyone except non-resident aliens, dependents, and estates and trusts) in the following amounts:

• $1,200 ($2,400 in the case of eligible individuals filing a joint return), plus
• $500 for each qualifying child (generally defined as a dependent under the age of 17)

But the credit shall be reduced by 5 percent of so much of the taxpayer’s adjusted gross income (based on 2019’s tax records if filed; if not, 2018’s) as exceeds:

• $150,000 in the case of a joint return,
• $112,500 in the case of a head of household, and
• $75,000 in the case of a taxpayer not described above.

This means that a married couple filing jointly with no children will not receive any credit if their income is $198,000.

As written, the credit will be refunded to the account the IRS has on file for past refunds in tax years 2018 or 2019, and the IRS will mail a notice to the taxpayer upon payment. The IRS has recently issued guidance that it will create an online portal in the coming weeks where people can register for their rebate if the IRS does not have an account on file for them.

     2. Special Rules for Use of Retirement Funds

An employee who takes money out of a retirement account for a “coronavirus-related distribution” will not be subject to the 10% early distribution tax penalty so long as the amount taken out of the plan for that employee is not more than $100,000.

The employee can choose to repay it in one or more payments over the next three years. Otherwise, the income tax is spread out over the next three years automatically unless the taxpayer elects for it not to be (we’re assuming it would all be assessed at the end of the three-year period if a taxpayer made this election and did not repay it).

A “coronavirus-related distribution” is defined as any distribution from an eligible retirement plan made: (i) on or after January 1, 2020 and before December 31, 2020, (ii) to an individual who is diagnosed with COVID-19, or whose spouse or dependent is diagnosed with COVID-19, or who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours reduced, or other factors as determined by the Secretary of the Treasury
during the COVID-19 pandemic.

The maximum loan amount against a 401(k) or 403(b) plan has been increased from $50,000 to $100,000 if taken before September 23, 2020. Additionally, if the due date of any other outstanding loan occurs between the date of enactment of the CARES Act and December 31, 2020, the due date shall be delayed by one year.

Finally, Required Minimum Distributions are suspended for 2020. If an employee has already taken a required minimum distribution in 2020, there are some workarounds – talk to your plan provider.

     3. Special Rules for Charitable Donations

The CARES Act allows people to take an “above the line” tax deduction for charitable contributions of up to $300 for 2020, which lowers gross income even for those of us who do not itemize (thanks to the $25,000 standard deduction). Additionally, limits on certain charitable or other qualified contributions are disregarded for 2020.

     4. Student Loans

Federal student loan payments are deferred through September 30, 2020. During this time, no interest shall accrue, and the deferred months shall count towards any loan forgiveness period. The deferred payments are not to be reported negatively to a credit bureau, and any involuntary collections (wage garnishment, tax refund garnishment) are suspended.

     5. Healthcare Provisions

The CARES Act expands Medicare and Medicaid coverage for telehealth and other remote care services and COVID-19 related treatments; allows telehealth to be used for hospice recertification requirements; allows high-deductible health plans with a health savings account to cover telehealth services before the members reaches his or her deductible; eliminates the home visit requirements for doctors of dialysis patients; increases coverage and lowers cost for COVID-19 tests and treatments; and increases reimbursement for over-the-counter drugs through certain plans.

     6. Credit Protection

If a creditor agrees to allow deferred or partial payments, or agrees to a forbearance of payments, the creditor has to report the account as “current” to the credit bureaus (or whatever the account status was prior to January 31, 2020 if not current). The covered period is from January 31, 2020, until 120 days after the date the national emergency declaration is terminated. This credit protection does not apply if the account is charged off.

     7. Federally-Backed Mortgages - Foreclosures & Evictions

The CARES Act prohibits foreclosures on certain federally-backed mortgages for a 60-day period beginning on March 18, 2020, and provides up to 180 days of forbearance for borrowers who have experienced a COVID-19-related financial hardship. Here, a federally-backed mortgage includes loans for properties house one to four families and: insured by the FHA, insured under section 255 of the National Housing Act, purchased by Fannie Mae and Freddie Mac, made, guaranteed, or insured by the VA or Department of Agriculture, and certain HUD-insured loans. When a forbearance request is made, the servicer shall not require any additional documentation other than the borrower’s attestation to a financial hardship caused by COVID–19. A borrower can also request an additional 180-day forbearance if made during the covered period. No interest or fees shall accrue during this period.

Federally-backed mortgages on multi-family properties (five or more) may also qualify for forbearance. Upon receipt of an oral or written request for forbearance from a multifamily borrower, a servicer shall--
     (A) document the financial hardship;
     (B) provide the forbearance for up to 30 days; and
     (C) extend the forbearance for up to 2 additional 30-day periods provided that the borrower’s request for an extension is made during the covered period and at least 15 days prior to the end of the forbearance.

For the multi-family borrowers who take advantage of forbearance, they cannot evict tenants or charge them late fees during the forbearance period. The types of federally-backed mortgages that qualify under the multi-family rules are larger (basically, any loan that has anything to do with the federal government or its agencies).

In this section, the covered period ends on the date that is the earlier of (1) the date the national emergency declaration is terminated or (2) December 31, 2020.

     8. Other Evictions

For 120 days beginning on the date of enactment of the CARES Act, landlords are prohibited from initiating evictions or charging fees, penalties, etc. for nonpayment of rent if the landlord’s mortgage on that property has anything to do with the federal government or its agencies.