The Coronavirus Aid, Relief and Economic Security Act or “CARES Act” was the US government’s initial $2 Trillion dollar relief act aimed at helping individuals and businesses impacted by the Covid-19 pandemic. The CARES Act is long and detailed, but can be broken down and summarized into four parts:
Title 1: Keeping American Workers Paid and Employed Act (focusing on business).
Title 2: Assistance for American Workers, Families and Businesses (focusing on individuals)
Title 3: Supporting America’s Health Care System in the Fight Against Coronavirus
Title 4: Economic Stabilization and Relief to Severely Distressed Sectors
In this post, we will look at a few of the high-level provisions in the first two titles.
Title 1: Keeping American Workers Paid and Employed Act
Highlights of the section include:
- Creation of the Paycheck Protection Program (PPP). The primary purpose of this program is to provide funding to keep small business operating during the pandemic. The main part of this program was the $349 billion loan program designed to keep employees on the payroll. On June 22nd the program, which had run out of money, was replenished with an additional $310 billion dollars of funding.
- Emergency grants for businesses applying for SBA Economic Injury Disaster Loans,
- Increased funding for business education programs
- Relaxed criteria for filing Chapter 11 bankruptcy.
Title 2: Assistance for American Workers, Families and Businesses
Highlights of this section include:
- Pandemic unemployment assistance changes
- Recovery rebates of up to $1200/person. This was the provision that received the most attention from Taxpayers and the media. Individuals earning less than $75,000 ($150,000 for married filing joint) are eligible for a $1,200 individual ($2,400 married) rebate. If the taxpayer has dependent children under the age of 17 who are also US citizens/residents, this can add an additional $500 per child.
Individuals earning more than $75,000 will have their rebate reduced by $5 for every $100 over the threshold. The payment is completely eliminated with income over $99,000 for an individual, $146,500 for a Head of Household filer with one child, and $198,000 for married filing joint with no children.
While this is a 2020 rebate, the government began sending checks in May to those expected to qualify based on their 2018 and 2019 income.
Where the US citizen resides has no bearing on eligibility. Canadian resident US citizens should be receiving rebates providing they are current with their US tax returns. As a rebate, the money should not be taxable for Canadian tax purposes.
- Special rules for use of retirement funds. Typically, if US retirement funds are withdrawn before the age of 59.5, there is a 10% early withdrawal penalty imposed. This penalty has been waived for withdrawals of up to $100,000 that happen after January 1, 2020 for Coronavirus related purposes.
The distribution is still considered taxable, however there is also the option to pay the tax over three years. There is also the opportunity to re-contribute the funds to the retirement account providing it is done in the first three years.
- Waiver of required minimum distribution rules. Taxpayers over the age of 72 with IRA accounts are typically required to withdraw a minimum amount on an annual basis. These required minimum distributions are suspended for 2020.
- Charitable donations. Typically, a US taxpayer will need to choose whether to itemize their personal deductions (i.e. for medical, charitable donations, mortgage interest, etc.) or claim a standard deduction. For 2020 a Taxpayer can deduct up to $300 of charitable donations without having to itemize their deductions.