On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The almost 900 pages of legislation are jam-packed with programs designed to help taxpayers navigate the economic hardships our country is facing. We’ve outlined the areas that are likely to impact people on a personal level.

Recovery Rebates

One of the most widely discussed benefits of the CARES Act is the “Recovery Rebates”.  Individuals with an adjusted gross income (AGI) of under $75,000 are eligible for a rebate of $1,200, while married couples can receive up to $2,400 if their AGI is below $150,000. Rebates are increased by $500 for each child under age 17. For those who exceed the income thresholds, rebates are still available, but are reduced by $5 for every $100 over the applicable income threshold.  

What is included in AGI?  Your wages, income from investments, business income, and retirement distributions reduced by certain expenses, such as student loan interest and contributions to retirement accounts, is reflected on your federal tax return as your adjusted gross income.

How will the Treasury Department know your AGI?  If you have filed your 2019 tax return, your 2019 AGI will be used.  For those that have not yet filed their 2019 return (revised deadline is July 15), 2018 tax return information will be used.

How will the money be delivered?  The funds will be direct deposited into your account or a check will be sent to you. If you have included bank and account information on your 2018 or 2019 tax return for the direct deposit of a tax refund or if you currently receive Social Security via direct deposit, the same bank account will be used for the receipt of this recovery rebate.  If direct deposit isn’t an option, then the rebate will be mailed to the address on your tax return or another source.

Penalty Free Early Distributions from Retirement Accounts

As another source of income for those that qualify, the CARES Act permits distributions of up to $100,000 from IRAs and employer-sponsored retirement accounts. The criteria to qualify is fairly broad:

  • You, a spouse, or a dependent diagnosed with COVID-19.
  • Financial hardship experienced due to being quarantined, furloughed, or working reduced hours.
  • Cannot work due to childcare needs as a result of COVID-19. 
  • Your business closed or operated reduced hours because of COVID-19.

As an added benefit, these distributions are subject to a unique set of rules:

  • Penalty free distributions – If under age 59 ½, the typical 10% penalty is waived. 
  • No tax if repay distributions – Funds can be returned to your retirement account over three years and no income tax is owed.
  • Taxes paid over three years – Income tax on any funds not repaid to the retirement account can be equally divided over 2020, 2021, and 2022, or as an alternative paid in one year.
  • No mandatory tax withholding – The 20% withholding on employer-sponsored retirement account distributions is waived.  

Waived for 2020: Required Minimum Distributions (RMDs)

If you are over 70 ½ years of age, you are required to take annual RMDs.  For 2020, this requirement has been waived. This applies to employer plans, IRAs, and inherited IRAs.

What if you already received your RMD?  There are two possible ways you can return the funds to your retirement account if you don’t need the income:  1.) If the distribution occurred in the last 60 days, you can return the funds as a 60-day rollover.  2.)  If you meet any of the distribution criteria outlined previously, you are eligible to return the funds anytime in the next three years.  One exception:  If a distribution from an Inherited IRA has already been taken in 2020, the funds cannot be returned to the account under either option. 

Increased Deduction for Charitable Contributions

Until now, cash contributions made to a charity had been deductible up to 60% of AGI. The CARES Act has increased this to 100% of AGI, which means if an individual is charitably inclined, they could greatly reduce or even eliminate their 2020 tax bill by making deductible charitable contributions. (Note: Contributions to donor-advised funds are not considered eligible contributions.)

The CARES Act also added a new above the line deduction of $300 for cash contributions to charities. Because this is an above the line deduction, you don’t need to itemize to receive the benefit of your charitable gift. 

Payments Deferred for Student Loans

Federal student loan payments can be deferred until September 30, 2020. Interest will not accrue during this deferment period.  Borrowers need to be proactive and contact their loan providers if they want to defer payments.


In addition to the personal benefits noted above, the CARES Act also provides economic relief for small business, as well as financial assistance for unemployment and healthcare programs. While taking steps to protect the health of all is the most important, the CARES Act is intended to help sustain families and businesses through this unprecedented time.

Sarah Mahaffa is a Senior Wealth Advisor with Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at or email Sarah.

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