Congress's Relief Bill and You

Upon reflection of the financial crisis that caused the Great Recession in 2008-09, most analysts agree that both Congress and the Federal Reserve acted too slowly and too timidly to effectively ease the economic pain. In fact, most believe their inaction caused the recession to be deeper and more prolonged than if they’d acted more decisively. Thus, this time the response to the coronavirus pandemic and resulting dramatic slowdown of the economy has been swift and, hopefully, impactful. The Fed first took dramatic steps in monetary policy to keep the financial system stable and last week Congress sought to complement their effort with a major fiscal stimulus through the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. This estimated $2 Trillion package attempts to help both individuals and businesses weather this storm. From the 900-page bill, here are the details most pertinent to us as individuals:

• Taxpayer Rebate

The CARES Act provides a refundable income tax credit against 2020 income. As few of us know for sure what our income for this year ultimately will be, the IRS will initially base your refund on your 2019 tax return, or your 2018 if you haven’t yet filed. Additionally, you will receive $500 for each child under the age of 17.

• A SINGLE taxpayer is eligible for a $1200 rebate if their Adjusted Gross Income(AGI) is below $75,000. For every $1000 of income above that threshold the rebate is reduced by $50. At $99,000 there is no payment.
• Those taxpayers filing as MARRIED JOINT are eligible for a $2400 rebate if their AGI is below $150,000. Similarly, for every $1000 of income above this threshold the rebate is reduced by $50. At $198,000 there is no payment.

If a taxpayer’s income for 2020 is higher than the top of the threshold range - $198,000 for Married Filing Joint – but was below the threshold for 2019 and thus resulted in a rebate check, there is no clawback provision. In other words, you keep the money.

• Required Minimum Distributions for 2020 are waived

The Act suspends required minimum distributions (RMD) for 2020. So, if you were previously required to take an RMD this year from your IRA, SEP IRA, SIMPLE IRA, 401(k), 403(b) or 457(b), you now don’t have to. This applies to both the actual retirement account owners as well as beneficiaries who are required to take an RMD.

If you don’t need the RMD for income this is a great way to save on 2020 income taxes. It should be noted that Qualified Charitable Distributions taken by IRA owners over the age of 70 ½ are still allowed. While they won’t offset an RMD it does allow one to donate to a charity without that money ever having been subject to income tax.

If you’ve already taken your RMD in 2020 and no longer want that, please call us to discuss.

Please stay safe and healthy during these stressful days. Here is a quote from a book on the 1918 Flu Pandemic that seems pertinent: “In many ways, it is hard for modern people living in First World countries to conceive of a pandemic sweeping around the world and killing millions of people, and it is even harder to believe that something as common as influenza could cause such widespread illness and death.”
― Charles River Editors, The 1918 Spanish Flu Pandemic: The History and Legacy of the World’s Deadliest Influenza Outbreak

Yes, indeed.

Steve Byars, CFP®