We continue our series on the Individual Provisions available within the CARES Act. Revisit Part 1 here.
Expanded Unemployment Benefits
While taxpayers will continue to apply for and receive unemployment benefits from their state, the federal unemployment insurance will add $600 per week to the amount provided from the state through July 31. There is no repayment or reduction provision in the law if the $600 additional weekly amount makes your unemployment compensation higher than your base earnings from employment.
In addition, part-time, self-employed, and gig economy workers now have access to unemployment benefits.
Penalty for Early Distributions from Retirement Accounts Waived
Early distributions from eligible retirement plans will not be subject to the 10% excise tax “aka penalty.” Distributions must be between January 1, 2020, and December 31, 2020, to an individual who is diagnosed with SARS-CoV-2 or COVID-19, whose spouse or dependent is so diagnosed, or who experiences financial hardship because of quarantine, furlough, laid off, reduced work hours, or lack of child care due to closure of a business. Coronavirus-related distributions may not exceed $100,000 in the aggregate. In addition, taxpayers may elect to ratably spread the income over a 3-year period beginning with the tax year 2020. Taxpayers may also avoid income by repayment of the distribution within three years of receipt.
In addition, loans from qualified retirement plans have been increased from a maximum of $50K to $100K for loans made within six months of the CARES Act becoming law. For outstanding loans, any repayment dated between March 27, 2020, and December 31, 2020, has been delayed for one year. Subsequent payments, as well as interest accruals, should be adjusted accordingly.
Waiver of Required Minimum Distributions (RMD)
For 2020, the RMD requirements have been waived for IRAs and defined contribution plans. Beneficiary distributions made over a five-year period may also disregard 2020.
Plan amendments to comply with this provision will have to be made.
Definition of Qualified Medical Expenses for Tax-Free Reimbursement
Reimbursements for medicine through an account-based plan may be made without a prescription. However, the medical deduction for itemized purposes continues to require a prescription. Certain other products are also treated as amounts paid for medical care for reimbursements. For HSAs and Archer MSAs, the law is effective for amounts paid after December 31, 2019. For FSAs and HRAs, the law is effective for expenses incurred after December 31, 2019.
We will continue to keep you posted on new information on the legislation and resources available to help you through the COVID-19 crisis. If you have questions or would like more information, we are available by calling 215-723-4881 or by email.