What you should know about the CARES Act

Steve Merrell |

When the folks in Washington decide to get to work, they really go to it. I’m referring, of course, to the Coronavirus Aid, Relief and Economic Security Act, otherwise known as the CARES Act, which was passed by Congress late last week and promptly signed into law by President Trump. I’m not sure if anyone actually tracks this sort of thing, but it may well be that Congress just set a Guinness World Record for the most dollars spent in the shortest period of time.

In terms of government spending, the $2 trillion CARES Act is in a league all its own. To help you get a sense of the scale of this thing, consider that the entire 2020 federal budget—before the COVID-19 crisis—was expected to be $4.8 trillion. As another reference point, consider that, in today’s dollars, American expenditures in all of World War II totaled $4.1 trillion. Senate Majority Leader Mitch McConnell was not exaggerating when he described the CARES Act as “a wartime level of investment in our nation.”

The CARES Act provides for $604 billion of aid to individuals and families. This includes $300 billion in direct payments to individuals, $260 billion in extended unemployment insurance benefits and $44 billion in student loan relief.

The direct payments to individuals and families come mainly in the form so-called “recovery rebates.” Although they are called rebates, payments are actually structured as an advance of a refundable tax credit that will appear on your 2020 tax return.

Individual taxpayers with adjusted gross income less than $75,000 in 2019 will receive the full payment of $1,200, while married-filing-jointly taxpayers will get $2,400 if their AGI is below $150,000. In addition, parents of children under the age of 17 will receive $500 per child. Above those income limits, payments are reduced by $5 for every $100 their AGI exceeds the threshold.

The structure of these payments raises some interesting questions. For example, what if my income in 2020 is different than it was in 2019? What happens if I lose my job or my business earns less in 2020 because of the COVID-19 crisis? Will I still be able to get a rebate. The answer is yes. Individuals will be able to claim any additional credit they are due when they file their 2020 tax return. Also, if you get a rebate based on your 2019 tax return, but earn too much to qualify in 2020, you will not be required to pay it back.

Low-income seniors can still get a rebate even if they haven’t filed a tax return in recent years. The law allows the IRS to provide a rebate based on Form SSA-1099, the Social Security Benefit Form. However, seniors who file a 2019 tax return are likely to receive their rebates more quickly.

For seniors and others who have not filed a tax return recently, you can do it free online at the IRS Free File website. Simply go to IRS.gov and click on the “Do Your Taxes for Free” button. This tool is especially helpful if your tax situation is not complex.

Other benefits provided under the CARES Act include the following.


1. No required minimum distributions for IRAs and defined contribution plans in 2020.

2. Penalty-free distributions of up to $100,000 from IRAs and employer-sponsored retirement plans for those who qualify. Distributions are tax-free if they are repaid within three years. If you can’t repay them within three years, you can spread your tax payments evenly between 2020, 2021, and 2022. It is easy to qualify for these tax-favored distributions. Criteria include financial hardships due to being quarantined, furloughed or working reduced hours.

3. Increased benefits and broadened eligibility for federal unemployment benefits. The CARES Act provides an additional $600 per week benefit beyond the benefits states pay. In addition, the CARES Act benefit extends another 13 weeks after the state benefit ends. “Gig” workers, freelancers, independent contractors, part-time workers and new hires are now eligible to claim unemployment benefits. To claim benefits under the new law, workers must be sick with COVID-19 or must be caring for someone who is. Other eligible workers include those who are prevented from working because of quarantine or other public measures imposed as a direct result of COVID-19.



Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to.