So far in 2020, Congress has passed 3 bills aimed at mitigating the economic impact of COVID-19 and putting money into the economy. The most recent is the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Some of the key provisions in the CARES Act expired at the end of July. On August 8, the president signed an executive order and memoranda to extend certain economic relief measures for individuals and families.
The executive action came after weeks of negotiations over a fourth phase "stimulus" package broke down between Republicans and Democrats. The new executive action could face legal challenges from Congress; however, any attempts to roll back the economic relief could be viewed as harming those already adversely impacted by the pandemic. There is still a great deal of uncertainty regarding how the executive action could be implemented and federal departments may issue further guidance on individual measures in the coming days and weeks.
Here's a broad look at what we know about the executive orders and some of the key provisions in recently passed legislation and IRS guidance.
1. 4 executive orders signed August 8
- Social Security payroll tax deferral is authorized beginning September 1 for taxpayers who earn less than $104,000 per year. As currently written, this would be at the discretion of employers and applies to the deferral of withholding, deposit, and payment of a portion of the Social Security taxes. Under the executive order, the 6.2% Old Age, Survivors, and Disability Insurance (“OASDI”) tax that would be paid on an employee’s wages or compensation on or after September 1, 2020, through December 31, 2020, will be deferred. The Medicare 1.45% tax on an employee's wages or compensation would still be in effect. The deferral of the employee's share of taxes only applies to employees with bi-weekly, pre-tax income of less than $4,000, or a similar amount using a different pay period.
- Enhanced unemployment insurance benefits were extended at a reduced level through December 6 or until the funds are expended. Under the CARES Act, up to $600 in enhanced unemployment benefits was available from the federal government in addition to state benefits. This provision expired July 31. The order from the president set the level of benefits at $400, with $300 paid from a Department of Homeland Security disaster relief fund and $100 to be provided from the state.
- The provisions of the CARES Act pausing interest and payments on federal student loans have been extended through December 31, 2020. For federal student loan borrowers, no payments will be due until 2021.
- Under the CARES Act, some evictions and foreclosures were suspended for a period of time. The provisions covered renters receiving federal housing assistance and homeowners with mortgages owned, securitized, or insured by a federal agency like Fannie Mae, Freddie Mac, or the Department of Housing and Urban Development, among others. Though the Federal Housing Finance Authority extended the moratorium on foreclosures by these agencies through at least August 31, 2020, the moratorium on evictions expired at the end of July.
The fourth executive order directs federal agencies and the Treasury Secretary to study the issue of evictions and evaluate options for relief.
2. Direct payments to many Americans were made in the spring
The CARES Act included a provision to send most Americans one-time direct payments of $1,200, or $2,400 for joint filers, plus $500 for each child.
3. Some retirement account rules have been relaxed
The CARES Act offered some help to those with retirement accounts:
- Required minimum distributions (RMDs) for 2020 were suspended for participants and beneficiaries in certain defined contribution plans and IRAs, including 401(k), 403(b), and governmental 457(b) plans as well as SEP IRAs, SIMPLE IRAs, and traditional IRAs. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020.
- Affected, qualified individuals with accounts in workplace retirement plans and IRA owners can take an aggregate "CARES Act distribution" on or after January 1, 2020, and before December 31, 2020, of up to $100,000 from all retirement accounts without incurring the usual 10% early withdrawal penalty. Any income tax that may be required for such distributions may be spread evenly over a 3-year period unless the individual elects otherwise. There are a couple of ways for a person to be a "qualified individual" to be eligible for a CARES Act distribution:
- If an individual, their spouse, or dependent is diagnosed with COVID-19, or
- If the individual experiences adverse financial consequences as a result of events impacting them, their spouse, or household member related to the coronavirus, including, but not limited to, quarantine, furlough, layoffs, reduced work hours, no available childcare, business closing or reduced business hours (self-employed), having pay reduced or a drop in income from self-employment, and the rescission of a job offer due to COVID-19 or a delayed start date in a new job. Within workplace retirement plans, distribution options can vary based on the plan type and rules.
- The distribution may be repaid to an eligible retirement plan within a 3-year period.
- Loan repayments for affected participants in workplace retirement plans may be deferred for the period March 27, 2020, through December 31, 2020, if allowed under an employer's plan. These changes will be in effect through 2020.
Note that your workplace savings plan may offer other withdrawal options.
Read Viewpoints on Fidelity.com: Thinking of taking money out of a 401(k)?
4. Paid sick and family leave available for more workers
Paid leave is required for more employees by the Families First Coronavirus Response Act. These provisions apply to businesses of 500 employees or less. Businesses with 50 employees or less may be exempt from the paid leave provisions.
Eligible employees must be allowed up to 2 weeks (or 80 hours) of paid sick time:
- At their regular rate of pay if the employee is unable to work due to quarantine or experiencing COVID-19 symptoms and seeking a medical diagnosis.
- Or, at two-thirds their regular rate of pay to care for someone who is ill or to take care of a child whose school has been closed as a result of COVID-19.
The CARES Act caps these payments at $200 or $511 per day or an aggregate payment of $2,000 or $5,110, depending on the reason for leave.
Family leave was expanded under the Families First Coronavirus Response Act. Affected employees are entitled to up to 10 additional weeks of leave with job protection at two-thirds their regular rate of pay to care for school-age children whose school or child care provider has been closed or is unavailable due to a public health emergency.
The CARES Act capped family leave payments at $200 per day and $10,000 in aggregate.
The provisions under the Families First Coronavirus Response Act are in effect through December 31, 2020. For more information, visit DOL.gov.
5. Unemployment insurance has been expanded
The Families First Coronavirus Response Act provides up to $1 billion in aid to the unemployment insurance system.
The CARES Act also expanded unemployment insurance. These provisions expired at the end of July.
The executive order signed by President Trump on August 8, 2020 extended enhanced unemployment benefits at a reduced level through December 6, 2020 or until the fund is expended.
6. Tax credits for the self-employed may be available
The Families First Coronavirus Response Act includes help for people who are self-employed. It includes a tax credit for sick leave and family leave of up to $200 a day or 67% of average daily pay.
It also allows for up to $500 a day for emergency paid sick leave for quarantine or testing for COVID-19, or 100% of average daily pay.
These provisions expire December 31, 2020.
7. Federal student loan payments, interest waived
On March 13, 2020 the president announced that interest would be waived on federal student loans. Legislation codifying that order is retroactive to March 13.
The CARES Act suspended payments on federal student loans for 6 months.
The executive order signed by President Trump on August 8, 2020 extended the suspension of federal student loan payments through December 31, 2020.
Learn more about COVID-19 and education at Studentaid.gov.
8. More funding available for health care and expanded coverage
Under the CARES Act, testing for COVID-19 must be covered by private health insurance without cost sharing. Any vaccines for COVID-19 must be covered as well without cost sharing.
The CARES Act provides funding for health care providers and suppliers, including extra Medicare payments to hospitals to cover COVID-19 treatment and extra funding to community health centers.
The act expands coverage of telehealth services under Medicare. It also allows high-deductible health plans with health savings accounts (HSAs) to cover telehealth services even if patients have not met their annual deductible.
For health savings accounts, health flexible spending accounts, and health reimbursement arrangements, the act includes over-the-counter (OTC) medicines (without a prescription) and feminine products as qualifying medical expenses that can be reimbursed by these accounts.
9. Above-the-line deduction for charitable contributions
The CARES Act allows for a $300 above-the-line deduction for cash charitable contributions made to 501(c)(3) organizations for taxpayers who take the standard deduction.
The act also relaxes the limit on charitable contributions for itemizers—increasing the amount that can be deducted from 60% of adjusted gross income to 100% of gross income.
These changes went into effect beginning in the 2020 tax year.
Both of these provisions explicitly exclude enhanced deductions for contributions to 509(a)(3) charitable organizations (commonly known as sponsoring organizations) or donor-advised funds.