The Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27, 2020.

A $2 trillion emergency fiscal stimulus package, the Act is designed to provide relief for workers and businesses severely impacted by the COVID outbreak.

At almost 900 pages, the CARES Act is complex. It encompasses a wide range of benefits and planning opportunities—including several notable and relevant highlights that pertain to our clients.

Recovery Rebate

Under the CARES Act, a one-time direct payment of up to $2,400 for married couples and $1,200 for all other filers, plus an additional $500 for each child under age 17, is available to taxpayers.

The payment has an adjusted gross income threshold of $150,000 for married couples and $75,000 for individuals. Above these income levels, the payment decreases. Couples (with no children) who make $198,000 or more and singles who make $99,000 or more are not eligible for a rebate. Couples with two children would no longer be eligible at $218,000.

Here’s where it gets a little cumbersome: The recovery rebate will be paid based on the most recent tax return filed by the taxpayer, either 2018 or 2019. However, the rebate is actually a tax credit for 2020.

Basically, Congress is “fronting” taxpayers an estimated amount, and it is “trued up”—adjusted based on actual income—from the 2020 tax return.

What does that mean for you?

If your 2018/2019 income is well above the threshold, but your 2020 income is below, then you effectively must wait until April 2021 (or whenever you file taxes) to be paid.

If your 2020 income is much higher than it was in 2018/2019, there is no “clawback”—that is, repayment due—on the “excess payment” when you file your 2020 return. You get to keep the recovery rebate.

Retirement Account Rules Suspended

For the 2020 tax year, all required minimum distributions (RMDs) are waived, including inherited IRAs.

This presents several opportunities, depending on your specific situation.

Although not required, it could be advantageous to withdraw enough funds to maximize a lower tax bracket while continuing to shift funds out of these pre-tax accounts.

Another planning strategy includes a Roth IRA conversion. Normally, RMDs cannot be converted to Roth IRAs, but since there are no required distributions for 2020, you could withdraw IRA funds at lower values given the market decline and subsequently pay a lower tax rate on the conversion.

Here’s our Lead Advisor, Rob Greenman, to break down this strategy and a few others:


Additionally, if you took the RMD earlier in the year—prior to the CARES Act—you may be able to return the funds to the account.

Charitable Deductions

Up to $300 of charitable contributions made in cash and not to a Donor-Advised Fund (DAF) can be deductible, providing a taxpayer doesn’t itemize deductions.

The CARES Act also increases the adjusted gross income limit on cash contributions made to public charities, not including DAFs, to a maximum of 100%. This means an individual can completely wipe out a 2020 tax liability with charitable contributions.

Other Notable Provisions

The definition of qualified medical expenses for Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) has been expanded to include over-the-counter medications.

Federal student loan payments can be deferred until September 30, 2020. Interest does not accrue during deferment.

For Additional Information

Your Vista team is proactively reviewing opportunities under the CARES Act.

If you have questions about provisions, please reach out to Vista or your tax professional.