Financial relief for millions of Americans is the objective behind the Coronavirus Aid, Relief and Economic Security (CARES) Act, a stimulus plan enacted by the federal government. Here's a summary of key provisions.

Stimulus payments

The CARES Act (the Act) provides a "Recovery Rebate" of $1,200 for each taxpayer, or $2,400 for a married couple filing a joint return. You will receive an additional payment of $500 for each child in your household who will be under age 17 throughout all of 2020.

Rebate amounts start to get phased out for taxpayers with adjusted gross income (AGI) of more than $75,000 ($150,000 for married taxpayers filing jointly). The amounts are entirely phased out at AGI of more than $99,000 ($198,000 for joint filers with no children). Visit irs.gov/coronavirus for more information.

Expansion of unemployment benefits

The stimulus plan extends eligibility for unemployment benefits to include self-employed workers, independent contractors and certain other individuals. The Act also funds an additional $600 per week through the end of July 2020 for anyone who qualifies for unemployment. The normal 26-week benefit period has been extended by an additional 13 weeks through December 31, 2020. Contact your state's unemployment agency for more information. Links to state unemployment program websites can be found here.

Increased access to retirement funds

Under the Act, employers may give their employees more flexibility to access funds in their 401(k) or other qualified retirement plan while still in their active career. Use caution before tapping funds invested for your retirement. But if you're short on options for staying current on your bills in this turbulent economy, consider taking advantage of the following opportunities created by the Act. (Be aware that not all plans offer employees access to their retirement savings while employed. Check with your benefits department about this.)

Penalty-free withdrawals. Typically, if you're younger than 59½, you might face a 10% penalty – in addition to regular income tax – if you withdraw money from your qualified plan while still employed. But in 2020, if you take money out of your plan due to a coronavirus-related financial hardship (assuming the plan allows in-service withdrawals), the penalty will be waived, regardless of your age. Withdrawals are limited to $100,000 or less. The penalty-free withdrawals provision also applies to IRAs. 

If you put withdrawn funds back into any qualified plan or an IRA within three years, no tax or penalty will be due on the distribution. If you don't repay the money within three years, you'll owe tax, but no penalty. You'll have two options for when and how to pay the tax on the taxable amount distributed to you: either pay it all in the year of the distribution or spread it out over three years.

Loans. Some employers allow employees to borrow against their savings in a qualified plan. Generally, federal law limits loans from a qualified plan to either $50,000 or 50% of the employee's vested balance, whichever is less. The CARES Act doubles the loan limit for qualified individuals who need funds for reasons related to the coronavirus. No income tax will be due on the amount borrowed if it's paid back within five years.

Suspension of required minimum distribution (RMD) rules

Once you reach a certain age (raised from 70½ to 72 under the SECURE Act signed in December 2019), the IRS generally requires you to start withdrawing at least a certain amount of money – a "required minimum distribution" or "RMD" – from your qualified plan or traditional IRA each year. However, the CARES Act suspends all RMD rules for 2020. This waiver applies to all individuals who were subject to an RMD requirement in 2020, regardless of whether they were financially impacted by the pandemic.

Student loan relief

Payments on qualified federal student loans can be deferred until September 30, 2020. Interest will not accrue while payments are suspended. To find out whether your loans qualify for this relief and to take advantage if they do, contact your student loan provider.

Health plan improvements

A plan sponsor may now allow an eligible high-deductible health plan (HDHP) with a health savings account (HSA) to cover telehealth services before patients meet their deductible.

Also, patients may now use funds in a health savings account (HSA) or health care flexible spending account (FSA) to purchase over-the-counter medications.

Easier charitable deductions

On your 2020 federal tax return, you'll be allowed to deduct up to $300 in cash donations to qualified charities even if you don't itemize deductions. Also, if you do end up itemizing on your 2020 return, the normal limit (60% of your AGI) on deductions of cash contributions will be waived for the year. So, for cash contributions, you'll be allowed to take a charitable deduction of up to 100% of your AGI.

Speak with your Ernst & Young LLP (EY) financial planner about any questions you may have.

This material is provided solely for educational purposes; it does not take into account any specific individual facts and circumstances. It is not intended, and should not be relied upon, as tax, accounting, or legal advice.