Details of Newly Passed CARES Act: Welcome Relief Plus Planning Opportunities


Individuals – $560 billion (est.):

  • Direct payments: $1,200 to individuals earning up to $75,000 (incrementally reduced up to $99,000) and $2,400 for couples filing jointly with annual incomes up to $150,000 (incrementally reduced up to $198,000). In addition, $500 payment per dependent child.
  • $600 per week in additional unemployment insurance for up to four months, including for affected gig workers, certain caregivers, and the self-employed.
  • Extension on 2019 tax returns and IRA deposits until July 15.
  • Waiver of the 10% early withdrawal penalty tax on early withdrawals up to $100,000 from a retirement plan or IRA for those affected.
  • Suspension of 2020 Required Minimum Distributions.
  • Permission to pause student loan payments until September 30 with no interest.
  • Charitable contribution deduction: Allows an “above the line” charitable deduction for up to $300 of cash contributions to qualifying public charities, even if the individual takes the standard deduction.
  • Suspension of the 60% adjusted gross income limitation for charitable contributions: Individuals could receive a charitable contribution deduction for up to 100% of their 2020 adjusted gross income.

Small Business (up to 500 employees) – $377 billion:

  • Relief for existing loans: Support to cover six months of payments for small businesses already using SBA loans.
  • Tax credit: A refundable payroll tax credit of 50% of employee wages (up to $10,000) per employee for businesses forced to fully or partially suspend operations or that experience a year-over-year decline in gross receipts of 50% or more.
  • Emergency grants: For grants up to $10,000 to provide emergency funds to cover immediate operating costs.
  • Expanded flexibility for use of Net Operating Losses (NOLs).
  • Forgivable loans: Loans up to $10 million per business. Portions of the loan can be forgiven provided workers stay employed through the end of June.
  • Employers can pay up to $5,250 toward employee’s student loans without the employee incurring taxes.
  • Business interest expense deduction limit has been increased from 30% to 50% for 2019 and 2020.
  • 2020 employer payroll tax payments can be deferred – half due in each 2021 and 2022.

The Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law on March 27, 2020 and provides $2.2 trillion in stimulus to help the economy recover from the dramatic changes brought on by the COVID-19 pandemic. The Act is designed to offer individuals and businesses significant flexibility to recover from the anticipated recession as parts of the economy are forced to slow or shut down. Details of the Act’s provisions concerning individuals and small businesses are included in the sidebar.

To put this into context, this $2.2 trillion is sizable relative to the $20 trillion United States GDP and the $4.7 trillion federal budget. While CARES will most certainly add to the deficit, the government’s intention is to deliver an aggressive shock to the system by putting money directly into people’s hands and incentivizing businesses to keep people employed.

While many individuals will greatly benefit from the individual checks and expanded unemployment payments included in the CARES Act, those fortunate to be employed or with incomes above certain thresholds are unlikely to see an immediate cash impact. However, a number of the Act’s other provisions provide opportunities for strategic planning.

Key CARES Act Provisions

The headliner of the CARES Act, the individual stimulus payment, will send $1,200 checks to single individuals with income less than $75,000 and $2,400 to married couples with income less than $150,000, phasing out at $99,000 and $198,000, respectively. While many high-income individuals will not qualify, their young adult children (potentially even college age students) may be eligible to receive a check.

For example, a college-aged son who has worked summers and part time during the school year who earns enough to provide for at least half of his basic needs can file his own tax return, claim himself as a dependent, and take the 2019 $12,200 standard deduction. If he is not a dependent on anyone else’s tax return, he would be eligible for the $1,200 payment. Furthermore, at his modest income level he may also be eligible for the $1,000 refundable portion of the American Opportunity Tax Credit.

For parents wondering how to start a conversation with this short-term cash infusion, a teachable moment could be to encourage him or her to invest while equity markets are depressed by offering to match any funds invested in a Roth IRA. The stimulus check combined with the American Opportunity Tax Credit could mean investing as much as $4,400 – $2,200 plus the parental match – into a Roth IRA at low prices. That money, compounded at 7.2% over 45 years, could grow to $100,000!

RMDs and Other Retirement Account Related Strategies

Retirees who have other sources of income or sufficient cash may want to rethink their RMD strategy for 2020. The CARES Act suspends required minimum distributions in 2020. This is welcome news for retirees who don’t want to withdraw assets out of beaten down retirement accounts and instead want to give those assets time to recover.

For those who rely on RMDs to address a portion of their retirement needs, the non-taxable stimulus payment may enable a reduction in taxable RMDs.

Unrelated to the CARES Act, retirees, or those approaching retirement, may find that 2020 represents a window of opportunity to convert beaten down traditional IRAs to Roth IRAs. Business owners, in particular those facing a negative pass through income in 2020, may find they can complete a Roth conversion with modest tax consequences.

Provisions for Businesses

A number of the provisions written into the CARES Act to help adversely impacted employers and small businesses are potentially very meaningful. The Act provides a refundable payroll tax credit of 50% of wages up to $10,000 per employee to help businesses keep people employed.

The CARES Act reintroduces another significant tax provision affecting small business – the carry forward/back of net operating losses (NOLs). Prior to the Tax Cut and Jobs Act of 2017, businesses were able to carry back NOLs two years and carry forward up to 20 years. The CARES Act is far more generous and may enable companies to amend returns as far back as 2016. This provision will create significant cash relief for businesses.

Certainly, a cornerstone of the CARES Act is the “Paycheck Protection Program.” The Small Business Administration (SBA) loan program will have great latitude to provide low interest rate loans (not to exceed 4%) for “payroll support,” which includes salaries, mortgage payments, insurance premiums and medical/sick leave. These non-recourse loans are available for small businesses (including sole proprietors, independent contractors, and other self-employed individuals) and other organizations with 500 or fewer employees who certify that this loan is necessary to support ongoing operations and will be used to retain workers or meet debt obligations. Loans are available up to the lesser of 2.5 times average payroll cost or $10 million.

Perhaps of most interest to business owners is that loan principal can be forgiven. Under the CARES Act, the amount eligible for forgiveness includes payroll costs, rent, utilities, and mortgage interest incurred between February 15, 2020 and June 30, 2020.  If employee headcount or compensation is reduced beyond certain levels, forgiven amounts will be reduced proportionally. The amount of principal forgiven is not reportable as taxable income.

The Act also has a provision allowing employers to pay back their employee’s student loans of up to $5,250 without the employee incurring taxes. This can be an effective way to support struggling employees. The business interest expense deduction limit has been increased from 30% to 50% for 2019 and 2020. Finally, 2020 employer payroll tax payments can be deferred – half due in each 2021 and 2022.

Charitable Provisions

While the CARES Act provides two provisions affecting charitable giving, these moves are unlikely to have a significant economic impact. However, they could have a substantial “feel good” effect that encourages charitable giving to help those in need and supports the non-profit sector. The Act allows a $300 above the line deduction for those who don’t itemize. For those who do, the act removes the deduction limit of 60% of adjusted gross income and also allows for the recapture of prior years’ carry forward contributions. While it is uncommon for people to give away more than 60% of their adjusted gross income, some wealthy families can and do. Charities and our communities in general will be immensely grateful for those who choose to be even more generous during this difficult time.


In uncertain and unsettling times, the CARES Act represents welcome news of relief and support for many Americans. While one of the most publicized provisions of the Act is the individual stimulus payment, most wealthy individuals will not qualify for this payment. However, the Act still provides many opportunities for strategic planning for individuals and small businesses at all income levels from tax credits to loans. While reading the newly released, 880-page document could be daunting, talking to your tax and financial advisors to assess your situation and identify possible planning techniques and opportunities is the right place to start.

Wealthspire Advisors LLC is a registered investment adviser and subsidiary company of NFP Corp.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, Certified Financial Planner™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2023 Wealthspire Advisors

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