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The CARES Act: How It Could Affect You

Apr 09, 2020 2 min read Michael DiChiara

Key Takeaways

  • The CARES Act will provide relief payments to most Americans.
  • Families may receive $500 per child.
  • Your payment depends on your income.

 

 

In late March, Congress passed the Coronavirus Aid and Economic Security (CARES) Act. Opens in new window This $2 trillion aid and stimulus package aims to prevent an economic plummet in the wake of the COVID-19 crisis. Beyond providing financial help to businesses, local governments and hospitals, the CARES Act aids individuals with direct payments to those who qualify (starting with a Social Security number). Here are key elements of the bill that could impact you directly.

 

Cash payments

While most Americans will receive a one-time payment — essentially a tax rebate — the amount you’ll get depends on the adjusted gross income (AGI) you reported on your 2019 tax return (or your 2018 return if you haven’t filed yet).

Specifically, individuals with AGIs up to $75,000 will receive $1,200. The payment gets smaller for incomes over $75,000 and phases out entirely for AGIs above $99,000.

The rules are similar for married couples filing jointly: They’ll receive $2,400 for combined income up to $150,000, with payments decreasing up to $198,000.

Additionally, families receive $500 for each dependent child age 16 or younger.

If the IRS has your bank account information on file, they’ll deposit the money directly into your account; if not, they’ll send you a check.

 

Penalty-free IRA and 401(k) withdrawals

If you’re under age 59½, the CARES Act waives the 10% early-withdrawal penalty on “coronavirus-related distributions” up to $100,000 from IRAs and 401(k)s. (To qualify you’ll have to show that you’ve been affected by COVID-19 either medically or financially.) The law also gives you three years to recontribute the money you withdraw and still maintain your account’s tax benefits.

 

Bigger unemployment benefits

Unfortunately, a record number of workers have lost jobs due to the coronavirus pandemic. If you’re among them, the CARES Act increases your unemployment insurance with 13 extra weeks of benefits and by adding $600 a week to whatever amount you qualify for from your state. This payment increase will last through the end of July.

Typically, self-employed people, contractors and freelancers can’t apply for unemployment benefits. But under the CARES Act, a temporary Pandemic Unemployment Assistance program will help affected gig workers through the end of the year.

 

 

What you can do next

Look at your 2019 (or 2018) tax return to determine how much you’ll receive from the IRS — then figure out the best way to put it to use. Please consult your tax and legal advisors regarding your particular circumstances.

Footnotes

 

Michael DiChiara is an editorial manager at Prudential.

 

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