Your Financial Future: Issues with the CARES Act
The CARES Act was passed into law to help deal with the financial fallout from COVID-19. Today, we will discuss some of the issues that have arisen from this law. Most people over 17 were scheduled to receive a check for $1,200. This money is nontaxable. Eligibility is based on either your 2018 or 2019 income tax return. Whichever one was received last would be used to consider eligibility.
Some people have received less than this amount. There could be several reasons for this. First there was an income test. If you earned more than $75,000 for a single tax filer or $150,000 married filing jointly, your payment would decrease. This phase out reduced payments the more you earned. For single people you received nothing after earning $99,000 and for married after $198,000. If people were divorced or separated, each individual received their share.
If you had children 17 or younger, the legal parent received $500 for each of them. You also must have been able to claim the child as your dependent on your tax return. The children must be either U.S. citizens, permanent residents or qualifying resident aliens.
Some people did not receive stimulus money because they were delinquent with past due child support. Some other creditors may have filed past due claims against you. If this should happen, the IRS will send you a notice explaining what happened.
Some people received checks that should not have. Last week the IRS sent out notices that if funds were sent to a person now deceased, the estate that received checks must return the money. Right now, their position is if you received the check before you died, your family can keep it, if it arrived after death, it must be returned. Some people received checks weeks ago and other still have not received them yet. This becomes very confusing. It would be clearer if there was one date established like maybe the date the bill became law?
If you received a paper check and still have it, the IRS wants you to write void in the endorsement section on the check and include a short note explaining why you are sending it back. If you received a direct deposit, they want you to immediately submit a personal check or money order. You should write on your check, 2020EIP and the deceased persons SS number.
For all Pennsylvania residents, the money should be returned to Philadelphia Refund Inquiry Unit, 2970 Market St, DP 3-LO8-151, Philadelphia, PA 19104.
Another part of the CARES Act allows required minimum distributions from your qualified retirement accounts to be skipped in 2020. This includes RMDs on inherited IRAs. Taxes will have to go way up in the future to pay for all of these government programs. You may want to consider Roth conversions this year. That is when you take some of your qualified money and pay taxes on it now. If you are over age 59陆 and have a Roth for at least five years, you do not pay taxes on the gains. With market values lower and probably never a lower tax rate than today, it may make sense to consider this option.
No one really knows how quickly the economy will recover to where it was in early February. Make smart decision now to better position your family for whatever happens.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.