Additional guidance regarding the CARES Act

Close up of CARES Act document

I want to pass along some quick information on a new IRS notice (Notice 2020-50) that was issued last Friday, which provides additional guidance regarding the CARES Act.

There are lots of helpful details in the notice, but the key piece that I want to mention is that it expands the list of individuals who qualify for coronavirus-related distributions.

  • Generally. You may recall that the CARES Act generally allows a qualified individual to take a coronavirus-related distribution of up to $100,000 from certain retirement plans, including 401(k) plans. These distributions have special tax treatment. There are specific rules related to these distributions.
  • Prior rulequalified individual. Under the CARES Act itself, a qualified individual is an individual:
    • who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act);
    • whose spouse or dependent is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
    • who experiences adverse financial consequences as a result of (a) the individual being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19; (b) the individual being unable to work due to lack of childcare due to COVID-19; or (c) closing or reducing hours of a business owned or operated by the individual due to COVID-19.
  • New rule – Expands definition of qualified individual. The IRS notice issued on Friday adds to the list of those who qualify, such that a qualified individual now additionally includes an individual who experiences adverse financial consequences as a result of:
    • the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
    • the individual’s spouse or a member of the individual’s household (someone who shares the individual’s principal residence) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
    • closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

The second bullet under “New rule” regarding spouses and members of an individual’s household will be particularly helpful/interesting to many employers.