CARES Act Provisions Update

The Internal Revenue Service (IRS) has now released Notices 2020-50 and 2020-51 providing additional guidance on Coronavirus-Related Distributions (CRDs), loan relief under section 2202 and the waiver of the required minimum distribution (RMD) for the 2020 tax year.

Below are some key highlights.

  • IRS Notice 2020-50 expanded the definition of “qualified individuals” eligible for the CRD and loan relief to include any individuals who:
    • are diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “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),
    • experience adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who share 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
      • closing or reducing hours of a business that they own or operate due to COVID-19
      • having pay or self-employment income reduced due to COVID-19
      • has a job offer rescinded or start date for a job delayed due to COVID-19
  • Clarifies self-certification, administrators may rely on an individual’s self-certification unless they have actual knowledge to the contrary.
  • Employer Safe Harbor for Loan Repayment Suspension specifically resuming loan repayments after the end of the suspension period.
  • Qualified individuals are permitted to designate a distribution as a CRD even if the distributing plan chooses not to make CRDs available. The individual will be responsible for reporting the distribution as a CRD when filing their 2020 federal income tax return by completing form 8915-E.
  • Extension of the deadline for rolling over waived RMDs paid to plan participants. Specifically, RMDs received during 2020 can be recontributed, via a rollover, by 8/31/20 without regard to the normal 60-day limitation.

As before, plan sponsors will need to first decide if they want to permit any of the CARES Act provisions. Many investment companies have developed paper forms to accommodate the various CARES Act provisions. In many cases, before a CARES Act provision is available to a participant, the investment company requires a CARES Act election to be completed first.