This weekend the Coronavirus Aid, Relief and Economic Security (CARES) Act was passed into law, with the intention of providing relief to taxpayers affected by the coronavirus (COVID-19). I imagine this is but one of many stimulus/emergency relief efforts to come, and the details will undergo much scrutiny in the coming months.

This is a massive and wide-reaching law. I’ve done my best to summarize the parts that I think will have the greatest interest or impact to early retirees and aspiring early retirees, although it will affect nearly everyone.

Key provisions of the CARES Act include recovery refund checks (a front-loaded refundable tax credit), access to savings (penalty-free IRA withdrawals), and a massive expansion of unemployment benefits along with incentives for employers to retain employees. Additionally, there is a new above-the-line deduction for charitable donations.

Recovery Refund Checks

A core part of the CARES Act is a cash infusion to taxpayers in the amount of $1,200 per adult and $500 per child. The refund is phased out if your Adjusted Gross Income (AGI) exceeds a threshold ($75,000 for Single filers, $150,000 for Married filing Jointly, or $112,500 for Head of Household.)

Technically this is a non-taxable refundable tax credit on your 2020 return, but you receive the funds now (soon.) Payments will be direct deposited to your bank account on record or mailing to your tax filing address.

If the Treasury has processed your 2019 return (or will soon) then your 2019 AGI will determine the amount you receive now. If not, then the 2018 return will be used. If your 2020 income is lower, you may receive more in 2021 when filing your 2020 tax return.

There is no clawback mechanism (you will never need to pay it back) so if you would receive more under your 2018 return than your 2019 return, then it is best to wait until you receive your check before filing for 2019. (This is our situation.)

Interesting nuance: I believe children born in 2020 will qualify for the $500 child credit on the 2020 tax return (e.g. the yet-to-be-named Sir GCC, Esquire) even though their payment won’t be front-loaded. (I’m still figuring this out.)

How did Congress settle on $1,200 per adult? No idea, but for perspective it is roughly equal to 4 weeks of full-time pay for somebody earning the Federal minimum wage of $7.25/hour.

Penalty-Free IRA Withdrawals

Normally withdrawals from an IRA are subject to a 10% penalty before age 59.5.

But if you’ve been “impacted by the coronavirus” you can make a coronavirus-related distribution of up to $100,000 without penalty.

Better, the tax burden on the withdrawal can be distributed over 3 years (2020, 2021, 2022.) And if you wish, you can repay the amount within 3 years and file an amended tax return for a refund of taxes paid.

“Impacted by” is fairly loosely defined – either you/spouse/dependent were diagnosed with COVID-19 or you experienced “adverse financial consequences” due to quarantine/layoffs/work hours reduced/etc…

This option could be useful for somebody looking for funds to bridge the gap between retirement and age 59.5, or where early withdrawals will help reduce future tax burden if your 401k is too big.

Deferred Self-Employment Taxes

Self-employed people are required to pay both the “employee” and “employer” portion of payroll taxes.

Use our Self-Employment Tax Calculator to estimate the impact.

With the CARES Act the employer portion for the remainder of 2020 can be deferred, with 50% due on Dec 31, 2021 and 50% due on Dec 31, 2022.

This can be a big help for cash flow. (For example, we paid $9,663 in SE taxes in 2018 – delaying payment of half as much wouldn’t be terrible.)

Of course, if circumstances mean that you have zero self-employment then this is of little help. But unemployment benefits have also been extended to the self-employed…

Paycheck Protection Program Loan and/or Pandemic Unemployment Assistance

Normally gig workers, contractors, and the self-employed are not eligible for unemployment benefits.

However, for those impacted by the coronavirus there are 2 avenues of support:

Paycheck Protection Program Loan – borrow up to 2.5x your average monthly payroll costs (this included net earnings from self-employment.) These loans can be fully forgiven when used for approved expenses (payroll, business rent, utilities, employee health insurance, etc…)

Alas, this is not helpful for us – payroll costs shall not include “any compensation of an employee whose principal place of residence is outside of the United States

– Pandemic Unemployment Assistance

Unemployment benefits through your State of residence, to compensate for loss of income due to the coronavirus

Above-the-Line Charitable Deductions

After the Tax Cuts and Jobs Act (2017) it became necessary to itemize deductions in order to get a tax benefit from charitable contributions.

Now, with the CARES Act, it is possible to deduct up to $300 of contributions per person made directly to a qualifying organization (no contributions to donor-advised funds) without itemizing.

The tax benefit to the donor is small, but hopefully encourages more people to give during these challenging times.

Ideas for Charitable Giving

Looking to make an impact by donating all or part of your Relief Payment while getting a tax deduction to boot? Here are some ideas:

Get Us PPE – help healthcare workers and front line fighters get the Personal Protective Equipment they need

Feeding America – their network of food banks is helping provide food security to people in need

Meals on Wheels – Seniors are particularly vulnerable to COVID-19. Help them get reliable meals without risking exposure.

Please share your own ideas in the comments.

References and Other resources:

Full text of the Coronavirus Aid, Relief, and Economic Security Act

COVID-19 Small Business Tax Relief – Evergreen Small Business

Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic –

Tax Aspects of the CARES Act – Forbes

What’s In It For You? $1,200 Checks, 13 Weeks Of Unemployment Payments And More – NPR

Where the money goes in the US Senate’s $2T coronavirus stimulus bill – reddit, beautiful chart

Our Recovery Refund Check Calculator – use to determine your own benefit


With large portions of the economy on hold, the CARES Act seems focused on helping individuals and businesses stay afloat until sufficient COVID-19 testing is in place. At that point we can take small steps towards normalcy. This will likely take months, so this may be just one of many stimulus efforts.

Key provisions of the CARES Act include recovery refund checks (a front-loaded refundable tax credit), access to savings (penalty-free IRA withdrawals), and a massive expansion of unemployment benefits along with incentives for employers to retain employees. Additionally, there is a new above-the-line deduction for charitable donations.

Most people will receive some amount of recovery refund in the coming weeks. Calculate your benefit here.