IRS Guidance for Coronavirus-related Distributions and Loans under the CARES Act

The Internal Revenue Service (IRS) released Notice 2020-50 which provides guidance on coronavirus-related distributions (CRDs) and loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act.   

The most notable aspect of this notice was the expansion of the definition of who can be a ‘qualified individual’ to receive a distribution. The CARES Act originally defined a ‘qualified individual’ as an individual:

  • Diagnosed with coronavirus  
  • Whose spouse or dependent is diagnosed with coronavirus  
  • Who is experiencing adverse financial consequences, such as:
    • Furloughed or laid off 
    • Work hours reduced  
    • Inability to work due to a need to provide childcare  
    • Closing or reducing hours of a business  
    • Other factors that may be determined by the Secretary of Treasury 

Notice 2020-50 expands the definition of ‘qualified individual’ to also include an individual who has experienced adverse financial consequences as a result of: 
  • A reduction in pay (or self-employment income) due to coronavirus or having a job offer rescinded or start date for a job delayed due to coronavirus.  
  • The individual’s spouse or a member of the individual’s household, as a result of the coronavirus: 
    • Being quarantined, being furloughed or laid off, or having work hours reduced 
    • Being unable to work due to lack of childcare 
    • Having a reduction in pay (or self-employment income) due to coronavirus 
    • Having a job offer rescinded or start date for a job delayed 
    • The closing or reduction of hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to coronavirus.

This notice defines a member of the individual’s household as someone who shares the individual’s principal residence. This clarifies a question that many plan sponsors had regarding access to CRDs due to the financial impact on household members, even if they did not have coronavirus. It recognizes that the pandemic can result in significant financial hardship whether one contracts the coronavirus or not.   

In addition, the Notice confirmed and expanded on other CARES Act provisions: 

  • Clarifies the types of distributions that can and cannot qualify for CRDs 
  • Indicates the amount of a CRD does not need to relate to the extent of need or financial hardship of the person taking the distribution 
  • Explained how CRDs can be recontributed to a retirement plan and provided several tax reporting scenarios for individuals who are able to recontribute their CRD. 
  • Confirmed that employers are not required to offer CRDs 
  • Confirmed that employers can rely on an individual’s certification for a CRD and provided a sample certification letter
  • Provided guidance and examples for employers on suspending loan payments for qualified individuals 

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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