IRS Issues More CARES Act Eligibility and Plan Loan Guidance

The IRS has issued Notice 2020-50, providing additional guidance on several aspects of the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, legislation enacted in March of this year in response to the coronavirus (COVID-19) pandemic.

A “qualified individual” who has experienced health or financial effects from the COVID-19 pandemic is eligible for certain retirement plan distribution, penalty exemption, plan loan and loan repayment, taxation, and repayment benefits.

Qualified Individual Further Defined

Initial guidance defines a “qualified individual” as

  • an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
  • an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Notice 2020-50 adds new circumstances to the definition of “qualified individual.”

  • An individual who has experienced a reduction in pay (or self-employment income) due to COVID-19, or has had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has
    • been quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
    • been unable to work because of a lack of childcare due to COVID-19,
    • had a reduction in pay (or self-employment income) due to COVID-19; or
    • had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has experienced the closing or a reduction of hours of their business due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

CARES Act Loans

Notice 2020-50 provides examples of how to apply the special plan loan provisions of the CARES Act, and includes a safe harbor method. In addition, the Treasury Department and IRS recognize that there may be additional reasonable ways to administer loan repayments under the CARES Act.

This guidance is being further analyzed, and additional details will be shared.