CARES Act Update: IRS Notice 2020-50 Expands Definition of Qualified Individual
On June 19, 2020, the IRS issued Notice 2020-50 which provides guidance for plan sponsors and participants under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). As explained in the March, 2020 Benefits Monthly Minute, the CARES Act contains provisions allowing plan participants who are “qualified individuals” to take coronavirus related distributions and loans. Notice 2020-50 expands the categories of “qualified individuals” eligible to take coronavirus related distributions and loans. As described in the March, 2020 Benefits Monthly Minute, the CARES Act defined a qualified individual as a participant who:
- Is diagnosed with COVID-19.
- Has a spouse or dependent who is diagnosed with COVID-19.
- Experiences adverse financial consequences because of one of the following events that occurred in connection with the COVID-19 pandemic:
- Being quarantined, furloughed, laid-off or having work hours reduced.
- Being unable to work due to a lack of child care.
- Closing or reducing the hours of a business owned or operated by the impacted individual.
- Other reasons specified by the Treasury Secretary.
As expanded under Notice 2020-50, a qualified individual is:
- A participant, the participant’s spouse or dependent who is diagnosed with COVID-19.
- A participant, the participant’s spouse or a member of the participant’s household (someone who shares the principal residence) who experiences adverse financial consequences because of one of the following events that occurred in connection with the COVID-19 pandemic:
- Being quarantined, furloughed, laid-off or having work hours reduced.
- Having a reduction in pay or self-employment income.
- Having a job offer rescinded or start date for a job delayed.
- Being unable to work due to lack of childcare.
- Closing or reducing hours of a business owned or operated by such individual.
Notice 2020-50 also makes clear that the plan administrator may rely on an individual’s certification that the individual satisfies the conditions for the distribution unless the administrator has “actual knowledge” to the contrary based on already possessing sufficiently accurate information to determine the veracity of the certification. The plan administrator does not have an obligation to inquire whether the conditions are met.
KMK Comment: The expansion of the criteria includes a reduction in pay or self-employment income, having a job offer rescinded or a start date for a job delayed, as well as expanding it to include members of the participant’s household. The term “members of the household” is broadly defined as someone who shares the participant’s principal residence without further qualification. It could be a roommate, any relative, or anyone living in the household. This broad definition will make it difficult for a plan administrator to know whether a certification is accurate.
Notice 2020-50 provides additional guidance regarding coronavirus related distributions and loans, including how qualified individuals will reflect the tax treatment of the coronavirus related distributions and loans on their federal tax filings. The Notice provides significant detail about these reporting requirements and can be found here.
The KMK Law Employee Benefits & Executive Compensation Group is available to provide you with more information about these requirements.
Lisa Wintersheimer Michel
Partner
513.579.6462
lmichel@kmklaw.com
John F. Meisenhelder
Partner
513.579.6914
jmeisenhelder@kmklaw.com
Helana A. Darrow
Partner
513.579.6452
hdarrow@kmklaw.com
Antoinette L. Schindel
Partner
513.579.6473
aschindel@kmklaw.com
Kelly E. MacDonald
Associate
513.579.6409
kmacdonald@kmklaw.com
KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.
