Tax Relief for Individuals provided by the CARES Act
We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. In addition to the extended filing and payment deadline to July 15, 2020 for your 2019 income tax returns that I previously told you about, I now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s $2.2 trillion economic stimulus package that the President signed into law on March 27, 2020.
Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joint returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17. This payment is not taxable.
Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $112,500 (head of household), and $150,000 (joint). Tax filers must have provided Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.
The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.
In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail. IRS will post all key information on https://www.irs.gov/coronavirus as soon as it becomes available.
Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.
According to IRS, economic impact payments will be available throughout the rest of 2020.
Unemployment Benefits . The CARES Act expands existing unemployment benefits in two material ways: (1) providing for an extra $600 weekly payment for all weeks of unemploymenmt between April 5 and July 31, 2020, in addition to the weekly benefit amount an eligible employee otherwise receives under state law; and (2) increases the maximum number of weeks an individual may receive benefits to 39 week, whereas previously states capped benefits at 26 weeks. For the first time, unemployment benefits are now extended to self-employed and part-time workers.
Waiver of 10% early distribution penalty. The additional 10% tax on early distributions (before age 59 ½) from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000 and may be repaid within three years and any resulting income inclusion can be taken over three years. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.
Waiver of required distribution rules. Required minimum distributions (RMD) that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019. If you are like most individuals whouse retirement assets have taken a hit in the current bear market, not having to take an RMD may allow those assets to recover some value before you liquidate them.
Charitable deduction liberalizations. The CARES Act makes a couple of significant liberalizations to the rules governing charitable deductions:
(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
(2) The limitation on charitable deductions for individuals that is generally 60% of adjusted gross income (AGI) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of AGI. No connection between the contributions and COVID-19 activities is required.
Student loans. An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021. If you have a federally-held student loan, your payments will be suspended through Sep 30, 2020 & interest won’t accrue during this period. Note: this relief doesn’t apply to private student loans.
Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.
Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.
As I mentioned previously, I will continue to wrok on filing returns as soon as possible. Please don’t hesitate to call me with questions about the above information or any other matters, related to COVID-19 or not.
I wish all of you the very best in a difficult time.