As part of the Federal economic response to the COVID-19 crisis, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides relief for individuals, businesses, not-for-profits, among others. Below we dive into the most important provisions for individuals and how they will benefit and impact you and your family.
Individual Recovery Rebate/Credit
Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of: $1,200 ($2,400 for eligible individuals filing a joint return) + $500 for each qualifying child of the taxpayer. The credit is refundable.
An “eligible individual” is any individual other than a nonresident alien or an individual for whom a dependency deduction is allowable to another taxpayer for the tax year. Estates and trusts aren’t eligible for the credit.
The amount of the credit is reduced (but not below zero) by 5% of the taxpayer’s adjusted gross income (AGI) in excess of: $150,000 for a joint return, $112,500 for a head of household, and $75,000 for all other taxpayers.
If an individual hasn’t yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer’s 2018 return. If no 2018 return has been filed, IRS will use information from the individual’s 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.
IRS may make the rebate electronically to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment. No later than 15 days after distributing a rebate payment, the IRS must mail a notice to the taxpayer’s last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to the IRS.
10% Tax Eliminated for Coronavirus-Related Retirement Plan Distributions
The CARES Act provides that the 10% additional tax does not apply to any coronavirus-related distribution, up to $100,000.
A coronavirus-related distribution is any distribution (subject to dollar limits discussed below), made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan made to a qualified individual. A qualified individual is an individua who:
- Is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC)
- Spouse or dependent is diagnosed with such virus or disease by such a test
- 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 reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury
RMD Requirement Suspended for 2020
The CARES Act provides that the Required Minimum Distribution (RMD) requirements do not apply for calendar year 2020. This suspension includes inherited IRAs.
Above-the-Line Charitable Deduction
The CARES Act adds a deduction to the calculation of gross income, in the case of tax years beginning in 2020, for the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the tax year. Eligible individuals are those that do not elect to itemize deductions.
Limits on Individual Cash Charitable Contributions Modified
The CARES Act provides that qualified contributions are disregarded in applying the 60% limit on cash contributions of individuals and the Code Sec. 170(d)(1) rules on carryovers of excess contributions.
Qualified contributions are allowed as a deduction only to the extent that the aggregate of those contributions does not exceed the excess of the individual’s contribution base over the amount of all other charitable contributions allowed as deductions for the contribution year.
Qualified contributions are charitable contributions if:
- They are paid in cash during calendar year 2020 to an eligible organization
- The taxpayer has elected to apply this provision with respect to the contribution
Contributions to a 509(a)(3) supporting organization or a donor advised fund are not qualified contributions.
Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed. Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times. Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Anders advisor, banker or legal counsel.
