The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020, by President Trump. The CARES act provides relief provisions for both businesses and individuals.
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) $1200 ($2,400 for eligible individuals filing a joint return) plus (2) $500 for each qualifying child of the taxpayer. These credits are refundable. These credits are subject to a phase out (adjusted gross income in excess of $150,000 for a joint return, $112,500 for head of household and $75,000 for all other taxpayers).
*Note: Individuals who have no income, as well as those whose income comes entirely from non-taxable means tested benefit programs such as social security and disability, are eligible for the credit and the advance rebate
Each individual who was an eligible individual for 2019 is treated as having made an income tax payment for 219 equal to the advance refund amount for 2019. The IRS will refund or credit any resulting over-payment as rapidly as possible. IRS my make the rebate electronically to any account which the taxpayer has authorized on a previous tax return. Letters will be send within 15 days of the payment being sent.
If the taxpayer received an advance rebate during 2020 that was less than the credit which the taxpayer is entitled for 2020, the taxpayer will be able to claim the balance of the credit when filing the 2020 individual tax return. In addition, if the advance rebate received was greater than the credit to which the taxpayer was entitled, the taxpayer will not have to pay back the excess.
No 10% additional tax for coronavirus-releated retirement plan distributions
Traditionally, if an individual makes an early distribution from a retirement plan that distribution may be subject to a 10% early withdrawal penalty. The CARES Act provides a relief provision from the 10% early withdrawal penalty up to $100,000 for coronavirus related distributions.
Coronavirus related distribution is any distribution made on or after January 1, 2020 and before December 31, 2020 from an eligible retirement plan made to a qualified individual.
Required Minimum Distribution Requirement Waived for 2020
Individuals generally are required to make retirement plan distributions once they reach age 72. The CARES Act has waived the requirement for such individuals to make required minimum distributions for the tax year 2020.
$300 Above the Line Charitable Donation
The CARES Act has added an additional deduction from adjusted gross income for contributions made to qualified charitable organizations during the 2020 tax year. Eligible individuals who would otherwise receive the standard deduction can participate in this deduction. If an individual itemizes their deduction they would continue to receive the charitable contribution deduction in that manner.
Other charitable contributions changes include:
– Modification of limitations on individual cash charitable contributions during 2020
– Modifications of limitations on corporate cash charitable contributions during 2020
– Increase in limits on contributions of food inventory
Tax-Excluded Education Payments
The CARES Act has added to the types of education payments that are excluded from employee gross income eligible student loan repayments made before January 1, 2021. The payments are subject to the overall $5,250 per employee limit for all educational payments.