On March 27, 2020 President Trump signed into law the Coronavirus Aid Relief and Economic Security Act (CARES Act). The CARES Act is a stimulus bill featuring over $2 trillion in measures designed to make a significant impact on the economy and bring relief to individuals and businesses impacted by COVID-19 or the Coronavirus pandemic.
While there are many individual and business tax changes to be aware of, following are the provisions individuals should know:
Retirement Plans
The 10% penalty is waived when up to $100,000 in funds are withdrawn in 2020 from qualified retirement plans to be used towards Coronavirus-related expenses. A withdrawal qualifies when an individual or their spouse is diagnosed with COVID-19 or they are facing financial adversity as a result of quarantine, business closure or layoff, or reduced working hours due to the COVID-19 pandemic.
Income attributable to an early withdrawal is subject to tax over a three-year period. If made within three years, taxpayers may re-contribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions.
Required Minimum Distributions (RMDs)
The CARES Act waives all required minimum distributions for 2020, regardless of whether the taxpayer has been economically impacted by the pandemic.
Individual Charitable Contributions
For individuals, the CARES Act allows an above-the-line deduction of up to $300 for charitable contributions made by individuals who do not itemize their deductions. In addition, the CARES Act temporarily increases the 50% of AGI limitation on charitable contribution deductions to unlimited. The purpose is to incentivize taxpayers to continue making charitable contributions in 2020.
Recovery Rebate Checks
Perhaps the most well-known part of the CARES Act, Recovery Rebate stimulus checks of direct cash payments will be made to taxpayers in the coming weeks. Individuals can expect a check of $1,200, or $2,400 for married couples filing jointly, along with $500 for each qualifying dependent child. Individuals and dependents must have a social security number.
The rebate amounts are phased out at the following AGI thresholds:
| Begins to Phase Out | Completely Phases Out | |
|---|---|---|
| Individual | $75,000 | $99,000 |
| Married Couple | $150,000 | $198,000 |
| Head of Household | $112,500 | $136,500 |
The income information is based on the taxpayer’s 2019 tax return (or 2018 return if the taxpayer has not yet filed this year). Non-filers such as certain Social Security or Disability recipients are also eligible.
You do not need to apply as the IRS is anticipated to send each eligible taxpayer a letter to their last known address with the payment details including amount, date and method of payment.
There may be provisions for taxpayers to re-calculate the correct amount of recovery rebate using actual 2020 income and to recover any shortfall caused by basing the rebate amount on a prior-year tax return.
Read the full The CARES Act: Key Tax Provisions for Businesses and Individuals article at AlloySilverstein.com.
The news and legislation surrounding COVID-19 has been constant. If you have questions on how a provision affects your business or individual tax situation, we are here for clarification and to be a sounding board. Contact your Alloy Silverstein advisor.
Ronald Donato Jr. CFP®, MBA may be reached at 856.667.6228 or RDonato@asfinancialservices.com.