Congress has approved and President Trump has signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a massive tax-and-spending package that provides relief to individual taxpayers to address the impact of the COVID-19 pandemic.
Relief to individual taxpayers comes in the form of direct cash payments, penalty-free access to retirement account savings, and an expanded deduction for charitable contributions. Eligible individuals will receive an advance refundable credit for the 2020 tax year of $1,200 for single filers or $2,400 for joint filers plus $500 for each qualifying child. The credit is not available to individuals that are nonresident aliens, individuals that can be claimed as a dependent by another taxpayer, or estates or trusts. The amount of the credit begins to phase out for taxpayers with adjusted gross income (AGI) above $75,000 for individuals, $150,000 for joint filers, and $112,500 for heads of households. The credit will be determined based on an already filed 2019 tax return or the 2018 return if the 2019 return is not yet filed or information provided by the 2019 Form SSA-1099 if neither returns are filed. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund they receive.
Individuals affected by the coronavirus can also take up to $100,000 in distributions from employer-sponsored retirement plans and IRAs without being subject to the additional 10 percent tax for early distributions. To qualify for this penalty-free early access to retirement plan funds, the recipient must be diagnosed with coronavirus, has a spouse or a dependent who is diagnosed with coronavirus, or has experienced adverse financial consequences due to coronavirus as a result of being quarantined, laid off, having had work hours reduced or having to close or reduce hours of a business. Eligible distributions can be taken up until Dec. 31, 2020. The Act permits coronavirus-related distributions may be repaid within three years. Any resulting income inclusion would be subject to tax over three years. Finally, the required minimum distribution rules are temporarily suspended for 2020 and 2020 minimum required contributions for single-employer plans are delayed until 2021.
The CARES Act includes an above-the-line charitable deduction for 2020 of up to $300 to public charities made during tax years beginning in 2020 that can be beneficial for individual taxpayers who do not itemize deductions. For individual taxpayers who itemize deductions, the legislation modified the AGI limitations for charitable contributions for 2020 to 100 percent of their AGI remaining after factoring in all other current charitable contributions subject to AGI limits.
by Daniel Park/Tax Advisors for Champaign Society (TACS)