Individual recovery rebate/credit

One of the provisions of the act is providing eligible taxpayers with a stimulus payment for up to $1,200 if an individual, or $2,400 if married filing jointly. They may also receive an additional $500 per child who is 16 or under. The amount of the stimulus payment is based on their income. For individuals filing single who have an adjusted gross income of $75,000 or less, they will receive the full amount; for married couples earning $150,000 or less, they will also receive the full amounts. If they earn above these thresholds, their stimulus payment will begin to phase out, and stops altogether for single taxpayers earning $99,000 or more, and married couples earning $198,000 or more. The income levels for the thresholds are determined by their 2018 tax return if they have not filed a 2019 tax return; if they have filed a 2019 tax return, their income thresholds are based on their 2019 tax return.

The stimulus payments are not taxable, and there are no claw backs if a taxpayer received the payment and makes over the thresholds in the future. If the IRS already has a taxpayer’s bank information, it is anticipated that the service will direct deposit the funds into their bank account. Otherwise, they will send a paper check. If the taxpayer does not receive their check, they should contact the IRS directly.

“If you are receiving Social Security benefits but didn’t file taxes in 2018 or 2019, you will be eligible to receive a stimulus check without a tax return based on data available to the IRS from your annual Social Security benefits statement,” said AARP in a recent post explaining the eligibility for beneficiaries. “The government will send you a direct deposit or check using the information from your Form SSA-1099 Social Security Benefit Statement or your Form RRB-1099 Social Security Equivalent Benefit Statement. You will not have to file a 2019 tax return to get a stimulus check.”

People who can be claimed as a dependent, even if they are not actually a dependent, are not eligible for a payment. A taxpayer is allowed to claim a full-time student between the ages of 19 and 24 as a dependent, but the parent will not get $500 for a college student, nor can the college student generally claim $1,200. The parent will still receive their $1,200 check, if eligible. The dependent distinction, though, doesn’t just leave out college students. Anyone supporting adults with disabilities and elderly dependents also will not qualify for the additional $500 check. The bill also requires recipients to have filed a tax return, which creates a hurdle for many low-income Americans who do not file returns. It is expected the IRS and the Treasury Department will offer guidance for people who have not filed returns soon. Nonresident aliens and those without a Social Security number, even if they have children with SSNs, are also not eligible to receive checks.

 

Retirement Plan Distributions

The CARES Act provides that the 10% additional tax does not apply to any coronavirus-related distribution, up to $100,000 for those under the age of 59 1/2.   This includes 401k, IRA, 403b, and 457 plans.

A qualified individual is an individual (1) 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), (2) whose spouse or dependent is diagnosed with such virus or disease by such a test, or (3) who 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.

The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions of (3) above in determining whether any distribution is a coronavirus-related distribution.

Limit on distribution. The aggregate amount of distributions received by an individual which may be treated as coronavirus-related distributions for any tax year cannot not exceed $100,000.

Distribution can be contributed back to retirement plan. Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan.

Distribution can be included in income over three years. In the case of any coronavirus-related distribution, unless the taxpayer elects not to, any amount required to be included in gross income for such tax year will be included ratably over the 3-tax year period beginning with such tax year.

Required Minimum Distributions

The CARES Act provides that the RMD requirements do not apply for calendar year 2020 to: (I) a defined contribution plan (401k, 403b, 457b) or (II) an individual retirement plan.

The provision also applies to Inherited IRAs.

Extended Due Dates for 2019 IRA/HSA Contributions

The new due date is now July 15th, 2020.

 

Medical Expenses

An HSA is a trust created or organized in the U.S. exclusively for the purpose of paying the qualified medical expenses of the account beneficiary and that meets certain other requirements.

New law. The CARES Act removes the restriction that qualified medical expenses include only amounts paid for prescribed medicine or drugs and provides that qualified medical expenses include amounts paid for menstrual care products.

 

Charitable Contributions

The AGI limit on individual itemized deductions for charitable contributions in 2020 has been removed.

 

Student Loans

Employer student loan repayment assistance of up to $5,250 is excludable from income in 2020.

The government has already waived two months of student loan payments for any federal student loan borrowers; in addition, the bill is slated to suspend payment for student loans held by the federal government until September 30th.

 

If you have any questions on the provisions of the Act please feel free to contact.