On March 27, 2020, Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
Here are the individual non-business tax relief provisions:
IRS to provide financial aid to individuals
Credit allowed for 2020.
Under the CARES Act, an eligible individual is allowed a tax year 2020 income tax credit. The credit will equal the sum of (1) $1,200 ($2,400 for eligible individuals filing a joint return) plus (2) $500 for each qualifying child of the taxpayer. Since it is a “tax credit,” it will be tax-free.
Even though it is a 2020 credit, the law treats it as a 2019 tax overpayment that IRS must refund to individuals during 2020. When clients file their 2020 tax returns, they will NOT have to pay back the credit.
Credit Phaseout
The credit is limited and may phaseout based on a taxpayer’s adjusted gross income (or “AGI”). The credit is reduced (but not below zero) by 5% of the taxpayer’s AGI in excess of: (1) $150,000 for a joint return, (2) $112,500 for a head of household, and (3) $75,000 for all other taxpayers. The credit is completely phased-out for a single filer with AGI exceeding $99,000 and for joint filers with no children with AGI exceeding $198,000. For a head of household with one child, the credit is completely phased out when AGI exceeds $146,500.
Where will it be sent?
IRS may issue the credit electronically to any bank account to which the taxpayer authorized, on or after Jan. 1, 2018, a refund of federal taxes or of a federal payment. No later than 15 days after distributing a credit payment, IRS must mail a notice to the taxpayer’s last known address indicating how the payment was made, the payment amount, and a phone number for reporting any failure to receive the payment to IRS.
Which AGI will IRS use?
IRS will use the AGI from taxpayers’ 2019 Form 1040 tax returns. If an individual hasn’t yet filed a 2019 income tax return, IRS will determine the amount of the credit refund using the taxpayer’s 2018 return. If no 2018 return was 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.
$300 above-the-line charitable deduction if you do not itemize
If you use the standard deduction versus itemizing deductions on Schedule A, you can take a charitable deduction up to $300 to reduce your AGI. But taxpayers have to actually make charitable contributions and prove them. Eligible individuals are only those who do not itemize deductions on Schedule A, Form 1040. Now is the time to start saving those charitable receipts!
Distributions from retirement plans related to COVID-19
No 10% penalty.
No 10% additional penalty tax for coronavirus-related retirement plan distributions up to $100,000 for anyone diagnosed with COVID-19, whose spouse or dependent is diagnosed, or who experiences adverse financial consequences due to sickness, layoffs, reduced hours or other factors.
RMD requirement waived for 2020
Retirement plan owners attaining 72 years old are generally required to withdraw a required minimum distribution (RMD) annually. RMD’s are taxable. But this requirement has been waived for IRA owners for 2020. This means those who are 72 years or older do not have to take an RMD from their IRA during tax year 2020.
Please contact Howard Richschafer if you need any assistance in understanding any of these new individual tax relief provisions.
And, of course, you can always get answers at the IRS website (IRS.gov).
