IMPORTANT COVID-19 TAX LEGISLATION AFFECTING INDIVIDUAL TAXPAYERS

On: October 14, 2020

In response to the adverse economic consequences caused by COVID-19, Congress and President Trump have agreed on legislation helping taxpayers.

One such legislation, signed into law on March 27, 2020, is the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

What important tax provisions in the CARES Act affect individual taxpayers?

Stimulus Checks

Section 2201 of the CARES Act is probably the tax provision under the CARES Act affecting individual taxpayers that has received the most attention.  It authorizes “recovery rebates”, which are a year 2020 tax credit that is immediately refundable to individual taxpayers.

The amount of “recovery rebate” or, as it is more commonly known, “stimulus check”, varies based on the taxpayer’s status and adjusted gross income (for 2019 if you have filed a 2019 return or otherwise for 2018).

Single taxpayers should receive a stimulus check of $1,200, to be reduced by $5 for every $100 of adjusted gross income between $75,000 and $99,000.

Married filing jointly taxpayers should receive a stimulus check of $2,400, to be reduced by $5 for every $100 of adjusted gross income between $150,000 and $198,000.

Children under age 17 should receive a stimulus check of $500.

Eligible taxpayers who have filed a year 2018 or 2019 Federal tax return, or receive certain Social Security retirement, disability (SSDI), or survivor benefits, Supplemental Security Income (SSI), Veterans Affairs Compensation and Pension benefits, or Railroad retirement benefits, should receive their stimulus checks without additional action.  Other eligible taxpayers may be able to register to receive a stimulus check as a “Non-Filer” at the IRS’ website.

Retirement Provisions

Certain taxpayers are allowed under Section 2202 of the CARES Act to withdraw up to $100,000 from certain retirement plans (including 401(k) plans and traditional IRAs) in year 2020 (a) without being subject to any “early distribution” penalty tax, and (b) without being taxable if the withdrawal is repaid within three years.  If the withdrawal is not repaid within three years, the taxpayer can pay the tax liability on the withdrawal all in year 2020 or ratably over three years.

Under Section 2202 of the CARES Act, there are also more favorable rules for certain qualified retirement plan loans (including from 401(k) plans).  Taxpayers can borrow a higher amount (the lesser of the taxpayer’s vested benefit or $100,000) from March 27, 2020 to September 23, 2020 and do not have to make any loan repayment during year 2020.

These provisions under Section 2202 of the CARES Act generally apply if the taxpayer, or the taxpayer’s spouse or dependent, is diagnosed with COVID-19 or the virus SARS-CoV-2, or the taxpayer “experiences adverse financial consequences” as a result of COVID-19 or SARS-CoV-2.

Under Section 2203 of the CARES Act, “required minimum distribution” rules are waived for year 2020 for certain retirement plans (including 401(k) plans and IRAs).

Charitable Provisions

Under Section 2204 of the CARES Act, there is authorized up to a $300 “above-the-line” deduction from adjusted gross income for cash charitable contributions even if the standard deduction is claimed.

Under Section 2205 of the CARES Act, the limitation on cash charitable contributions by individuals during year 2020 is modified from a maximum of 60 percent to 100 percent of adjusted gross income.

If you need tax help, always make sure to call Leading Tax Group and don’t attempt to do it yourself.