Coronavirus Tax Relief for Individual Taxpayers
Published April 10, 2020
Filing and Payment Deadlines
Federal and state income tax filings and payments due April 15, 2020, have been automatically postponed to July 15, 2020. Note that the second quarter estimated tax payments for 2020 are still due JUNE 15, 2020.
The deadline to contribute to a traditional or Roth IRA has also been extended until July 15, 2020.
2020 Recovery Rebates for Individuals: The CARES act provides direct payments of up to $1,200 for individuals and $2,400 for married couples, along with an extra $500 per child. Assistance phases out for individuals earning more than $75,000 and for couples with more than $150,000 in income (complete phase-out at $99,000 single and $198,000 for couples). In order to be eligible for the rebate, the individual must not be: 1) a nonresident alien, 2) able to be claimed as a dependent on another’s tax return, 3) an estate or trust, and 4) must have included a SSN for both the taxpayer, the taxpayer’s spouse, and eligible children.
These payments are actually advance credits against 2020 taxes. Payment of the credit is based on your 2018 income unless you have already filed your 2019 tax return. If your 2020 income exceeds the thresholds mentioned above, you may find yourself in a position to repay the rebate you received. More guidance is expected from Treasury.
Retirement Account Provisions
Required Minimum Distributions (RMD): The act suspends RMDs for calendar year 2020. This rule applies to the owner of retirement accounts and beneficiaries of inherited IRAs. If you have already taken your RMD for 2020 you might be eligible to repay the distribution to your retirement account if a 60-day time period has not passed. This ability to repay your RMD does not apply to inherited IRAs.
Penalty Free Early Withdrawals from Retirement Accounts: Consistent with past disaster-related legislation, the CARES act provides special provisions for use of retirement funds.
The act waives the 10-percent early withdrawal penalties on coronavirus related distributions of up to $100,000. Tax will be due on the withdrawal amount but the act allows tax payments to be spread over three years and further allows individuals to return distributions to the retirement account over three years, with such redeposits not subject to annual contribution limits.
A coronavirus-related distribution is a distribution made to an individual during the 2020 calendar year: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
Loans from Retirement Accounts: Many employer-sponsored plans offer participants the ability to borrow from their retirement assets. The previous maximum loan amount was $50,000. This amount has been increased by the act to $100,000. The maximum loan repayment period has increased from five years to six years. Once again, in order to qualify, the individual must have been impacted by the coronavirus.
The act has made two changes to the charitable gift deduction rules. First, it allows a $300 ‘above the line’ charitable gift deduction to taxpayers who do not itemize. Second, the act increases the maximum amount a taxpayer can deduct as a charitable gift from 60% of their adjusted gross income (AGI) to 100% of AGI. This applies only to gifts of CASH given to public charities. It does not apply to gifts to private foundations or donor advised funds. And it does not apply to gifts of appreciated securities.
We’re Here to Help
MCM CPAs & Advisors can help advise individuals on the possible implications to their own tax situations due to the COVID-19 pandemic. For more information, contact firstname.lastname@example.org and a member of MCM CPAs & Advisors COVID-19 Solutions Group will be in touch.