CARES Act Tax Relief for Individuals
Individual Tax Relief under the CARES Act
INDIVIDUAL TAX RELIEF
- $1,200 recovery rebates for individual taxpayers.
- The rebate amounts are advance refunds of credits against 2020 taxes and equal to $1,200 for individuals, or $2,400 for joint filers, with a $500 credit for each child.
- The amount of each rebate is phased out by $5 for every $100 in excess of a threshold amount.
- This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed), and the phase-out begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers.
- The rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000.
- The economic impact payment would be deposited directly into the same banking account reflected on the 2019 tax returns filed by taxpayers.
- A web-based portal for individuals is being developed to provide the taxpayers’ banking information to the IRS online, so that they can receive payments immediately as opposed to checks in the mail.
- Social security recipients do not have to file a tax return to receive the $1,200 stimulus payment.
- Low-income taxpayers, senior citizens, social security recipients, some veterans and individuals with disabilities need to file a simple tax return to receive an economic impact payment and would not owe tax.
- Economic impact payments would be available throughout the rest of 2020.
In order to be eligible for a recovery rebate, the individual must not be:
- A nonresident alien,
- Able to be claimed as a dependent on another taxpayer’s return,
- An estate or trust, and
- Must have included a Social Security number for both the taxpayer, the taxpayer’s spouse, and eligible children (or an adoption taxpayer identification number, where appropriate
The Secretary of the Treasury is directed to provide the rebate as rapidly as possible.
10% Penalty Waiver
- Waives the 10-percent penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions.
- The penalty waiver applies to a coronavirus-related distribution if one is made during the 2020 calendar year, to an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus.
- Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions if made within three years.
Required Minimum Distributions
- Waives all required minimum distributions for 2020, regardless of whether the taxpayer has been impacted by the pandemic.
Coronavirus-Related Plan Loans from Retirement Plans
- The threshold limit on loans from an employer-sponsored retirement plan for a qualified individual affected by the coronavirus is increased to the lesser of $100,000 or 100 percent of the present value (but not less than $10,000) of the plan participant’s benefits under the plan.
- If a qualified individual has a loan repayment due date after March 27, 2020, and before December 31, 2020, on an outstanding loan, the payment due date is delayed one year (or, if later, until September 23, 2020, the date which is 180 days after the date of the enactment).
- Any subsequent repayments with respect to the loan will be adjusted accordingly and the five-year period for repayment is disregarded.
To qualify the loan must be made on or after March 27, 2020, and before December 31, 2020. In addition, it must be made to an individual:
- 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;
- Whose spouse or dependent (as defined in Code Sec. 152) is diagnosed with such virus or disease by such a test; or
- Who experiences adverse financial consequences as a result the coronavirus (Act Sec. 2202(a)(4)(A)).
Adverse financial consequences can include consequences from any of the following:
- 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.
- A qualified plan will generally be treated as being operating in accordance with its terms if these coronavirus plan rules apply. Amendment relief is provided to a qualified plan so long as it made on or before the last day of the first plan year beginning on or after January 1, 2020, or such later date as the Secretary of the Treasury may prescribe.
- Allows an above-the-line deduction of up to $300 for charitable contributions made by individuals for the 2020 tax year. Allows an individual to claim a deduction for a charitable contribution, even if the individual does not itemize deductions.
- The percent-of-adjusted gross income (AGI) limitations are increased for all taxpayers as well as for specific types of contributions. For the 2020 tax year, individuals can claim an unlimited itemized deduction for a charitable contribution, which is normally limited to 50 percent of AGI.
- For corporations, the usual 10-percent-of-AGI limitation is increased to 25 percent for the 2020 tax year.
- The contribution of food inventory is increased to 25 percent for the 2020 tax year. The deduction is normally limited to 15 percent of AGI,
Student Loans Paid by Employers
- An exclusion of up to $5,250 from income for payments of an employee’s education loans by employers.
- Exclusion applies if the loan was incurred by the employee for the education of the employee (The loan must not have been incurred to pay for the education of the employee’s child).
- The payment can be made to the employee or directly to the lender. The exclusion only applies for payments made by an employer after the date of enactment of March 27th and before January 1, 2021.
- The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, and books) provided by the employee.
Federal Student Loan Payments Suspended
- Suspended through September 30, 2020.
- Payments will be automatically suspended. Borrower does not need to take any action.
- No late fees or penalties.
- Doesn’t apply to private student loans.