A summary of major provisions of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act affecting individual taxpayers:
You will receive a recovery rebate credit of up to $1,200 (for singles and heads-of-household) or $2,400 (for joint filers), plus $500 for each qualifying child. The IRS will determine and issue your cash payment to you as soon as possible. This payment will be based on your 2019 (if filed) or 2018 tax returns, or on other reported information if you have not filed tax returns for either year.
The recovery rebate is technically a tax credit against your 2020 tax return, so you might receive more or less than the amount to which you are ultimately entitled when you file your 2020 return. If you receive less than the full amount now, you will receive credit for the balance on your 2020 tax return. If you receive more now than the amount shown on your 2020 return, you will not have to repay the excess.
The recovery rebate will be reduced by $5 for every $100 of adjusted gross income (AGI) in excess of the following thresholds:
- Single $ 75,000
- Head of household $ 112,500
- Married filing joint $ 150,000
Federal Pandemic Unemployment Assistance
If you are unemployed, partially unemployed, or unable or unavailable to work due to a qualifying coronavirus-related circumstance, you can receive regular state unemployment benefits for up to 39 weeks for qualifying unemployment periods between January 27, 2020 and December 31, 2020. You can also receive an additional $600 per week for up to four months of such unemployment through July 31, 2020. Part-time workers, workers with limited work history, and self-employed individuals (including contractors and gig workers) are also eligible for these expanded benefits even if they are not normally eligible to receive unemployment benefits.
You do not qualify for these expanded benefits if you can telework with pay. You also cannot receive these benefits while receiving paid sick leave or other paid leave benefits.
Penalty-Free Retirement Distributions
During 2020, you may take an early distribution from an IRA or 401(K) of up to $100,000 without penalty if you experience qualifying coronavirus-related hardship, such as coronavirus illness or adverse financial consequences as a result of quarantine or reduced employment.
You will still owe regular income taxes on your withdrawal, but you can spread any taxes due over a three-year period. You can also choose to repay the withdrawn funds within three years, in which case the repayments will be treated as tax-free rollovers and you will not owe any tax on the distribution.
Increased Limits for 401(K) Loans
For the first 180 after enactment of the CARES Act, you can borrow up to $100,000 from a 401(K) plan and use the funds for any purpose. In addition, all loan repayments are postponed for one year for both new and existing 401(K) loans, after which the loan must generally be repaid within five years.
No Required Minimum Distributions
Required minimum distributions are suspended for 2020. You do not have take an RMD this year, and amounts subject to RMD rules may be rolled over.
You can deduct up to $300 of qualified cash charitable contributions “above the line,” even if you claim the standard deduction in 2020. If you itemize your deductions in 2020, the normal 60% AGI limit on cash contributions also increases to 100%.
If your mortgage is federally insured, you may be eligible for mortgage forbearance for 180 days, plus an extension of an additional 180 days, if you experience financial hardship due to COVID-19.
Student Loan Relief:
If you have federal student loans, you may suspend monthly payments through September 30, 2020 without accruing additional interest. You also will not incur penalties during this period.
If you have questions about how these provisions might affect your personal situation, please feel free to contact one of our CPAs at (616) 642-9467 or request a complimentary accounting consultation.
By: Chuk Gottschall
Photo by schasha @ freminages.com