The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 was signed into law by President Trump on Friday, March 27th after several days of tense negotiations within Congress. The Act is an estimated $2 trillion package including nearly $500B in individual rebate checks, another $500B for support of several severely damaged industries, nearly $400B support including tax credits for wages and payroll tax relief, over $300B of support for state and local governments, and almost $150B for various initiatives to support hospitals and the health care system. Below is a summary of provisions we felt most relevant to you.
2020 Recovery Payment: All U.S. residents with adjusted gross income up to $75,000 ($150,000 joint filers) are eligible for a $1,200 ($2,400) payment, as well as an additional $500 per child (under age 17).
• There are no minimum income requirements for the payment. Individuals with little or no income are eligible provided they are not a dependent of another taxpayer and have a work-eligible Social Security number.
• This amount is reduced by $5 for every $100 over the income limit above, so it would be fully phased out for those with incomes over $99,000 (single) and $198,000 (joint filers) with no children.
Retirement Account Changes
Waiver of RMDs for 2020 for All Retirement Savers: Waives the required minimum distribution (RMD) requirement for retirement plans and IRAs in 2020. This provision also applies to RMDs due in 2020, but attributable to 2019. Individuals do not need to meet COVID-19 qualifying criteria to waive RMDs for 2020.
Elimination of Early Withdrawal Penalty: Waives the 10% early withdrawal penalty for withdrawals up to $100,000 from qualified retirement accounts for retirement plan participants who qualify for COVID-19 relief. Income tax on the distribution would still be owed but could be paid over a three-year period. Individuals could “recontribute” the funds to the plan within three years without regard to contribution limits. While the law allows for these types of penalty-free distributions, individual plans can set more restrictive policies.
Increase in the Retirement Plan Loan Amount: Increases the amount that can be taken as a loan from a qualified retirement plan from $50,000 to $100,000 for 2020.
Delay in Tax-filing Requirements
• Individuals now have until July 15, 2020, to file their 2019 tax returns instead of April 15.
• The Treasury Department has also postponed the deadline for making IRA contributions until the date taxpayers file their 2019 tax return during the extended filing period.
Small-Business Loans: Many small businesses are now eligible for disaster relief loans through the Paycheck Protection Program from the Small Business Administration. The loans could provide up to 2.5 times average monthly payroll along with other specific expenses. Additionally, the CARES Act provides conditions for when loan payments may be deferred and /or completely forgiven.
Other Provisions: There are additional tax and accounting provisions such as:
• An employee retention tax credit for employers subject to full or partial suspension of business due to COVID-19
• The ability to delay payment of employer payroll taxes
• Modifications for rules around net operating losses
• Modifications for rules around corporate AMT (alternative minimum tax) credits
• A temporary increase in the limitation on interest deductions imposed by the Tax Cuts and Jobs Act
Loan Payment Suspension: Suspends payments automatically for federal student loans through Sept. 30, 2020, with no interest accruing or penalties during the period of suspension.
Additional Provisions: Contains a variety of other emergency-relief provisions related to education, and specifically the impact of many students being sent home mid-semester. For example, it allows universities to make payments to students who were unable to complete work-study programs.
Enhanced Tax Benefits for Charitable Gifts
$300 Deduction of Cash Contributions: Ability to deduct up to $300 of cash contributions to charities, regardless of whether the individual itemizes deductions.
Changes to Limits on Charitable Contributions:
• Individuals: For those who itemize their deductions for charitable giving, the 50% of adjusted gross income limit is suspended for 2020.
• Corporations: The 10% limit on charitable contributions is increased to 25% of taxable income.
The Lesjak Planning Team