2020 CARES Act Summary
As many of you may have heard the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Friday March 27, 2020.
This is a large bill, both in scope and in size; it provides total aid of about $2.2 trillion to jump start an economy that has been stalled by the COVID-19 pandemic. That’s a lot of zeroes, but there are also some big pluses in there for you, and we want to point out some of the most important highlights.
- Income Tax Filing Deadline Extended. The tax return filing deadline for federal returns previously due on April 15th is extended to July 15th. First quarter estimated tax payments are now due July 15, 2020, as well; however, second quarter estimated tax payments are due on June 15, 2020 (subject to change). For individual taxpayers whose tax liability is under $1M, deferral of payment of 2019 income tax is permitted, interest and penalty free, if paid by July 15, 2020.
- Recovery Rebates for Individuals. Many Americans will receive direct payments of $1,200, or $2,400 for joint filers, plus $500 for each qualifying child. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds $75,000 for individuals and $150,000 for joint filers.
- The rebate is entirely phased out when adjusted gross income exceeds:
- a. Joint Filers - $198,000
- b. Head of Household - $136,500
- c. Individual - $99,000
- Adjusted gross income will be determined by 2019 tax filings (or 2018, if 2019 tax filings have not been completed). In general, a qualifying dependent child is one who is under the age of 17 at the end of the tax year. No action on the part of the rebate recipient is required. A notice from the IRS will be sent to the rebate recipient 15 days after delivery of payment stating the location of payment made and amount. Recovery rebates will not be taxed.
- Retirement Account Contributions and Distributions. The deadline for 2019 contributions to traditional and Roth IRAs is extended to July 15, 2020, mirroring the tax return filing deadline
- This gives clients more time to decide whether to contribute for 2019
- This also applies to 2019 Health Savings Account, Archer Medical Savings Account, and Coverdell Education Savings Account (ESA) contributions.
- No RMDs (Required Minimum Distributions) for 2020.
- This applies to IRAs and company-sponsored retirement plans
- This also applies for IRA and Roth IRA beneficiaries
- This applies for owners who turned 70 ½ in 2019 and would otherwise have been required to take their first RMD by April 1, 2020
- Beneficiaries who inherited an IRA from 2015 to 2020 and who are subject to the 5-year payout rule (generally, non-designated beneficiaries who inherited before the deceased IRA owner reached his required beginning date) now have an extra year to fully withdraw the balance
- The Act does not address “undoing” 2019 and 2020 RMDs already taken – we are awaiting IRS guidance.
- Ordinarily, there is a 10% penalty for individuals under age 59 ½ taking distributions from their IRAs or company sponsored plans. This 10% early distribution penalty is waived for up to $100,000 of 2020 distributions from IRAs and company-sponsored plans.
- Distributions are still taxable, but the tax may be spread evenly over the next three years.
- Alternately, the taxpayer has three years to roll the funds back into the plan.
- Maximums loans amounts from company-sponsored retirement plans are increased from $50,000 to the lesser of $100,000 or the full account balance.
- Loan repayments scheduled from 03/27/2020 through 12/31/2020 may be suspended for one year.
- Unemployment: The program provides $250 billion for an extended unemployment insurance program and expands eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. It also extends UI benefits through Dec. 31 for eligible workers. The deal applies to the self-employed, independent contractors and gig economy workers.
- Charitable Contributions. Charitable contributions for clients who itemize are eligible up to 100% of AGI for 2020 (up from 60%) with a 5- year carry-forward of excess amounts. In addition, clients who take the standard deduction may receive an above-the-line deduction of up to $300 for charitable contributions.
- Small business relief: $350 billion is being dedicated to preventing layoffs and business closures while workers have to stay home during the outbreak. Companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven. Here is a link to an in depth document with guidance direct from SBA.
We understand this is a lot of information to digest. If you want to discuss your personal financial situation with our team please click on the above calendars links to schedule a call. Please also note, we are not CPAs and advise all clients to reach out to your respective CPA to discuss your own personal tax situation with respect to this bill.