These are truly unprecedented times for us as Americans! As businesses deal with the disruption, the U.S. Treasury has designed a few programs to help our citizens with relief. This article will be part one of a two-part series on the various methods and programs for individuals and businesses to seek relief. We will focus on individual relief provisions in this first article.
No doubt that you have heard many acronyms and strange titles assigned to laws passed by Congress but this one may be the most unique. CARES Act is the short name for the Caronavirus Aid, Relief and Economic Security Act. Whew! That is a mouthful. The primary purpose of this bill is to enhance our economy by infusing capital into the hands of citizens and businesses to continue to weather this difficulty. President Trump signed the bill into law on March 27, 2020.
Many of you will be receiving a stimulus check in the amount of $1,200 for each individual and $500 for each child under the age of 17. To receive these funds, you must have filed a tax return for 2018. If you haven’t filed a return for 2018, it is highly recommended that you do so promptly to qualify for this nontaxable benefit payment. For those who filed their 2019 returns before the pandemic worsened in the United States, your 2019 return will be utilized for purposes of qualifying for the stimulus benefit payment.
To qualify for the $1,200 payment, a phase-out, or disqualifying level of income is between $75,000 to $99,000 as an individual or $150,000 to $198,000 as a joint filer. If you did not file a return for 2018 because your income was lower than the filing requirement and you are a Social Security Benefits beneficiary, you will not need to file any returns and the information from SSA will be used to determine your benefit payment qualifications. Many questions exist about the qualifications of the recipients’ income in 2020, which is the year the stimulus payment is received. As an experienced CPA with a Masters in Tax, I expect those individuals that received the stimulus payment based on income reported in 2018, in other words have not filed their 2019 returns, and exceed the income limits for 2020, will not be required to repay the compulsory stimulus payments. We will continue to monitor IRS guidance on this issue.
Typically, a taxpayer would be required to report distributions from an employer retirement plan when received with the resulting tax and premature distribution penalty, if applicable, assessed on their income tax returns. However, for those individuals diagnosed with COVID-19, who receive a distribution from their 401(k)-plan account, the 10% penalty is waived on early withdrawals up to $100,000. The withdrawal will be taxable but the tax associated with the withdrawal will be spread over a three-year period.
If you own an IRA and were subject to required minimum distributions, you may elect forgo your distribution for 2020 and not be subject to a penalty. This waiver applies even if you were not impacted by the pandemic. This is an excellent planning point and may save retirees unnecessary income taxes at a time our economy is in recovery.
Charities have been stricken particularly hard during this economic halt experienced in our country. To address the issue of revenue loss for these types of organizations, Congress included a provision in the bill that allows individuals to deduct “above-the-line” contribution of a total $300 or less made to qualified charities. To determine the qualified status of a charity, you may find the list of approved charities at the IRS website (irs.gov).
For those individuals who claim itemized deductions on their returns, the limitations for qualified charitable contributions has been increased to allow unlimited deductions in individuals. Another income tax planning point would be to consider charitable contributions more earnestly in 2020 than prior years. You may experience considerable tax savings!
It is critical that you be proactive in the process for applying for additional aid, if needed. This is the time to reach out to your neighbors and check on the welfare of the more senior members of our community. Many families may weather the financial storm but the emotional toll of self-isolation and social distancing may be far worse. Send a note to a friend, place a call to a neighbor for no other reason than sharing a discussion about something positive. This is what makes our nation so exceptional – caring for those who may be suffering worse than you.
Be safe and stay well. We will get through this challenge and become a better community in the process.
