CARES Act for individuals update
The following represents a summary of the recently signed into law CARES Act—also referred to as the Stimulus Package.
RECOVERY CHECKS – KEY POINTS
Recovery check distribution amounts—Single taxpayers will receive $1,200 and joint taxpayers will receive $2,400. There is an additional $500 for each qualifying child.
The recovery check is considered a credit for 2020, but paid in advance.
The amount is reduced (but not below zero) by 5% of each dollar a person’s adjusted gross income (AGI) exceeds. Consider the following:
- Married filing joint: $150,000 (AGI over $198,000 does not qualify)
- Head of household: $112,500 (AGI over $146,500 does not qualify)
- Single: $75,000 (AGI over $99,000 does not qualify)
Consider the following example:
- A married couple with no children has an AGI of $190,000.
- $190,000 is $40,000 above the $150,000 amount shown above.
- The couple’s check is reduced by 5% of $40,000, which is $2000.
- Therefore, they would receive a check for $400. (i.e., $2400 - $2000 = $400)
Other key details for recovery check eligibility include:
- Nonresident aliens are not eligible for the rebate.
- If a taxpayer has an outstanding debt (which the IRS would typically offset a refund by paying that debt), recovery dollars will not be used to offset that debt.
- Amount will be direct deposited into the account on the last filed return. Every taxpayer will receive a letter indicating their recovery check was dispersed. If the letter is not received, there will be a specific phone number to call to have the check re-issued.
- AGI will be accessed from 2019 returns if filed at the time of determination. Otherwise, 2018 returns will be used. Taxpayers who have not filed a return will not receive a check unless they did not file because they only have SSA-1099 or RRB-1099 (social security). The Treasury Department will review those forms for 2019 and issue the appropriate amount via check.
UNEMPLOYMENT – KEY POINTS
Any employee who was furloughed or part of a layoff is eligible for state unemployment. Details are as follows:
- Unemployment amount via the state typically ranges from 30-50% of the standard wage, depending on the state.
- The amount a person will receive for unemployment over four months will be the amount the state would already provide, but increased by $600 per week through July 31, 2020. For example, if a person is eligible for $300 weekly, they will receive $900 per week over four months or through July 31, 2020, whichever comes first.
- If an employee is already unemployed due to COVID-19, the $600 weekly additional payment will be paid retroactively.
- Self employed individuals, independent contractors and gig workers are eligible for unemployment under this program.
RETIREMENT DISTRIBUTIONS – KEY POINTS
Ability to withdraw up to $100,000 retirement in 2020 for COVID-19-related purposes without 10% penalty—The distribution is taxable over a 3-year period unless electing to pay it back within 3 years. This essentially equates to a loan unless it is not paid back within the
3-year timeframe. This rule applies to individuals:
- Diagnosed with COVID-19
- Who have family (spouse or dependent) who have been diagnosed with COVID-19
- Who have adverse financial consequences in relation to COVID-19
- Who include the distribution in taxable income (unless they elect the 3-year payback)
Waived required minimum distributions (RMD) from individual retirement accounts—The required minimum distribution for 2020 has been waived.
This also applies to retirees who turned 70 1/2 in 2019 and are required to take their RMD by 4/1/20. If the retiree that turned 70 1/2 in 2019 still intends to take their RMD, this must happen by April 1, 2020—otherwise, the same penalty for late withdrawal will be applied.
This waiver does not apply to inherited IRA's.
CHARITABLE CONTRIBUTIONS - KEY POINTS
Above-the-line charitable contribution—For tax year 2020, if a taxpayer does not itemize deductions, they can deduct up to $300 in addition to standard deduction for cash charitable contributions (no stock contributions).
Charitable contribution limitation by AGI—The 60% adjusted gross income limitation has been removed for 2020 (other than from donor advised funds).