In response to the ever-increasing impacts of the COVID-19 across the nation, Congress passed the CARES Act last week to provide much-needed relief for individual taxpayers and small businesses. By now, many people are already expecting their $1,200 checks from the government – but the bill goes well beyond these individual payments in its efforts to mitigate the economic effects of the coronavirus. Read on to learn how you may be able to benefit from this act:
- The most well-known provision of the CARES act, the bill provides for $1,200 payments to individuals who make under $75,000 annually and $2,400 payments to married couples who make under $150,000 annually. Additional payments of $500 will also be made for every child under 17.
- These payments are based on taxpayers’ 2019 tax returns, if filed, or otherwise on their 2018 tax returns.
Coronavirus-related distributions from retirement accounts
- Taxpayers who have been directly affected by COVID-19 are eligible to make up to a $100,000 withdrawal from a combination of IRA or employer-sponsored retirement plans without incurring the normal 10% early withdrawal penalty.
- These withdrawals are not subject to mandatory withholding and are eligible to be repaid over three years.
- Taxpayers have the option to spread recognition of the taxable income from these withdrawals over a three-year period.
Loans from employer-sponsored retirement plans
- The maximum loan amount from employer-sponsored retirement plans has been increased from $50,000 to $100,000 and plan participants are eligible to receive a loan for 100% of their vested balance.
- Payments on plan loans otherwise owed may also be delayed by one year.
Required Minimum Distributions (RMDs) in 2020
- RMDs for IRAs and employer-sponsored retirement plans are suspended for 2020. This includes taxpayers who delayed their first RMD in 2019 – the delayed 2019 RMD and the 2020 RMD are both suspended.
- Stretch IRA RMDs are also suspended.
- The year 2020 will be ignored for beneficiaries of inherited IRAs who are subject to IRS rules that require the designated beneficiary to take the entire account by the end of the fifth year following the year of the owner’s death.
Rolling back previously taken 2020 RMDs
- Taxpayers who have already taken their 2020 RMDs may be eligible to roll those RMDs back into their account if the initial withdrawal occurred within a 60-day window.
- This option is not available for beneficiaries who have taken an RMD from an inherited account.
New above-the-line charitable deduction
- The new “Qualified Charitable Contribution” allows for taxpayers who claim the standard deduction to deduct up to $300 of charitable contributions made in cash to a qualified 501(c)(3) charity. It does not apply for contributions made to donor-advised funds.
Removing AGI limit from charitable deductions made in cash
- Cash donations made to a qualified 501(c)(3) charity (again, not a donor-advised fund) are eligible for a deduction up to 100% of AGI.
The CARES act also contains significant changes to federal unemployment compensation as well as a host of measures intended to support small businesses. If you are interested in learning more about how any of the above provisions, please reach out to your advisor to discuss potential new planning opportunities. And look out to our next post detailing what the CARES act may mean for your small business.