CARES Act – Individual Tax Relief
April 01, 2020

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On March 27th, President Trump signed the $2.2 trillion stimulus bill dubbed the CARES (Coronavirus Aid, Relief, and Economic Security) Act. Read on for a summary of the major tax relief provisions that impact individuals.

Recovery Rebates

Individuals will receive “rebates” of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The rebates are actually advance refunds of credits against 2020 taxes. The credit begins to phase out at adjusted gross income (AGI) of $75,000 for single filers ($150,000 joint filers; $112,500 head of household filers) and completely phases out at AGI of $99,000 for single filers ($198,000 joint filers; $136,500 head of household filers). Once the credit for an eligible individual/couple phases out, the credit for each qualifying child phases out with each additional $10,000 in AGI over the threshold. The rebates will be issued based on 2019 tax return information. If a 2019 tax return has not yet been filed, IRS will use 2018 tax return information. For Social Security recipients and railroad retirees who would otherwise not be required to file a tax return, rebate payments will be based on information from Form SSA-1099 or Form RRB-1099. All others will need to file a tax return to receive the rebate. The rebate payments will be available through the end of 2020. There are several "stimulus check" calculators available online to help figure the rebate amount. We like the Kiplinger Stimulus Check Calculator.

The rebate is not taxable to the recipient and won’t need to be repaid if 2020 AGI ends up higher than the statutory limits. If an individual’s 2018/2019 AGI prevents them from receiving a rebate check, they can still receive the refundable credit if their 2020 AGI falls within the limits.  In this case, the credit will be claimed on a 2020 tax return. 

The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. 

Retirement Plans

The 10% penalty on early retirement plan withdrawals is waived on up to $100,000 of coronavirus-related distributions. A coronavirus-related distribution is one made during 2020 to an individual (or spouse/dependent) diagnosed with COVID-19 or an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff or reduced hours due to the virus. For income tax purposes, an election can be made to spread the taxable amount of the distribution over a 3-year period. If the entire distribution is contributed back to the retirement plan within 3 years, no income is recognized. For such re-contributions, the annual retirement plan contribution limits are waived.  

Required minimum distributions have been suspended for 2020 regardless of whether the individual was impacted by the virus.

Charitable Contributions

For 2020, the income percentage limitation is suspended for cash donations to public charities. Also for 2020, up to $300 of charitable contributions can be added to the standard deduction.  

Qualified Medical Expenses

HSA/FSA/HRA funds can now be used to purchase over-the-counter medications (without the need of a prescription) and menstrual care products. These changes are effective as of January 1, 2020.

Student Loans Paid by Employers

Employees can exclude from income up to $5,250 of education loans paid by an employer. The exclusion is only available for payments made after March 27, 2020 and before January 1, 2021.

 

Questions on how these changes impact you? Please give us a call.

 

This post was updated on 4/9/2020 to reflect current IRS guidance.