Recovery rebates for
individuals
To help individuals stay
afloat during this time of economic uncertainty, the government will send up to
$1,200 payments to eligible taxpayers and $2,400 for married couples filing
joints returns. An additional $500 additional payment will be sent to taxpayers
for each qualifying child dependent under age 17 (using the qualification rules
under the Child Tax Credit).
Rebates are gradually phased
out, at a rate of 5% of the individual’s adjusted gross income over $75,000
(singles or marrieds filing separately), $112,500 (head of household), and
$150,000 (joint). There is no income floor or ”phase-in”-all recipients who
are under the phaseout threshold will receive the same amounts. Tax filers must
have provided, on the relevant tax returns or other documents (see below),
Social Security Numbers (SSNs) for each family member for whom a rebate is
claimed. Adoption taxpayer identification numbers will be accepted for adopted
children. SSNs are not required for spouses of active military members. The
rebates are not available to nonresident aliens, to estates and trusts, or to
individuals who themselves could be claimed as dependents.
The rebates will be paid out
in the form of checks or direct deposits. Most individuals won’t have to take
any action to receive a rebate. IRS will compute the rebate based on a
taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet
been filed). If no 2018 return has been filed, IRS will use information for
2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form
RRB-1099, Social Security Equivalent Benefit Statement.
Rebates are payable whether
or not tax is owed. Thus, individuals who had little or no income, such as
those who filed returns simply to claim the refundable earned income credit or
child tax credit, qualify for a rebate.
Waiver of 10% early
distribution penalty. The additional 10% tax on early distributions from IRAs
and defined contribution plans (such as 401(k) plans) is waived for
distributions made between January 1 and December 31, 2020 by a person who (or
whose family) is infected with the Coronavirus or who is economically harmed by
the Coronavirus (a qualified individual). Penalty-free distributions are
limited to $100,000, and may, subject to guidelines, be re-contributed to the
plan or IRA. Income arising from the distributions is spread out over three
years unless the employee elects to turn down the spread out. Employers may
amend defined contribution plans to provide for these distributions.
Additionally, defined contribution plans are permitted additional flexibility
in the amount and repayment terms of loans to employees who are qualified
individuals.
Waiver of required
distribution rules
Required minimum
distributions that otherwise would have to be made in 2020 from defined
contribution plans (such as 401(k) plans) and IRAs are waived. This includes
distributions that would have been required by April 1, 2020, due to the
account owner’s having turned age 70 1/2 in 2019.
Charitable deduction
liberalizations
The CARES Act makes four
significant liberalizations to the rules governing charitable deductions:
(1) Individuals will be able
to claim a $300 above-the-line deduction for cash contributions made,
generally, to public charities in 2020. This rule effectively allows a limited
charitable deduction to taxpayers claiming the standard deduction.
(2) The limitation on
charitable deductions for individuals that is generally 60% of modified
adjusted gross income (the contribution base) doesn’t apply to cash
contributions made, generally, to public charities in 2020 (qualifying
contributions). Instead, an individual’s qualifying contributions, reduced by
other contributions, can be as much as 100% of the contribution base. No
connection between the contributions and COVID-19 activities is required.
(3) Similarly, the
limitation on charitable deductions for corporations that is generally 10% of
(modified) taxable income doesn’t apply to qualifying contributions made in
2020. Instead, a corporation’s qualifying contributions, reduced by other
contributions, can be as much as 25% of (modified) taxable income. No
connection between the contributions and COVID-19 activities is required.
(4) For contributions of
food inventory made in 2020, the deduction limitation increases from 15% to 25%
of taxable income for C corporations and, for other taxpayers, from 15% to 25%
of the net aggregate income from all businesses from which the contributions
were made.
Exclusion for employer
payments of student loans. An employee currently may exclude $5,250 from income
for benefits from an employer-sponsored educational assistance program. The
CARES Act expands the definition of expenses qualifying for the exclusion to
include employer payments of student loan debt made before January 1,
2021.
Break for remote care
services provided by high deductible health plans
For plan years beginning
before 2021, the CARES Act allows high deductible health plans to pay for
expenses for tele-health and other remote services without regard to the
deductible amount for the plan.
Break for nonprescription
medical products
For amounts paid after
December 31, 2019, the CARES Act allows amounts paid from Health Savings
Accounts and Archer Medical Savings Accounts to be treated as paid for medical
care even if they aren’t paid under a prescription. And, amounts paid for menstrual
care products are treated as amounts paid for medical care. For reimbursements
after December 31, 2019, the same rules apply to Flexible Spending Arrangements
and Health Reimbursement Arrangements.
