The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) authorizes stimulus payments to those who qualify. Below is a listing of components that pertain to individuals.
Excess Business Losses Provision Retroactively Postponed
The legislation postpones the effective date for deferring excess business losses retroactively from tax years beginning after December 31, 2017, to tax years beginning after December 31, 2020. To the extent that a 2018 or 2019 tax return has been filed with an excess business loss, taxpayers should consider amending to claim a refund of taxes or report a net operating loss. There are also some technical corrections regarding the calculation retroactive to tax years beginning after December 31, 2017).
Unemployment Compensation Amount and Duration Increased
Each unemployment recipient receives an additional $600 per week and extends UI benefits to self-employed workers, independent contractors and those with limited work histories. Recipients are no eligible for four months.
The Business Interest Expense Limitation Eased
The business interest expense limitation under Code Section 163(j) has been eased from 30% of adjusted taxable income to 50% of adjusted taxable income.
Penalty -free early access to retirement plan funds
The CARES Act permits individuals affected by the coronavirus to take distributions from tax favored employer sponsored retirement plans and IRAs up to $100,000. These distributions are not subject to the normal 10% penalty on early distributions for those under 59 1/2.
To qualify for the relief the distributions must be when:
• You have been diagnosed with COVID-19 using a CDC approved test
• Your spouse or dependent has been diagnosed with COVID-19 using a CDC approved test, or
• You’ve experienced adverse financial consequences resulting from being quarantined, furloughed, laid off, closing or reducing hours of a business, or unable to work because of a lack of child care due to COVID-19.
These distributions are still included in taxable income. You may take the distribution into gross income ratably over a 3 year period. Additionally, you may repay the distribution over a three year period. Any amount paid back is treated as if it was rolled over and therefore is not included in gross income.
Increased Limit on Loans from Retirement Plans
The CARES Act increases the loan limit from $50,000 to $100,000. The loan amount can be issued for up to 100% of the participants vested accrued benefit, but can’t exceed the plan balance.
Suspension of Required Minimum Distributions
The CARES Act suspends required minimum distributions for calendar year 2020 for both IRA’s and employer plans.
Recovery Rebates for Individuals
An advanced payment on a tax year 2020 refundable credit in the amount of $1,200 for single individuals or $2,400 for married individuals filing jointly is expected to be paid in April 2020. Qualifying children will generate an additional $500 each. The rebate does not apply to nonresident aliens, or someone who can be claimed as a dependent on another’s tax return. A qualified child must be under 17 at the end of the tax year.
The credit is reduced for single filers with adjusted gross income above $75,000, head of household filers with adjusted gross income above $112,500 and married filing jointly filers with adjusted gross income above $150,000. The credit is completely phased out for singles at $99,000, married at $198,000 and head of household at $146,500. The credit will be determined on adjusted gross income on the 2019 return, if filed before the determination date. Otherwise, it will be based on the 2018 tax return.
If the IRS has your direct deposit information it will be deposited electronically. If they do not a paper check will be issued as soon as possible. The IRS will also issue a notice to eligible taxpayers no later than 15 days after the rebate payment was distributed. The payment is not taxable income.
“Above the Line” Charitable Deduction
A special deduction of up to $300 for charitable contributions made to public charities during 2020 is available for taxpayers who do not itemize. Charitable contribution carryovers do not qualify.
Charitable Contributions Income Limit Eased
Taxpayers who itemize can elect to take up to 100% of their cash charitable contributions in 2020 for contributions made to public charities. Contributions to private foundations and donor advised funds are ineligible for this easing.