On March 27th, the Coronavirus Aid, Relief and Economic Security Act (or the CARES Act) was signed. This was phase 3 of the stimulus package passed by Congress and the President.
Unemployment Insurance Provisions
Workers will receive an immediate benefit (i.e., no one week waiting period) for an additional $600 per week for up to four months. This $600 amount applies even if the worker is currently making less than $600 per week. Additionally, 13 weeks of unemployment compensation benefits may apply to the worker for participating states.
The rebate is an advance refund of credits against 2020 taxes, in an amount equal to $1,200 for individuals and $2,400 for joint filers plus an additional $500 credit for each child.
The rebate is subject to phaseout based on Adjusted Gross Income (AGI) based upon 2019 taxes if filed, or 2018 taxes if not.
The phase-out begins at $75,000 for single filers and is completely phased-out for AGI over $99,000.
The phase-out begins at $150,000 for joint filers and is completely phased-out for AGI over $198,000.
Filers must have a Social Security number and not be claimed on another taxpayer's return.
There are several individual provisions including:
- Extension of the due date for IRA and plan contributions until July 15th, 2020
- A one-year delay in required minimum distributions (RMDs) from qualified retirement plans and IRAs - applies both to 2019 RMDs if not taken until April 1, 2020 and for 2020 RMDs
- A waiver of the 10% penalty tax for premature distributions related to the coronavirus (amounts not to exceed $100,000), subject to the following rules:
- The penalty-free distribution provisions cover IRAs and retirement plans
- Amounts distributed may be repaid over a three year period beginning on the date the distribution was received
- Amounts can be paid to a qualified retirement plan or an IRA so long as the account can receive a rollover contribution under Internal Revenue Code (IRC)
- The distribution provision applies to:
- Individuals who have been diagnosed with COVID-19 by a test approved by the CDC,
- Their spouse or dependent who has been diagnosed by such a test, or
- A person experiencing adverse financial consequences as a result of being quarantined, furloughed, laid off, or suffered reduced working hours, or unable to work due to lack of child care.
- If distributed amounts are not repaid, the income inclusion with respect to any coronavirus distribution can be included ratably over three taxable years beginning with the year of distribution
- Distributions will be deemed to satisfy the hardship distribution provisions of the IRC
- An increase in the qualified plan loan limits from $50,000 to $100,000 (and an increase to the 50% account value limit to 100% of the account value) under the plan
The Act permits an above-the-line deduction of up to $300 for charitable contributions allowing an individual to receive a charitable deduction even if they do not itemize deductions.
The Adjusted Gross Income limitations for charitable deductions are adjusted as follows for the 2020 tax year:
- Individuals: Charitable contribution deduction generally limited to 50% of Adjusted Gross Income (AGI), receives an unlimited itemized deduction.
- Corporations: Charitable contribution deduction generally limited to 10% of AGI, increases to 25%.
- Contribution of food inventory: Charitable contribution of food inventory generally limited to 15% of AGI, increases to 25%.
Treatment of Student Loans
The Act provides for an exclusion of up to $5,250 from income for payments of an employee's education loans provided from an employer. This exclusion applies to:
- a loan which was incurred by the employee for the education of the employee (i.e., not to pay for an employee’s child),
- the payment of the loan can be made by the employer on behalf of the employee and paid either to the employee or directly to the lender,
- the exclusion only applies for payments made by an employer after the date of enactment of the Act and before January 1, 2021.
- the $5,250 limitation applies to both the new student loan repayment benefit as well as other educational assistance (including, tuition, fees, books) provided by the employer.