Individual Tax Provisions in Senate – Passed Third Coronavirus Relief Package


Article Posted on 03/27/2020


Updated 3/27/20

By a unanimous vote on March 25th, the Senate passed a third coronavirus relief package, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). At the time of posting this article, the House has not passed this act, and the President has not signed into law. Below is some information the tax relief provisions would provide for individuals

Individual recovery rebate/credit

  • An eligible individual is allowed an income tax credit for 2020 equal to the sum of:
    1.  $1,200 ($2,400 for eligible individuals filing a joint return)

PLUS

               2.   $500 for each qualifying child of the taxpayer

  • An eligible individual is any individual other than a nonresident alien.
  • Children who are (or can be) claimed as dependents by their parents aren’t eligible individuals.
  • The amount of the credit is reduced (but not below zero) by 5% of the taxpayer’s adjusted gross income in excess of:
    1. $150,000 for joint return
    2. $112,500 for a head of household
    3. $75,000 for all other taxpayers
  • If an individual has not yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer’s 2018 return.
  • If no 2018 or 2019 tax return has been filed, IRS will use information from the individual’s 2019 Form SSA-1099, Social Security Benefit Statement.
  • IRS may make the rebate electronically to any account to which the payee authorized, on or after January 1, 2018.
  • No later than 15 days after distributing a rebate payment, IRS must mail a notice to the taxpayer’s last known address indicating how the payment was made.
  • No advance rebate will be made or allowed after December 31, 2020

No 10% additional tax for coronavirus-related retirement plan distributions

  • The CARES Act provides that the 10% additional tax does not apply to any coronavirus-related distributions from a qualified retirement plan, up to $100,000.
  • A coronavirus-related distribution is any distribution made on or after January 1, 2020, and before December 31, 2020 from an eligible retirement plan.
  • A qualified individual
    1. is diagnosed with the virus SARS-CoV-2 or coronavirus disease 2019 (COVID-19)
    2. whose spouse or dependent is diagnosed with such virus or disease
    3. who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease.
  • The aggregate amount of distributions received by an individual which may be treated as coronavirus-related distributions for any tax year cannot exceed $100,000.
  • Distributions can be contributed back to retirement plan at any time during the 3-year period beginning on the day after the date on which such distribution was received.
  • Distributions can be included in income over three years. Unless the taxpayer elects not to, any amount required to be included in gross income for such tax year will be so included ratably over the 3-tax year period beginning with such tax year.
  • The CARES Act provides flexibility for loans from certain retirement plans for coronavirus-related relief
  • Effective date applies to distributions made on or after January 1, 2020, and before December 31, 2020.

RMD requirement waived for 2020

  • The CARES Act provides that the required minimum distribution requirements do not apply for calendar year 2020.

$300 above-the-line charitable deduction

  • The CARES Act adds a deduction to the calculation of gross income, beginning in 2020, for the amount (not to exceed $300) of qualified charitable contributions made by an individual who does not itemize deductions.
  • Qualified charitable contributions must go to a qualified charitable organization.
  • Effective Date applies to tax years beginning after December 31, 2019

Modification of limitations on individual cash charitable contributions during 2020

  • The CARES Act provides that qualified contributions are disregarded in applying the 60% of income limit on cash contributions of individuals.

Modification of limitations on corporate cash charitable contributions during 2020

  • The CARES Act provides that qualified contributions are disregarded in applying the 10% limit on charitable contributions of corporations.

Increase in limits on contributions of food inventory

  • Any charitable contribution of food during 2020 the taxable income limits are 25% rather than 15%.

Tax-excluded education payments by an employer temporarily include student loan repayments

  • The CARES Act adds eligible student loan repayment to the types of educational payments that are excluded from employee gross income.
  • Eligible student loan repayments made before January 1, 2021 can be excluded from income.
  • The payments are subject to the overall $5,250 per employee limit for all educational payments.
  • Effective date applies to payments made after the date of enactment of the Act.
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