We hope you and your family are staying safe and healthy during this time. Along with paramount health concerns, you may be wondering about the recent tax changes and how they may affect you. In addition to the last email we sent out concerning Economic Impact Payments, we now want to update you on tax related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on March 27th, 2020.
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Recovery Rebates: To help individuals stay afloat during this time of uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 to married couples filing jointly. An additional $500 additional payment will be sent to taxpayers for each qualifying child under the age of 17 (using qualification rules under the Child Tax Credit).
There is no income floor or “phase-in”- all recipients who are under the phaseout threshold ($75,000 singles and $150,000 joint for adjusted gross income) will receive the same amounts. Tax filers must have provided, on recent tax returns (2018 or 2019) or other documents (see below): Social security numbers (SSN) for each family member whom a rebate is claimed.
The rebates will be paid out in the form of checks or direct deposits. Rebates will be computed based on the taxpayer’s 2019 return (or 2018 if no 2019 has been filed yet.) If you have not filed in the past, the IRS will use information for 2019 provided from your Social Security Benefit Statement or Social Security Equivalent Benefit Statement.
Delay in Tax-filing Requirements: Individuals now have until July 15, 2020 to file their 2019 income tax returns. The deadline for 2019 tax payments has also been extended to July 15. The Treasury Department has postponed the deadline for making IRA contributions until the date the return is due.
Retirement Account Changes
Waiver of Required Distribution Rules: Required minimum distributions from retirement plans such as 401(k) plans and IRAs have been waived for 2020. This includes distributions that would have been required by April 1, 2020, due to the recipient having turned 70 ½ in 2019.
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 during 2020 by a person (or family member) infected with COVID-19 or who is economically harmed by COVID-19. Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA.
Tax Benefits for Charitable Gifts
Charitable Deduction Liberalizations: The CARES Act makes significant changes to the rules governing charitable deductions:
1. Individuals will be able to claim a $300 above-the-line deduction for cash contributions made to public charities in 2020. This allows a charitable deduction to taxpayers claiming the standard deduction.
2. The limitation on charitable deductions (60% of modified adjusted gross income) does not apply to cash contributions made to public charities in 2020. Instead, qualifying contributions, reduced by other contributions, can be as much as 100% of AGI.
Student Loans: Payments on federally-held student loans have been automatically extended through Sept. 30, 2020 with no interest accruing or penalties during period of suspension.
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 Nonprescription Medical Products: For amounts paid in 2020, 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. This includes items such as over-the-counter medications, health supplies, and menstrual products.
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.
Additional information from the IRS regarding the tax implications of the CARES Act and other responses to COVID-19 can be found at https://www.irs.gov/coronavirus .
PKC remains in operation full-time as an essential business while doing our best to keep our clients and staff safe and healthy. If you have any questions regarding these changes or your specific situation, please contact Renae Heesch at email@example.com or 608-783-0440.
We wish you all the best during this difficult time. Stay safe!
PKC3 LLC Staff