Tax Relief Provided by the CARES Act for Individuals at 4-1-20

Tax Relief Provided by the CARES Act for Individuals Both the Governor and the Mayor of Jacksonville have ordered most of us to “hunker down,” so now you’ll have plenty of time to study tax law (probably not). The page turner of the week is the CARES Act signed last weekend, 880 pages of rich information. There are several provisions that may touch you directly.Certainly the news has reached your home that there are imminent tax rebates about to be released. No need to elaborate (see our video on the COVID-19 Stimulus Check for more information), but the gist is that most will get $1,200 per taxpayer, plus $500 for each dependent eligible for a child credit. There is a phase out based on gross income, using the last tax return the IRS processed from you. Technically this is an advanced rebate on your 2020 return, so if they don’t get it right it will be reconciled to the right amount when you file that return. (Another form to look forward to.) There are a bunch of caveats, most of which are dealt with in the IRS FAQs. Other stuff to know: Retirement Plan ChangesThe 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.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 having turned age 70½ in 2019. Note that this is not retroactive, meaning if you have already taken the distribution, you cannot reverse it.There is a short term loan expansion allowing you to borrow up to $100,000 from your retirement plan for the 180 days from the enactment of the law, instead of the previous $50,000, if your plan allows for it. Charitable deduction liberalizations 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.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. EducationThe CARES Act expands the $5,250 income exclusion for benefits from an employer-sponsored educational assistance program to include employer payments of student loan debt made before January 1, 2021. Health careFor plan years beginning before 2021, high deductible health plans can pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.After December 31, 2019, amounts paid from Health Savings Accounts and Archer Medical Savings Accounts will 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.Finally, not to overlook our GIG workers, the expanded unemployment rules and the payroll tax credit apply to you, even though you are self-employed.There is a lot in these three bills passed in March and more is said to be coming. Be safe, but be aware of our rapidly changing world.