Coronavirus Aid, Relief, and Economic Security Act
In response to the massive economic impact of the coronavirus, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 27. This sweeping action brought over $2 trillion to fight unemployment, bolster public health and provide some tax relief to businesses and individuals. Though much of the bill focuses on unemployment benefits and business loans, there are some key provisions that help everyone.
The most wide-ranging change for individuals is the delay in tax filing and payments to July 15. Paperwork and payments are not due until mid-July without any penalties or interest assessed for payments normally due mid-April. Though each state can determine their own timeline for state taxes, California has moved their deadline to mid-July as well.
A few new rules are in effect for retirement accounts that should help most individuals. First, all required minimum distributions (RMDs) from IRAs for 2020 have been suspended. No one needs to take a distribution from their IRA, inherited IRA, 403, or 457(b) plan this year regardless of pandemic needs. If you have already taken a distribution, you have 60 days to re-deposit it and wait until next year.
Second, the Act allows “coronavirus related” distribution from retirement accounts without penalty of up to $100,000 for those affected by coronavirus. The 10% early withdrawal is waived for those under 59 ½ and the income is recognized over three years, with the ability to repay these withdrawals if they wish. Qualified distributions include those made to individuals with COVID-19, a spouse or dependent of this individual, or those who face adverse economic consequences as a result of the pandemic.
Recognizing that non-profits will also be hit hard by the virus, the bill includes a few changes to encourage more giving. The major change is allowing cash gifts to public charities of up to 100% of adjusted income for 2020 – this doubles the deductible limit. For those who no longer itemize, the bill also allows for a $300 “above-the-line” deduction. Corporations may now deduct up to 25% of their charitable contributions up from the usual 10%.
The most noted part of the act is the “recovery rebate” payments of $1,200 for each individual or $2,400 per couple. The phase-outs for this payment are a 2019 income of less than $75,000 or $150,000, respectively. The rebates completely disappear above $100,000 income for individuals or $200,000 for couples. For those who do qualify, these rebates are tax-free.
The CARES Act details are still being worked out and likely there will be more phases of relief offered as the shutdown continues.