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The Thomas Howell Ferguson Blog

CARES Act – Impact on Individuals

Recovery Rebates

All US resident individuals with an adjusted gross income of up to $75,000 ($150,000 married), and a work-eligible Social Security Number (SSN), are eligible for the full $1,200 rebate ($2,400 for those who are married and file jointly).  Additionally, individuals are eligible for an extra $500 per qualifying child, given that the qualifying child has an SSN.

These amounts are advances of refundable 2020 income tax credits and are determined based on the 2019 (or, 2018 if 2019 has not been filed) tax returns.  If your 2019 (or 2018) adjusted gross income is above the phase-out thresholds for the credit ($99,000 for single individuals and $198,000 for married filing jointly) then no advance recovery rebate will be received.

Under the CARES Act (The Act), the IRS must mail a notice to your last known address within 15 days of distributing the rebate payment.  The notice must include the following:

  • Indication of how the payment was made
  • Payment amount
  • Phone number for reporting any failure to receive the payment from the IRS

The timing of when these rebates will be issued has not been announced.

Benefits to Donors

The Act also provides benefits for donors to 501(c)(3) organizations.  There is a new deduction for total charitable contributions of up to $300 made by an individual taxpayer.  This is an “above the line” deduction, so all taxpayers would be eligible to take the deduction, including those who use the standard deduction.  The deduction would not apply to noncash gifts or to gifts contributed to donor advised funds.  It would apply to contributions made in 2020, and therefore would be claimed on tax forms and filings next year.

Additionally, the Act would suspend the 2020 usual limit from the existing cap on annual contributions from 50% of adjusted gross income (AGI), or 60% for cash to 100%, for those individuals who itemize their deductions.

For corporations, the annual charitable contribution limit for 2020, which is usually 10% of AGI, is increased to 25%.  Donations of food by corporations would go from 15% cap to 25%.

Penalty Waiver for Withdrawals from Qualified Retirement Plans

Eligible participants may take out withdrawals from tax-deferred retirement plans, such as 401(k) plans and IRAs, without the 10% early withdrawal penalty.  The following are considered eligible participants:

  • Individuals diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention.
  • Individuals with spouses or dependents diagnosed with COVID-19.
  • Individuals who experience adverse financial consequences as a result of being quarantined, furloughed, 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.

Distributions of up to $100,000 can be taken under these coronavirus distribution provisions.  You may elect to recognize your coronavirus distribution in taxable income over a three-year period beginning in 2020.  Further, you may also repay all or part of your coronavirus distribution to your retirement plan over a three-year period.  The unrepaid portion will still be subject to income tax.

Increased Qualified Plan Loans

The limitation on loans from qualified plans has been temporarily raised from $50,000 to $100,000 for the period of March 27, 2020 through September 23, 2020, which is 180 days after the enactment of the CARES Act.

Required Minimum Distributions Temporarily Suspended

Normally, retirement plans and IRAs are required to make minimum distributions to participants once they reach the age of 72.  These required minimum distributions have been suspended for the 2020 calendar year.

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