Individual Income Tax

Rebates or “Stimulus Checks”

This is probably the most commonly misunderstood portion of the CARES Act due to the vast amount of misinformation circulating.

Under the CARES Act individuals will be allowed a refundable credit against 2020 income taxes, up to:

  • $1,200.00 for individuals, or
  • $2,400.00for couples filing jointly; plus an additional
  • $500.00 for each qualifying child.

This tax credit phases out as income increases. For individuals, the income cap is $75,000 and the income cap $150,000 for those filing jointly.

The IRS will “refund” the credited amount to taxpayers “as rapidly as possible” by using the amount allowed based on the 2019 tax filings if already filed, or 2018 if not. For taxpayers that have not filed in 2018 or 2019, the IRS can use information pulled from the Social Security Benefits Statements. The IRS may deposit the rebate directly into a bank account as designated by taxpayers since January 1, 2018.

Charitable Contributions

For taxpayers that do not itemize deductions, there will be an “above the line” deduction allowed of up to $300 for cash contributions.

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Payroll Tax

One of the first roll outs of relief was the Families First Coronavirus Responses Act (“FFCRA”) which included advance fefunding of the payroll credit required for paid sick leave. This allowed for an employer to claim refundable tax credits for emergency paid sick leave and emergency paid family leave required for employees due to the COVID-19 crisis. The CARES Act picked up where the FFCRA left off and provides for an expansion of provisions including the following:

Subject to limitations laid out in the FFCRA and calculated through the most recent payroll period in the quarter – the CARES Act provides for an advance of those payroll tax credits.

The CARES Act mandates the Secretary of the Treasury to create forms and instructions in accordance with these advancement credits.

The CARES Act also mandates the Secretary of the Treasury cancel penalties for failure to deposit payroll taxes (only if failure can be attributed to anticipated FFCRA credit).

Payroll Tax Deferral

The CARES Act grants employers and self-employed individuals the opportunity to hold off on payment of the 6.2% social security tax beginning when the CARES Act was enacted and ending at the end of 2020. However – these taxes would then become due across the next two years; 50% in 2021 and 50% in 2022.

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