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.
For taxpayers that do not itemize deductions, there will be an “above the line” deduction allowed of up to $300 for cash contributions.
Student Loan Repayments
The gross income of an employee is not to include up to $5,250.00 if that amount was paid on principal or interest on qualified education loans after CARES Act takes affect through December 31, 2020.
Retirement Plan Changes
Under the CARES Act the 10% early withdrawal penalty for distributions up to $100,000 from covered retirement accounts is waived, however the purpose must be coronavirus-related and made on or after January 1, 2020. Income attributed to these distributions would be taxed across the following three years and if possible, the individual could re-contribute the funds without being subject to contribution caps. There are also loan options available from certain retirement plans – counsel should be sought if you believe this is the route you need to take.
Waiver of Required Minimum Distributions for 2020
The CARES Act also provides relief to individuals who might otherwise be required under law to withdraw funds from their IRA plans during an economic slowdown such as this caused by COVID-19. This relief comes in the form of a waiver of the required minimum distribution rules for 2020 only.
Other Benefit Plan Changes
There are specific provisions that impact employee benefit plans including funding help for single employer benefits plans and necessitates that group health plans cover COVID-19 testing, preventative services, vaccines. There are also changes being made to the policies regarding over the counter drugs, in that they are not to be eligible for reimbursement from an HSA, FSA, or HRA.