On March 27th, President Trump signed the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. The 880-page CARES Act includes multiple provisions that will impact Argent clients.
Some highlights include:
Income Tax Filing Date Extended
Note: this is not actually part of the CARES Act, but rather a provision announced by the Treasury Department prior to passage of the CARES Act.
1| The tax return filing deadline for federal returns previously due on April 15, 2020 is extended to July 15, 2020.
2| First quarter estimated tax payments are now due July 15, 2020, as well; however, second quarter estimated tax payments are due on June 15, 2020 (subject to change).
3| For individual taxpayers whose tax liability is under $1 million, deferral of payment of 2019 income tax is permitted, interest and penalty free, if paid by July 15, 2020.
Recovery Rebates for Individuals
1| Many Americans will receive direct payments of $1,200, or $2,400 for joint filers, plus $500 for each qualifying child.
2| The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds $75,000 for individuals and $150,000 for joint filers. The rebate is entirely phased out when adjusted gross income exceeds:
• Joint Filers – $198,000
• Head of Household – $136,500
• Individual – $99k
3| Adjusted gross income will be determined by 2019 tax filings (or 2018, if 2019 tax filings have not been completed). In general, a qualifying dependent child is one who is under the age of 17 at the end of the tax year.
4| No action on the part of the rebate recipient is required. A notice from the IRS will be sent to the rebate recipient 15 days after delivery of payment stating the location of payment made and amount.
5| Recovery rebates will not be taxed.
Retirement Account Contributions and Distributions
1| The deadline for 2019 contributions to traditional and Roth IRAs is extended to July 15, 2020, mirroring the tax return filing deadline.
1. This gives clients more time to decide whether to contribute for 2019.
2. This also applies to 2019 Health Savings Account, Archer Medical Savings Account, and Coverdell Education Savings Account (ESA) contributions.
2| No RMDs (Required Minimum Distributions) for 2020.
1. This applies to IRAs and company-sponsored retirement plans
2. This also applies for IRA and Roth IRA beneficiaries
3. This applies for owners who turned 70 ½ in 2019 and would otherwise have been required to take their first RMD by April 1, 2020
4. Beneficiaries who inherited an IRA from 2015 to 2020 and who are subject to the 5-year payout rule (generally, non-designated beneficiaries who inherited before the deceased IRA owner reached his required beginning date) now have an extra year to fully withdraw the balance
3| IRA distributions taken between Feb. 1, 2020, and May 15, 2020 may be rolled back into the IRA if the rollover is completed by July 15, 2020, but with the following caveats**:
1. Distributions taken in January 2020 are not eligible for this extension.
2. IRA distributions can only be rolled back into an IRA once every 365 days. If funds have been distributed and rolled them back into an IRA within the 365 days preceding the date of the most recent distribution, then the most recent distribution will not be eligible for a rollover.
3. Inherited IRA distributions cannot be rolled back into the IRA.
4. Any taxes withheld from distributions made in 2020 and subsequently rolled back into the IRA will not be returned, but will instead be applied against the 2020 tax return.
4| The 10% early withdrawal penalty is waived for coronavirus-related distributions taken in 2020 up to $100,000 per individual across all company-sponsored plans and IRAs.
1. A “coronavirus related distribution” is permissible if an individual has incurred:
– A diagnosis of COVID-19;
– A spouse or dependent has been diagnosed with COVID-19; or
– Adverse financial consequences due to being furloughed, quarantined, laid off, incurred reduced hours, unable to work due to childcare issues related to the coronavirus, closing or reducing hours of a business owned or operated by the person, or other factors as determined by the Treasury Secretary.
2. Distributions are still taxable, but the tax may be spread evenly over the next three years.
3. Alternately, the taxpayer has three years to roll the funds back into the plan.
5| Maximum loan amounts from company-sponsored retirement plans are increased from $50,000 to the lesser of $100,000 or the full account balance for individuals who have been impacted by the coronavirus (using the same definition as outlined above for “coronavirus related distribution”).
1. Loan repayments scheduled from 03/27/2020 through 12/31/2020 may be suspended for one year.
1| Charitable contributions for clients who itemize are eligible up to 100% of adjusted gross income for 2020 (up from 60%) with a 5-year carryforward of excess amounts. (This does not include donations to Private Foundations and Donor Advised Funds.)
2| In addition, clients who take the standard deduction may receive an above-the-line deduction of up to $300 for charitable contributions.
Student Loan Payments
1| Payments on federal student loans are suspended until September 30, 2020.
2| During this suspension period, interest will not accrue and suspended months count toward loan forgiveness programs.
3| Students who were forced to withdraw from school due to coronavirus will not be required to return portions of grants or loan assistance. Certain students may also be eligible for emergency financial aid up to the Federal Pell Grant maximum for the year.
4| For 2020 only, the CARES Act provides an income tax exclusion for individuals who receive student loan repayment assistance from their employer. The maximum amount that can be excluded is $5,250.
Full text of the Act can be found here: https://www.congress.gov/116/bills/s3548/BILLS-116s3548is.pdf
(updated March 31, 2020)
**information updated May 15, 2020