Tax Relief for Individuals under the CARES Act

You've probably heard there is tax relief to help individuals stay afloat during this time of economic uncertainty related to the COVID-19 crisis. Here's what you need to know about the tax relief in the CARES Act which was signed into law March 27, 2020.

Economic impact payment. IRS will soon begin making payments of up to $1,200 to eligible taxpayers or up to $2,400 to married couples filing joint returns. Parents will get an additional $500 for each dependent child under age 17. Thus, the payment for a married couple with two children under 17 will be $3,400. Additional details on these payments can be found on our website at www.kbgrp.com/resources/covid-19-updates 

Federal and state extended due dates. Under revenue procedures issued by IRS, the due date on U.S. tax returns originally due on or after April 1, 2020 and before July 15, 2020 have been automatically extended to July 15, 2020. This includes Americans who live and work abroad. In addition, individuals with estimated tax payments due within the same time period can wait until July 15, 2020 to make those payments. No late-filing penalty, late-payment penalty or interest will be due. Most states have provided for similar extension provisions. However, it is best to check the state provisions before filing any state returns.

Mortgage relief. Eligible homeowners with federally backed mortgage loans who are experiencing a financial hardship due, directly or indirectly, to COVID-19 may request forbearance, regardless of the delinquency status, from the mortgage loan servicer. Forbearance may be granted for up to 180 days and extended for up to another 180 days at the lender’s discretion. During this period no fees, penalties or interest beyond amounts calculated under the terms of the mortgage promissory note shall accrue.

Retirement plan rules. The CARES Act waives the penalty for an early withdrawal (up to $100,000) from a retirement plan in 2020 for a COVID-19-related distribution. A COVID-19-related distribution is to an individual who (or whose spouse or dependent) has been diagnosed with COVID-19. The penalty is also waived for people experiencing adverse financial consequences for covered COVID-19 reasons. While the penalty is waived, the tax on the distribution is not. However, there are provisions in the CARES Act to spread out the tax over several years or to put the distribution back in the retirement plan within three years of receiving it.

Temporary waiver of Required Minimum Distribution (RMD) rules. For 2020 only, the CARES Act waived Required Minimum Distributions.

Charitable contributions.  The CARES Act increases the charitable contribution base “cap” from 60% to 100% for qualified charitable contributions made in cash. The contribution base is generally the individual’s adjusted gross income. This may result in more tax benefit for individuals who make additional or larger contributions in 2020 and beyond.

Generally, charitable contributions are only deductible if an individual itemizes deductions. However, beginning with tax year 2020 standard deduction filers will be able to take the standard deduction plus cash contributions of up to a total of $300 to qualifying charities.

Student loan repayments. An employer can pay up to $5,250 of an employee’s qualified educational expenses on a tax-free basis to the employee. Beginning in 2020 qualified educational expenses include employer payments on an employee’s student loan.

Liquidity through tax relief. The CARES Act rolls back some tax deduction limitations which were part of the Tax Cuts and Jobs Act (TCJA). By removing some or all of the limitations, the roll back will result in liquidity through tax relief. Individuals may find tax relief as a result of changes to depreciation of qualified improvement property, net operating losses, net business losses, and interest expense rules. In addition, the favorable retroactive provisions of this part of the CARES Act should be examined.

IRS warns of scams. IRS asks taxpayers to be aware of the possibility of scams involving some of these provisions. IRS is not going to call, email or use social media to contact taxpayers to verify financial information or eligibility.

Please let your Kerkering Barberio Team Member know if you have any questions about the tax relief for individuals under the CARES Act or any other COVID-19 issues.

This article was written April 15, 2020. Information is current as of that date. Please check our website periodically for changes.