Title II – Assistance for American Workers, Families, and Businesses, Subtitle B – Individual Provisions
March 31, 2020
Early in the morning on Thursday, March 26, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On Friday, March 27, 2020, the House of Representatives also passed the CARES Act and President Trump quickly signed it into law the same day.
In this continuing series of blogs by lawyers at Forrest Firm, P.C., we will examine the most important, relevant, and impactful provisions of the CARES Act. Our goal is not to provide you with a granular level examination of each provision of the CARES Act, but rather to provide a macro view of the CARES Act in clear, concise, and understandable language that will enable readers to move forward with their businesses and lives with confidence. These are trying times, and here at Forrest Firm we want these articles to support our clients, positively impact our communities, and be available to help you with questions and concerns raised by the CARES Act.
The CARES Act includes a number of provisions to provide financial assistance to individuals.
Stimulus Rebates. Section 2201 of the CARES Act provides stimulus rebates to certain taxpayers who are United States residents. Individuals with adjusted gross incomes (“AGI”) of $75,000 or less and heads of household with AGI of $112,500 or less will receive a refundable tax credit in the amount of $1,200, paid in cash. Married couples filing jointly with AGI of $150,000 will receive a refundable tax refundable tax credit in the amount of $2,400, paid in cash. These taxpayers are entitled to an additional $500 refundable tax credit for each of their children. The amount of the rebate taxpayers receive is reduced by 5% for AGI above these limits; as a result, the amount of the rebate is completely phased-out for individual filers with AGI over $99,000, head of household filers with AGI over $146,500, and joint filers with AGI over $198,000.
Notably, taxpayers do not need any minimum amount of income in order to receive the tax credit. As a result, taxpayers with no income, as well as taxpayers whose income comes entirely from non-taxable benefit programs, such as SSI benefits, the Earned Income Tax Credit, and the Child Tax Credit. Since the IRS will use taxpayers’ 2019 tax return, or their 2018 tax return if they have not yet filed their 2019 tax return, to determine if and how much of a rebate they are entitled to, taxpayers do not need to take any action to receive the rebate checks – taxpayers will be eligible to receive their checks immediately.
Waiver of IRA Early Withdrawal Penalty. Section 2202 of the CARES Act waives the 10% penalty for early withdrawals from qualified retirement accounts made on or after January 1, 2020 of up to $100,000 if the individual making the withdrawal: (1) is diagnosed with coronavirus, (2) has a spouse or dependent who is diagnosed with coronavirus, or (3) experiences adverse financial consequences as a result of being quarantined, furloughed, laid-off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19 or other factors as determined by the IRS.
Income attributable to the withdrawal is taxable over up to three years and the taxpayer is entitled to recontribute the withdrawn funds to an eligible retirement plan within three years without regard to any cap on annual contributions. In addition, this provision increases the amounts which individuals may borrow from a qualified retirement account from $50,000 to $100,000, along with other flexibility for loans from certain retirement plans.
Temporary Waiver of IRA Required Minimum Distributions. Section 2203 of the CARES Act waives the required minimum distribution rules for certain defined contribution plans and IRAs for 2020, providing relief to individuals who would otherwise be required to withdraw funds from their retirement accounts after the accounts have been negatively impacted by the coronavirus.
Additional Charitable Contribution Deduction. Section 2204 of the CARES Act permits taxpayers to claim a permanent “above the line” charitable contribution deduction for up to $300 of cash contributions, regardless of whether they itemize their deductions.
Increased Charitable Contribution Limitation. Section 2205 of the CARES Act increases the corporate limitation on charitable contributions from 10% of taxable income to 25% of taxable income in 2020 and the individual limitation on charitable contributions from 50% of taxable income to 100% of taxable income in 2020. In addition, this provision increases the limitation on deductions for contributions of food inventory from 15% to 25% in 2020.
Exclusion from Income of Employer Payments Of Student Loans. Section 2206 of the CARES Act allows employers to provide a student loan repayment benefit of up to up to $5,250 to employees on a tax-free basis in 2020. Under the provision, the payment will be excluded from the employee’s income. The cap applies to both this new student loan repayment benefit as well as other educational assistance provided by the employer under current law.
If you have any questions, please do not hesitate to contact Brian Bernhardt for more information.