Highlights – What the tax changes mean for you:
- The filing deadline for tax returns has been extended from April 15 to July 15, 2020.
- As noted above, individuals will receive cash payments from the federal government in the amount of $1,200 per adult plus $500 for each child under the age of 17. These payments should be sent out starting in April.
- Individuals with retirement accounts, including IRAs, can take early withdrawals of up to $100,000 from those accounts without having to pay the 10% early-withdrawal penalty. Those who withdraw such funds can recontribute them to the plan over three years or can keep the money and pay the tax on the withdrawals over a three-year period.
- Individuals aged 70 1/2 or older do not have to worry about taking required minimum distributions from retirement plans in 2020, or to pay the taxes on those distributions.
- Individuals who make donations of up to $300 in charitable contributions in 2020 can deduct them whether they itemize or not.
2020 Recovery rebates for individuals (Section 2201):
- Tax credits are provided for individuals in the amount of $1,200 for single returns and $2,400 for joint returns
- plus $500 for each child (under age 17 and qualifying for the child credit);
- Credits are reduced by 5% of the excess of adjusted gross income (AGI) over these thresholds:
- $75,000 for a single return;
- $150,000 for a joint return; and
- $112,500 for a head of household return:
- Thus, the credits would be fully phased out for income higher than the following amounts:
- $99,000 for a single person with no qualifying child;
- $198,000 for a couple filing a joint return with no qualifying children;
- $218,000 for a couple filing a joint return with two qualifying children;
- $146,500 for a single parent with one qualifying child:
- (in all cases, the level of income before the phaseout is complete increases by $10,000 per child).
- For limitation purposes, AGI is based on the 2019 tax return, if filed. If not, then AGI on the 2018 return would be the limit.
- There is no income floor or phase-in – all whose income does not exceed the thresholds will receive the same amount. Non-tax filers generally need not file a tax return to claim a rebate.
- The credits are not available to anyone who can be claimed as a dependent on another’s return.
- If a tax return has not yet been filed for 2019, the 2018 tax return will be the point of reference. If no tax return was filed for either year, rebates can still be sent based on information on Social Security benefit statements.
- The rebates are fully available to residents of U.S. Territories, including Puerto Rico.
- The IRS will send out the payments electronically if any tax refund was sent in such a manner for the 2018 or 2019 tax return – also there will be a notice by mail to the last known address that the payment has been made electronically. If not, a paper check will be sent.
- No credit allowed if correct ID numbers (Social Security numbers) were not on tax returns, except in cases of spouses of active military personnel.
Special Rules for Withdrawals from Retirement Funds (Section 2202):
- The 10% extra tax on early withdrawals from IRAs and qualified retirement plans shall not apply to distributions of up to $100,000 related to coronavirus:
- These are distributions made in 2020 to an individual diagnosed with COVID-19 or whose spouse or dependent is diagnosed or who experiences adverse financial consequences as a result of being quarantined, furloughed, or laid off due to such virus or is unable to work due to lack of child care or closing or reduced hours of his or her own business.
- Such amounts can be repaid to the retirement plan over a 3-year period;
- If not repaid, the regular tax on the distribution can be paid over a three-year period;
- Certain coronavirus-related loans up to $100,000 from defined contribution plans are not treated as distributions and the repayment of such loans is extended.
Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts (Section 2203):
- The required minimum distribution (which requires people who turned age 70 ½ in 2019 to include a portion of their IRA or other defined contribution retirement account in their income) is waived for 2020.
Allowance of Partial Deduction for Charitable Contributions (Section 2204):
- For 2020, charitable contributions of up to $300 are deductible for those who do not itemize deductions;
- Must be cash contributions to charities (but not to private foundations or donor advised funds).
Modification of Limitations on Charitable Contributions During 2020 (Section 2205):
- The 60% of AGI limit for cash contributions is increased to 100% for charitable donations made in 2020. For corporations, the 10% of taxable income limitation is increased to 25%. For donations of food inventory, the limitation increases from 15% to 25%.