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The coronavirus pandemic has affected virtually every facet of American life and severely impacted the markets and economy. As many of you are aware, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES) into law on March 27, 2020. The $2.2 trillion bipartisan bill is the most expensive legislation ever enacted. We wanted to provide the consolidated highlights of the many federal relief opportunities created thus far that may benefit you.
Extension of federal tax filing due dateThe IRS postponed to July 15, 2020 the due date for both filing an income tax return and for making income tax payments originally due April 15, 2020. The postponement is automatic. Payments that may be postponed are limited to federal income tax payments in respect of a taxpayer’s 2019 taxable year and federal estimated income tax payments due on April 15, 2020 for a taxpayer’s 2020 taxable year. The extension is available to all taxpayers, including individuals, trusts and estates, corporations and other noncorporate entities, including those who pay self-employment tax. As a result of the extension, any interest, penalty, or addition to tax for failure to file or pay tax will not begin to accrue until July 16, 2020.
IRA contribution deadline extendedThe deadline for making 2019 IRA contributions has also been extended until July 15, 2020.
HSA and MSA contribution deadline extendedThe deadline for making 2019 contributions to health savings accounts (HSAs) and Archer medical savings accounts (MSAs) has been extended until July 15, 2020.
Recovery rebatesCash payments called “recovery rebates” are available to U.S. residents with income below certain levels who cannot be claimed as a dependent of another taxpayer and who have a Social Security Number. The rebate amounts are $1,200 for individuals and $2,400 for married joint filers, with an additional $500 for each qualifying child under age 17. The amount of each rebate phases out by $5 for each $100 of adjusted gross income (AGI) greater than $75,000 (single filers), $150,000 (married joint filers), or $112,500 (head of household filers) based upon AGI as reported on the 2018 federal tax return (or 2019 tax return, if filed). Thus, rebates are fully phased out at $99,000 (single filers), $198,000 (married joint filers), and $146,500 (head of household filers). Individuals do not need to do anything to receive the rebate. The IRS will make payments electronically, if possible, and will send a notice (to the taxpayer’s last known address) within 15 days of payment stating the payment amount and method.
As we currently understand it, the stimulus credit will ultimately be calculated based on your 2020 income tax return. There will be an additional line item on the 2020 income tax return to include the actual stimulus credit you are due. If the amount you received as an advanced stimulus check is less than the credit due, the difference will be included on your 2020 return. However, if you have been overpaid by receiving the advanced stimulus check, you are not required to return any excess amount.
H&R Block has a stimulus calculator you can check out:https://www.hrblock.com/coronavirus-tax-impact/calculator/
Required minimum distributions (RMDs)All 2020 RMDs from IRAs and retirement plans are waived, including RMDs from inherited IRAs (both traditional and Roth). The RMD waiver includes 2019 RMDs that were previously due by April 1, 2020. If you have already taken your 2020 RMD, you may have the option to roll it back into an IRA if it has been less than 60 days since the distribution. This rule does not apply to distributions of an inherited IRA.
Unemployment BenefitsUnemployment benefits have been expanded to assist those who have lost their job during the current economic crisis. Workers who lose their jobs because of coronavirus can receive unemployment for up to 39 weeks – that is 13 weeks more than usual in most states. Additionally, the federal government is adding $600 per week in benefits until July 31, 2020.
Student LoansPayments (principal and interest) on federal student loans are suspended through September 30, 2020 without penalty. Interest will not accrue on these loans during this suspension period. In addition, from March 27 through December 31, 2020, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment will be excluded from the employee’s income.
Mortgage ReliefHomeowners experiencing financial hardship due to the coronavirus pandemic that have a federally backed mortgage (Fannie Mae, Freddie Mac, FHA or USDA loans) may request forbearance for up to 180 days. During this period, borrowers will not incur fees, penalties or interest due to not making their mortgage payments. If your mortgage is held by a private lender, you should still contact it to see if it is providing mortgage relief. Many banks are offering to suspend payments or offering special terms.
Tax-favored early distributions from retirement plansThe CARES Act waives the 10% penalty applicable to early distributions for coronavirus related distributions up to $100,000 from IRAs and qualified defined contribution retirement plans such as 401(k), 403(b), and governmental 457(b) plans. A coronavirus related distribution is a distribution made during calendar year 2020 to an individual (or spouse) diagnosed with COVID-19 by a CDC-approved test, or to one who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the coronavirus. In addition, any income attributable to an early withdrawal is subject to income tax over a 3-year period unless the individual elects to have it all included in their 2020 income. Finally, individuals may recontribute the withdrawn amounts back into an IRA or plan within 3 years without violating the 60-day rollover rule or annual contribution limits.
Retirement Plan LoansBefore the CARES Act, a participant could borrow from a retirement plan the lesser of 50% of the vested account balance or $50,000 (reduced by other outstanding loans). Beginning March 27, 2020 through 180 days thereafter, the maximum loan amount increases to the lesser of 100% of the vested account balance or $100,000 (reduced by other outstanding loans). In addition, participants who had outstanding loans as of March 27, 2020 may defer for one year any payments normally due from March 27 through December 31, 2020.
Charitable ContributionsIndividuals who claim the standard deduction may also claim a new above-the-line deduction up to $300 for cash contributions made in 2020 to certain charities. Individuals who itemize deductions and make cash contributions in 2020 to certain charities may claim an itemized deduction up to 100% of AGI (increased from 60%). Eligible charities are those described in Section 170(b)(1)(A) of the Internal Revenue Code (for instance churches, educational organizations, and organizations providing medical or hospital care or research) and do not include donor advised funds or Section 509(a)(3) supporting organizations. The federal government has created many ways individuals may receive assistance to get through the current financial difficulties. Additionally, most states have provided their own relief such as a delay of the state income tax filing deadline or a temporary grace period for making mortgage payments. Wisconsin is one of those states, and the tax filing deadline has been extended to match the federal filing deadline of July 15, 2020. Please let us know if you have any questions on the above relief. We are here to continue to help you pursue your financial goals during these unprecedented times.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.