Updated April 27, 2020

We hope you are keeping yourself, your loved ones, and your community safe from COVID-19. Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. Here is a list of tax-related provisions focused upon assisting individual taxpayers. 

Recovery Rebates: A provision of the new law provides eligible individuals with a recovery rebate. This is tax-free money that does not need to be paid back.

  • Individuals will qualify for a $1,200 rebate, while joint filers will receive $2,400, with a $500 credit for each child.
  • Threshold amounts will be based on 2018 adjusted gross income (unless a 2019 return has already been filed).
  • Phase-out will begin at adjusted gross income of $75,000 for single filers, $112,500 for heads of households and $150,000 for joint filers.
  • Rebates will be phased out by $5 for every $100 in excess of a threshold amount. Therefore, rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500 and joint filers with $198,000.
  • Individuals must meet certain requirements to be eligible for the recovery rebate, including:
    • Not being a nonresident alien.
    • Must not be able to be claimed as a dependent on another taxpayer’s return.
    • Cannot be an estate or trust.
    • Must have included a Social Security number for both the taxpayer, the taxpayer’s spouse and eligible children (or an adoption taxpayer identification number, where appropriate). 
  • If rebate is limited due to income threshold or missing dependents on most recently filed tax return, taxpayer will be able to claim balance of missed credit when filing 2020 tax return if 2020 tax return meets thresholds above. Taxpayer will not be required to repay excess on 2020 tax return if rebate check was greater than entitled amount. 
  • With the exception of social security recipients, IRS urges anyone who qualifies for the credit and who has not yet filed a tax return for 2018 or 2019 to file as soon as possible so they can receive an economic impact payment. To speed receipt of payment, taxpayers are advised to include direct deposit banking information on the return.
  • IRS will post all key information on https://www.irs.gov/coronavirus
  • Planning Point – Review income thresholds, you can qualify for credit using 2019 AGI or 2018 AGI (if 2019 not yet filed).

Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus. Penalty-free distributions are limited to $100,000, and may be subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to include the distribution in 2020 income. Withdrawn amounts can also be recontributed to qualified retirement plans without being subject to any tax if re-contributed within three years.

  • Planning Point – You have the entire 2020 tax year to pull money from qualified retirement plans. However it may not be ideal to pull out at current market levels if you believe a rebound will take place.
  • Planning Point – You can effectively have a 3 year interest free loan if the withdrawn monies are paid back by end of 3rd year.  This could cash flow your business in the interim until other funding sources are provided.
  • Planning Point – If you believe the recent downturn in the stock market is temporary, this would be an ideal time for a Roth conversion.  

Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.

  • Planning Point – You are not required to pull money out of the market if you consider current conditions unfavorable. You can defer entire 2020 required minimum distributions (RMD). In fact, if done by July 15th, you can re-contribute any RMD taken early in 2020.

Charitable Contributions: Individuals will be allowed to claim an above-the-line deduction up to $300 for cash charitable contributions for the 2020 tax year of 2020 contributions (i.e. not carryforwards). Furthermore, individuals will be able to claim unlimited itemized deductions for 2020 charitable contributions, which are normally limited to 50% of adjusted gross income. 

Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, high deductible health plans are allowed to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan. The Act also allowed nonprescription medical products to be paid out of HSAs and Flex Spending Arrangements.

Unemployment Insurance: The pandemic unemployment assistance program provides an increase in unemployment insurance benefits to each recipient in the amount of $600 per week for up to four months. It also extends these benefits to self-employed workers, independent contractors and those with limited work history. In addition, the federal government will extend these benefits for an additional 13 weeks through Dec. 31, 2020 after state-funded benefits end.

NOL Carryback: The CARES Act has amended provisions to allow net operating losses incurred in 2018, 2019, and 2020 to be fully deductible, without the 80% limitation. The net operating losses from 2018, 2019, and 2020 are also allowed to be carried back five years.