CARES Act – Individual Tax Relief Provisions

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The House passed the Senate’s CARES Act today. The Act includes individual tax relief provisions that we have broken down below: 

RECOVERY RELIEF

  • Advance rebate against 2020 taxes
  • $1,200 for Individuals; $2,400 for joint, $500 for each child
  • $5 phases out for every $100 in income over…
    • $75,000 for single fillers
    • $112,500 for heads of the household
    • $150,000 for joint fillers
    • Therefore, completely phased out by…
      • $99,000 for single fillers
      • $136,500 for heads of the household
      • $198,000 for joint fillers
      • Uses 2019 gross income, 2018 gross income if 2019 return has not been filed yet
      • Eligibility:
        • Must have a social security number for the taxpayer and all dependents, including the spouse
        • Must not be:
          • A nonresident alien
          • Able to be claimed as a dependent
          • A trust or estate

RETIREMENT PLANS

  • Temporarily waves the 10 percent penalty on early withdrawals under $100,000 from qualified plans if spent on coronavirus-related expenditures. This spending must be made in the 2020 calendar year and includes:
    • A test for the virus
    • Anyone who has been in financial difficulty due to losing hours or employment due to quarantine or business closure
    • Any income from with withdrawal is subject to taxes over a three-year period unless re-contributed to a qualified retirement plan, that amount ignores annual caps
    • All minimum required distributions for 2020 are waived

CHARITABLE CONTRIBUTIONS

  • Creates an above-the-line deduction of up to 300 for charitable contributions by individuals in the 2020 year
  • Percent of adjusted gross income limitations are increased for all taxpayers and specific types of contributions; For the 2020 Tax year:
    • Individuals can claim an unlimited itemized deduction for a charitable contribution
    • The 10% of adjusted gross income limit is now raised to 25% for corporations
    • The contribution of food inventory deduction limit is raised from 15% to 25%

EMPLOYER-PAID STUDENT LOANS

  • Excludes up to 5,250 from income for payments of employee’s education loans
    • Loan must be incurred by the employee for the education of the employee, not a child or someone else
    • Payment can be made to the employee or directly to the lender
    • Applies from date of enactment until January 1, 2021
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