We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19
(commonly referred to as the Coronavirus). I really don’t think taxes are on everyone’s mind this week,
but economic survival is, so I thought I would give you some information this week on some of the
incentives and relief available in the various bills passed recently. Primarily these are tax-related
provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic
stimulus package that the President signed into law on March 27, 2020.
Recovery rebates for individuals. I previously discussed that the government will send up to $1,200
payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500
additional payment will be sent to taxpayers for each qualifying child dependent under age 17. Rebates
are gradually phased out as income increases. There is no income floor or ”phase-in”-all recipients who
are under the phaseout threshold will receive the same amounts. The rebates are not available to, among
others, individuals who themselves could be claimed as dependents.
Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on
a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return
has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit
Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.
Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and
401(k) plans is waived for distributions made between January 1 and December 31, 2020 if you or a family
member is infected with the Coronavirus or who is economically harmed by the Coronavirus. The penalty
is waived for distributions up to $100,000. There are also generous provisions to allow you to re contribute
the distribution back into the retirement account. If you don’t recontribute the money back into the plan,
the tax is spread out over three years.
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.
Charitable deduction liberalizations. The CARES Act makes three significant liberalizations to the rules
governing charitable deductions:
(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made in 2020,
which effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
(2) Qualifying charitable contributions of up to 100% of your income are deductible in 2020 (previously
limited to 60%).
(3) Corporations were only allowed to deduct charitable contributions up to 10% of income. That limit is
raised to 25% in 2020.
Break for nonprescription medical products. The CARES Act allows costs for non-prescription medications
to be paid from Health Savings Accounts, Archer Medical Savings Accounts, Flexible Spending
Arrangements and Health Reimbursement Arrangements.
Ongoing information on the IRS and tax legislation response to COVID- 19 can be found
at https://www.irs.gov/coronavirus . This situation is ongoing, and you should keep in mind that there
has been a lot of misinformation, generally not on purpose but mostly because this is so new and is being
modified almost hourly. If you have questions, be sure you’re getting the latest information.
We will be pleased to hear from you at any time with questions about the above information or any other
matters, related to COVID-19 or not. We will do our very best to answer your questions. You can get more
information on this or many other topics at our website – www.fawandassociates.com or you can contact
us directly by calling our office at (336) 838-3080. You can also email me at firstname.lastname@example.org
any time with your question or concern.
We are currently limiting access to our office to protect our clients and staff. We are available by phone
and we can make arrangements to securely receive or deliver any documents electronically.
We wish all of you the very best in a difficult time. This will pass and we can all look forward to getting
back to a more normal time soon.