Individual Tax Information from the Economic Stimulus Package
Christina Lael, CPA, Esq.
I help business owners and high-earners keep more of their hard-earned money—so they can invest in what matters most. ?? Certified Strategic Tax Planner | Licensed CPA and Tax Attorney, Esq.
Below are the relevant INDIVIDUAL tax implications due to the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). Due to the size of the bill, I will post a separate article about the relevant business tax changes.
Money sent to individuals from the IRS.
Credit allowed for 2020. Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of (1) $1,200 ($2,400 for eligible individuals filing a joint return) plus (2) $500 for each qualifying child of the taxpayer. Since it is a "tax credit," no federal taxes will be owed on it.
Even though the credit is technically for 2020, the law treats it as an overpayment for 2019 that the IRS will rebate as soon as possible during 2020. When you file your 2020 taxes, you will NOT have to pay back the credit even if you make more than the limits above.
Phaseout of credit. The amount of the credit is reduced (but not below zero) by 5% of the taxpayer's adjusted gross income (AGI) in excess of: (1) $150,000 for a joint return, (2) $112,500 for a head of household, and (3) $75,000 for all other taxpayers.
The credit is completely phased-out for a single filer with AGI exceeding $99,000 and for joint filers with no children with AGI exceeding $198,000. For a head of household with one child, the credit is completely phased out when AGI exceeds $146,500.
Where will it be sent: IRS may make the rebate electronically to any account to which the payee authorized, on or after Jan. 1, 2018, for a refund of federal taxes or of a federal payment. No later than 15 days after distributing a rebate payment, IRS must mail a notice to the taxpayer's last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to IRS.
How will you know: No later than 15 days after distributing a rebate payment, IRS must mail a notice to the taxpayer's last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to IRS.
Based on what: Your 2019 tax return. If an individual hasn't yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer's 2018 return. If no 2018 return has been filed, IRS will use information from the individual's 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.
$300 above-the-line charitable deduction if you do not itemize.
If you use the standard deduction instead of itemizing on Schedule A, you can now take a charitable deduction up to $300 to reduce your adjusted gross income. Eligible individuals are only those we do not elect to itemize. Now is the time to start saving those charitable receipts!
Retirement Plans
No 10% penalty. No 10% additional tax for coronavirus-related retirement plan distributions up to $100,000 for anyone diagnosed with COVID-19, whose spouse or dependent is diagnosed, or who experiences adverse financial consequences due to sickness, layoffs, reduced hours or other factors.
RMD requirement waived for 2020. In general, owners who reach 72 much withdraw a required minimum distribution (RMD) annually. This requirement has been waived for IRA owners for 2020
If you have any questions or comments, please message me. I will be happy to respond! Please stay healthy and safe!