Individual Relief Provisions Contained in the CARES Act
The CARES Act (the “Act”) has been passed by Congress and signed into law. This is part three of our series, which focuses on various provisions contained in the Act. Part I summarized the business relief provisions contained in the Act. Part II summarized other business and tax related provisions. Finally, Part III (below) focuses on the individual relief provisions.
Recovery rebates: The Act provides for payments to taxpayers — “recovery rebates” — which are being treated as advance refunds of a 2020 tax credit. Under this provision, individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals. The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.
Unemployment Insurance: The Act expands unemployment benefits available to millions of workers impacted by the Coronavirus. Both “eligible employees” and “covered individuals” will receive a $600 enhancement in addition to their normal state benefits. The “covered individuals” is an expansion of the unemployment program to include several individuals who did not previously qualify for unemployment benefits. Although the federal government will provide the funding, state unemployment agencies will administer and issue the benefits.
Retirement plans: Taxpayers can take up to $100,000 in Coronavirus-related distributions from retirement plans without being subject to the 10% additional tax for early distributions. Eligible distributions can be taken up to Dec. 31, 2020. Coronavirus-related distributions may be repaid within three years.
The Act also allows loans of up to $100,000 from qualified plans, and repayment can be delayed. The Act temporarily suspends the required minimum distribution rules in Sec. 401 for 2020. The Act delays 2020 minimum required contributions for single-employer plans until 2021.
Charitable deductions: The Act creates an above-the-line charitable deduction for 2020 (not to exceed $300). The Act also modifies the Adjusted Gross Income (AGI) limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations. The Act also increases the food contribution limits to 25%.
Health plans: The rules for high-deductible health plans (HDHPs) are amended to allow them to cover telehealth and other remote care services without charging a deductible. Over-the-counter menstrual care products are added to the list of items that can be reimbursed out of a health savings account, Archer medical savings account, or health reimbursement arrangement.
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