Help For Individual Taxpayers – Coronavirus Aid, Relief And Economic Security (CARES) Act.

On Friday, March 27th, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law. It contains provisions for individuals and businesses, including:

  • Direct payments to individuals and families,
  • Support for small business,
  • Federal loans for industries impacted by the coronavirus, and
  • Enhanced unemployment insurance.

We are currently combing through the bill and we will communicate further regarding pertinent elements of CARES such as provisions for business owners.  We will also reach out to clients regarding their individual situation.

Income – Recovery Rebates
As you’ve read by now, the law provides for direct payment for individuals and families. The amounts are:

  • $1,200 for individuals, or
  • $2,400 for joint filers, and
  • Additional credit of $500 for each child.

Full rebate amounts shown above are paid up to $75,000 for single filers, $112,500 for heads of households and $150,000 for joint filers. The payments phase out at $5 for every $100 in income over these amounts.  You are eligible for a rebate if your 2018 adjusted gross income (or 2019 if you have filed already) are under $99,000 for individuals and $136,500 for heads of household or $198,000 for joint filers.

If you did not file taxes in 2018 and meet eligibility requirements for the payout, the best way to insure you receive the funds is to file a 2019 return now. For most eligible taxpayers, no action is needed to receive your payment, which will be received as a check or a direct deposit based on your 2018 (or 2019) tax filing. Current estimates are that direct deposits will be made in April, checks may take longer.

Unemployment
The law provides $250 billion for an extended unemployment insurance program; it expands eligibility to include self-employed, independent contractors and gig economy workers and provides for an additional $600 a week for four months, over and above what state unemployment programs pay.  For more information on Virginia’s current response, including waiver of the waiting period and the weekly job search, visit http://www.vec.virginia.gov/unemployed.

Withdrawal and Distribution from Qualified Retirement Funds
The legislation provides for withdrawals from qualified retirement plans of up to $100,000, without the usual 10% early withdrawal penalty, for coronavirus related distributions which include:

  • A distribution in the 2020 calendar year to an individual (or spouse of individual) diagnosed with COVID-19 by a CDC-approved test.
  • An individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff or reduced hours due to the virus.

These measures are retroactive to January 1st and income obtained by early withdrawal is subject to tax over a three-year period, but taxpayers can recontribute the withdrawn amounts to a qualified plan without regard to annual caps within three years.

RMDs Can Be Suspended in 2020
The Act waives all required (at age 72) minimum distributions from retirement plans and 401(k) plans in 2020, regardless of whether the taxpayer has been impacted by the coronavirus. It is our belief that individual situations may warrant planning given this provision. Specifically, consideration of Qualified Charitable Distributions, the bracket of the taxpayer, or strategic withholding planning may all be reasons to carefully consider implications of this aspect of the act. We also believe that for many taxpayers this could represent a window of opportunity to evaluate ROTH conversions. We will follow up with these and other planning ideas in a future newsletter.

Charitable Contributions
The Act has tax incentives for making charitable contributions for the 2020 tax year, as follows,

  • An above the line deduction for up to $300 for charitable contributions made by individuals, even if the taxpayer does not itemize.
  • Individuals can claim an unlimited itemized deduction for a cash charitable contribution, which is normally limited to 50 percent of adjusted gross income (AGI).
  • The contribution of food inventory, for which deduction is usually capped at 15% of AGI is increased to 25% of AGI for the 2020 tax year.

For suggestions on ways to contribute to charities that are helping locally in RVA, please visit https://www.heritagewealth.net/news/ways-to-give/.

Health Insurance and Heath Savings Accounts (HSA)

  • Safe harbor from the definition of a high deductible health plan permitting telehealth services to be included, even though such services do not carry a deductible.
  • Inclusion of over-the-counter menstrual products as qualified medical expenses for the purposes of distributions from health savings accounts and health flexible spending arrangements.

Forgiven Loans
The exclusion from tax of forgiven small business loans, mortgage or other loan obligations forgiven by the lender in the applicable period.

Student Loans
If a taxpayer is paying student loans, a benefit may be available through employers. The act provides for an income exclusion up to $5,250 to businesses who make payment on employee’s student educational loans or for educational materials and assistance between March 27, 2020 and January 1, 2021.

Filing 2019 Taxes

  • Federal Tax: Individuals can defer filing and tax payments of up to $1,000,000 for 90 days from the April 15th filing deadline without penalty or interest charges.
  • Federal first quarter estimated payments are also extended to July 15th. The due date for second quarter payments remains June 15th.
  • Virginia State 2019 tax filing deadline remains May 1, 2020. The payment deadline has been extended until June 1st; however, interest will continue to accrue beyond May 1st

For more information on each state’s COVID-19 response to their filing deadline, the AICPA is regularly updating their summary table at https://taxfoundation.org/state-tax-coronavirus-covid19/.

Relief and Benefits for Small Businesses
The Act provides numerous components designed to benefit small businesses; we will be in touch with HWA entrepreneurial clients in the coming week to familiarize you with those developments.

This material has been prepared for general informational purposes only and is not intended as a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties. If desired, Heritage Wealth Advisors would be pleased to perform specific research and provide detailed professional advice.