March 26th. 2020
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, H.R. 748
passed the senate on March 25th and contains a host of tax measures as part of a $2 trillion stimulus package designed to help the economy recover from the current crisis. Some of the Federal tax components include:
- 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. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.
- Advance refunding of the payroll tax credits enacted in the Families First Coronavirus Response Act enacted on March 17th. The credits for required paid sick leave and paid family leave can be refunded in advance using forms and instructions to be provided by the IRS. Penalties will be waived for failure to deposit payroll taxes if the failure was due to an anticipated payroll tax credit.
- An employee retention credit for employers that close due to the coronavirus pandemic. Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.
- 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 December 31, 2020 and may be repaid within three years. For these purposes, an eligible taxpayer is: one who has been diagnosed or whose spouse or dependent has been diagnosed with SARS-CoV-2 virus or COVID-19 disease, experiences adverse financial consequences from being quarantined, laid off, had work hours reduced or is unable to work due to lack of child care. The resulting income inclusion can be taken over three years. The bill also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.
- Creation of an above-the-line charitable deduction for 2020 up to $300. The bill also modifies the AGI limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations. The bill also increases the food contribution limits to 25%.
- Delay of payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
You should consult your tax professional to determine how these and other components of the bill may impact you.