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COVID-19 Legislation Update

Anna Baecker, CPA

April 2, 2020

Here are some key highlights from the CARES Act passed on Friday 3/27/20.

Recovery Rebate Checks

Filing statuses of single or head of household taxpayers will receive $1,200 and filing status of married filing joint taxpayers will receive $2,400 based on their Adjusted Gross Income. There is an additional $500 for each qualifying child.

The rebate check amount will be reduced by $ 5 for every $ 100 exceeding the following:

Married filing joint: $150,000 (AGI over $198,000 does not qualify)

Head of household: $112,500 (AGI over $146,500 does not qualify)

Single: $75,000 (AGI over $99,000 does not qualify)

Payments will be direct deposited into the bank account on the last filed return or if you did not provide bank account information, a paper check will be mailed. Every taxpayer will receive a letter indicating their recovery check amount. If the payment is not received, there will be a specific phone number in the letter to call to have the check re-issued.

The recovery check is considered a credit for 2020 and is not taxable income.  AGI will be determined from 2019 returns if filed at the time of determination. Otherwise, 2018 returns will be used.  The recovery rebate amount true-up is based on your 2020 tax return, so if you were not eligible based on your 2018 or 2019 AGI and your 2020 AGI is within the above thresholds, you will receive the rebate amount as a refundable credit on your 2020 tax return.

Taxpayers who have not filed a return will not receive a check unless they did not file because they only have SSA-1099 or RRB-1099 (social security). The Treasury Department will review those forms for 2019 and issue the appropriate amount via check.

Retirement Distributions

Taxpayers now have the ability to withdraw up to $100,000 of retirement in 2020 for COVID-19-related purposes without 10% penalty.  The distribution is taxable over a 3-year period unless electing to pay it back within 3 years. This essentially equates to a loan unless it is not paid back within the
3-year timeframe. This rule applies to individuals:

-Diagnosed with COVID-19

-Who have family (spouse or dependent) who have been diagnosed with COVID-19

-Who have adverse financial consequences in relation to COVID-19

-Who include the distribution in taxable income (unless they elect the 3-year payback)

Waived required minimum distributions (RMD)

The required minimum distributions (RMD) from individual retirement accounts for 2020 has been waived. 

This also applies to retirees who turned 70 1/2 in 2019 and are required to take their RMD by 4/1/20.  If the retiree that turned 70 1/2 in 2019 still intends to take their RMD, this must happen by April 1, 2020—otherwise, the same penalty for late withdrawal will be applied.  

Unemployment Benefits

Any employee who was furloughed or part of a layoff due to COVID-19 is eligible for state unemployment and the unemployment amount via the state typically ranges from 30-50% of the standard wage, depending on the state.

The amount a person will receive for unemployment over four months will be the amount the state would already provide plus an additional $600 per week through July 31, 2020. For example, if a person is eligible for $300 weekly, they will receive $900 per week over four months or through July 31, 2020, whichever comes first. 

If an employee is already unemployed due to COVID-19, the $600 weekly additional payment will be paid retroactively.

Self-employed individuals, independent contractors and gig workers are eligible for unemployment under this program.  The amount available for unemployment is based on a formula which may differ by state.  Contact your state for more details on unemployment benefits.

Charitable Contributions

For tax year 2020, if a taxpayer does not itemize deductions, they can deduct up to $300 in addition to the standard deduction for cash charitable contributions (no stock contributions).  Also, the charitable contribution limitation of 60% adjusted gross income has been removed for 2020 (other than from donor advised funds).  Be sure to keep track of your 2020 charitable contributions.