Understanding the Impact of the CARES Act on Individuals

Treasury Secretary Steven Mnuchin announced on March 26, 2020 that taxpayers will have the cash rebate checks issued in three weeks to taxpayers, but will you get one?

Under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, taxpayers will be issued a check for $2,400 for a joint return and $1,200 for other filing statuses. Taxpayers will also receive $500 per qualifying child. The amount of the check will decrease if the taxpayer’s adjusted gross income is in the phase-out zone. The phase-out zone is $150,000 to $198,000 for a joint return, $112,500 to $136,500 for heads of households and $75,000 to $99,000 for all others.

To determine if a taxpayer is eligible for the check, the most recent tax return will be used, either the 2019 return or the 2018 return. If no return was filed in 2018 or 2019 but the taxpayer received Social Security benefits, a check will be issued based on those benefits as well.

These rebate checks are related to a credit that taxpayers will claim on their 2020 return. If their income decreases in 2020, they may receive an additional credit on their 2020 return. If a taxpayer’s income increases during 2020, there is an exception so any excess rebate is not required to be repaid.

The CARES Act provides additional unemployment insurance benefits for individuals that do not qualify for other unemployment insurance benefits but have been impacted by COVID-19 issues, including being sick, being limited to staying at home due to quarantine, or other impediments directly related to the pandemic.

The federal government will provide additional funds to states for unemployment benefit that will allow increased unemployment benefits to individuals.

An individual can pull up to $100,000 out of retirement accounts early without the 10% early distribution penalty if it qualifies as a coronavirus-related distribution. A coronavirus-related distribution is limited to those diagnosed with COVID-19, whose spouse or dependent is diagnosed with COVID-19, or experience financial difficulties due to being laid off, quarantined, furloughed, or unable to work due to other specific COVID-19 related items. The individual is also able to put the funds back into the retirement account within three years from the date of distribution. The taxpayer can also choose to spread the income over three years for income tax purposes as well.

Individuals who use the standard deduction will be able to take a charitable contribution deduction of up to $300 of cash donations for the tax year beginning in 2020. The charitable contribution cannot be to a private foundation or to a donor advised fund.

For 2020, individuals can contribute up to 100% of their adjusted gross income as an itemized deduction for the year. For comparison purposes, the 2019 limit is 60% of adjusted gross income. This increased allowable deduction does not include any contributions to a private foundation or a donor advised fund.

Required minimum distributions (RMDs) are waived for the calendar year 2020 for certain defined contribution plans and individual retirement plans.

As always, your Aldrich team is here to provide support for you however we can during these rapidly changing times. Our team is closely monitoring the changing landscape of the COVID-19 pandemic and is here to answer your questions. For further information, please contact your advisor. For more resources to help you navigate the developing impact of coronavirus on your business, visit our COVID-19 Resource Center.