This post covers some of the most common provisions in the bill. For more information check out the full bill here. If you have a question on a specific situation please email me at george@pmgwealth.com.
1. Tax Rebate
The government will be direct deposit money into your bank account or mail you a check. This depends how you filed your most recent tax return and if your bank account information is on file. Direct deposits will take 2-3 weeks and mailed checks will take 6-8 weeks.
The amount you will get depends on your annual income. The checks begin to phase out at $150,000 for married joint, $112,500 Head of household, and $75,000 for single filers. The payment is reduced by $50 every $1,000 over these amounts.
Individuals must have a work eligible social security number and not be claimed as a dependent. If your age 18-23 you likely won’t receive a check because your parents are most likely claiming you as a dependent and you do not qualify for the $500 check that is given to children age 17 and under.
2. Coronavirus Related Distributions
Coronavirus related distributions of up to $100,000 from IRAs, employed-sponsored retirement plans, or combination or both, which are made in 2020 by an individual that has been impacted by Coronavirus.
These distributions are exempt from the 10% penalty that you would normally have for distributions prior to age 59 ½ They are not subject to mandatory withholding requirements, but you still owe income tax on distributions. The tax is eligible to repaid over 3 years. Participants should not withhold taxes for a “Coronavirus Distribution” and the participants can self-certify that status.
3. Required Minimum Distributions RMDs
Required Minimum Distributions are waived in 2020. This provision is essentially a “gift” for those that are not primary targets of the bill. It helps people who would be upset about having to take an RMD when their account is down.
2020 is also disregarded for the purpose of the 5-Year Rule that applies to when a Non-Designated Beneficiary inherits from a decedent who died before their required beginning date (RBD). The 5-Year Rule becomes 6 years if one of those years is 2020.
4. Charity Donation
Congress added a new above the line deduction in the CARES Act for Qualified Charitable Contributions. To claim this deduction, you cannot itemize deductions on your federal return This deduction will be effective in tax years beginning in 2020 is limited to $300. So even if you are the highest tax bracket of 37% you only have $111 of tax bill savings. But on the bright side you made a $300 donation that will hopefully go to someone in need!
5. Student Loan Payments
Student loan payments are deferred until September 30, 2020, and employers can exclude student loan repayments from compensation.
6. Small Business Benefits
Small business may qualify for loans up to a maximum of the lesser of $10 million, or 2.5x average payroll costs to cover payroll, utilities, rent, and more. These loans have a maximum interest rate of 4% are eligible for full or partial forgiveness. The loans must be spent during the first 8 weeks after it was made. Business must maintain the same number of employees during this time. So essentially if you fire most of your staff because of the slowdown caused by COVID-19, I wouldn’t expect any portion of your loan to be forgiven. Go to https://home.treasury.gov/ and click the red banner for more information.
There is also a payroll tax credit for qualifying business not receiving the covered loan that I talked about above.
Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The content provided herein is based on our interpretation of the CARES Act and is not intended to be legal advice or provide tax opinion. This document is a summary only and not mean to represent all provisions within the CARES Act.
