On March 27, 2020, Congress enacted and the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act, Public Law No. 116-136). As a part of the coronavirus relief, the IRS announced in Notice 2020-18 an extension of tax filing deadlines. Many federal income tax laws have changed because of the coronavirus crisis. Those new provisions include:
· 2019 individual income tax returns and payment of any taxes due are extended to July 15, 2020. The IRS also extended 2020 estimated tax payments and self-employment taxes to July 15. Gift tax returns but not estate tax returns are also extended to July 15. The extensions are automatic to July 15. You must file an extension to file a return by October 15.
· No required minimum distributions from retirement plans or IRAs are required for 2020. If a required minimum distribution was already made, we expect that plan participants have 60 days to return the distribution. If you want to make a retirement contribution for 2019, you have until July 15 to make the contribution. You also have until July 15 to fund your health savings account for 2019.
· The IRS will send economic impact payments to eligible individuals in the amount of $1,200 for single returns and $2,400 for joint returns. The payment increases by $500 for each child. To be eligible, you need a social security number and cannot be claimed as a dependent on another’s return. Adjusted gross income must be less than $75,000 for individuals and $150,000 for couples. Above those limits, the rebate phases out by 5% so that it completely phases out at $99,000 for single taxpayers and at $198,000 for joint taxpayers. The IRS uses 2018 or 2019 returns to determine the amount of the rebate. No action is required by most taxpayers to receive this rebate.
· If you have coronavirus expenses, you can take penalty-free distributions from a retirement plan or IRA up to $100,000 in 2020. You can pay the income tax due over 3 years or recontribute the amount distributed. To take these distributions, you, your spouse or your dependents must have a COVID-19 diagnosis or experience adverse financial consequences as a result of being quarantined, furloughed or laid off or being unable to work because of child care.
· You can take $300 of charitable contributions as a deduction for 2020 even if you take the standard deduction (do not itemize).
· You can make charitable cash contributions without limit in 2020. Normally, you can only deduct no more than 60% of your adjusted gross income.
· Employers can defer the payment of federal payroll taxes for wages paid between 3/27/20 and 12/31/20. Self-employed individuals can defer the payment of self-employment taxes for compensation during that period. Half of the deferred amount is not due until 12/31/21 and the other half is not due under 12/31/22. Employers who partially or fully suspend operations because of a Governor’s shutdown order and lose more than 50% of gross receipts can receive a 50% credit on payroll taxes.
· Employers can provide up to $5,250 toward an employee’s college loans in 2020. The employee does not have to declare the loan payment as compensation on his or her 2020 income tax return.
We anticipate regulatory guidance from the IRS on many of these new laws. We will attend webinars and seminars to learn their many nuances. Let us know if you want to discuss the effects of these new laws on you or your family.
April 2020, Issue #27
Joe Cipparone wrote the articles in this edition. No taxpayer can avoid tax penalties based on the advice given in this newsletter. This information is for general purposes only and does not constitute legal advice. For specific questions related to your situation, you should consult a qualified estate planning attorney.
