The following are the individual tax provisions of the Coronavirus Aid, Relief and Economic Security Act
“Recovery rebate” credits
The bill provides that all U.S. resident individuals with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible social security number, are eligible for the full $1,200 rebate ($2,400 married filing jointly). In addition, they are eligible for an additional $500 per qualifying child, provided the qualifying child has a social security number or adoption taxpayer identification number. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits.
For the vast majority of Americans, no action on their part will be required in order to receive a rebate check as the IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return. If a taxpayer has not filed a 2019 or 2018 tax return, the IRS may use information provided on Form SSA- 1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement, for the 2019 calendar year. This includes many low-income individuals who file a tax return to take advantage of the refundable Earned Income Tax Credit and Child Tax Credit.
The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for married taxpayers filing jointly.
This provision does not have an effective date as such. The bill states that the IRS should issue the refund or credit any overpayment attributable to this provision as rapidly as possible. However, no refund or credit shall be made or allowed under this provision after December 31, 2020.
Changes to charitable deduction rules for itemizers and non-itemizers
The bill provides a new “above the line” charitable contribution deduction of up to $300 to individuals who do not itemize their deductions. For individuals who do itemize their deductions, the bill permits a charitable contribution deduction of up to 100% of their adjusted gross income. Both the above the line deduction and the increased limitation require the contribution to be made in cash, in 2020, and to a public charity or foundation. Contributions made to a supporting organization or a donor-advised fund do not qualify for either the above the line deduction or the increased limits.
Temporary exclusion for student loan repayment benefits from employers
The bill allows an employer to provide a tax-free student loan repayment benefit to employees. The bill allows an employer to contribute up to $5,250 annually toward an employee’s student loans and the payment in not included in employee income. The annual limit applies to both the student loan payment as well as other educational assistance traditionally provided under a section 127 plan. The bill disallows the employee’s deduction for interest paid on the student loan. This provision would be effective for payments made after date of enactment and before January 1, 2021.
Temporary waiver of early withdrawal penalty for certain withdrawals from qualified retirement plans
The bill provides that the 10% penalty for early withdrawal from a qualified retirement account is waived for distributions up to $100,000 for coronavirus-related purposes. Further, the distribution is taxed over three years, but the taxpayer has the option to repay the amount to the retirement plan within the three-year period. Distributions are coronavirus related if made to an individual:
- Who is diagnosed with COVID-19 with a test approved by the CDC,
- Whose spouse or dependent (as defined by section 152) is diagnosed with COVID-19, or
- Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business because of COVID-19, or other factors determined by
A plan administrator may rely upon the certification of an employee that a condition was satisfied. This provision applies to distribution made on or after January 1, 2020.
The bill also provides that the limit on loans from qualified plans are increased from $50,000 to $100,000. The loan is limited to the present value of the nonforfeitable accrued benefit of the employee under the plan. The loan limit is increased for a 180-day period starting on the date of enactment.
Additionally, the bill provides that the repayment due dates with respect to certain outstanding loans from qualified plans made to qualified individuals that were otherwise due between the enactment of the bill and December 31, 2020 will be delayed for one year. Further, the bill provides that any subsequent repayments will be adjusted to reflect the delay and any interest accrued during such delay.
Temporary waiver of required minimum distribution rules for certain plans and accounts
The bill waives the required minimum distribution rules for calendar year 2020 for certain defined contribution plans and IRAs. Individual are usually required to take mandatory distributions starting at age 72, but such distributions are not required during 2020. The provision is effective for calendar years beginning after December 31, 2019.