The final legislation includes the following provisions for individual taxpayers:
Individual taxpayers can expect a recovery rebate check of $1,200 per individual ($2,400 for married couples filing jointly), plus $500 for each qualifying dependent child, as soon as the U.S. Department of the Treasury (Treasury) and IRS are able to process these payments. The recovery rebate begins to phase out for taxpayers whose adjusted gross income exceeds $150,000 for joint returns, $112,500 for head of household and $75,000 for all other taxpayers.
The amount of recovery rebate a taxpayer receives is based on information reported on the taxpayer’s 2019 tax return (or 2018 if the taxpayer has not yet filed a 2019 return). For individuals who did not file a return in either 2018 or 2019, the IRS will use the individual’s 2019 Social Security income. Within 15 days of payment, the IRS will send each eligible taxpayer a letter to a last known address with details of the amount, date and method of payment, along with a number to contact if the taxpayer did not receive the payment.
The CARES Act provides expanded unemployment insurance benefits for individuals (including those who are self-employed) who become unemployed, partially unemployed or are unable to work due to COVID-19 on or after January 27, 2020, and on or before December 31, 2020. In general, the unemployment benefits a recipient receives is increased by $600 per week (referred to as Federal Pandemic Unemployment Compensation). Additionally, the federal government will fund an additional 13 weeks of unemployment benefits through December 31, 2020 after workers have run out of state unemployment benefits. Note: Benefits may vary by state.
1. The CARES Act waives the 10 percent penalty on early distributions from qualified retirement plans for up to $100,000 of COVID-19-related distributions in 2020. Taxpayers may repay these amounts within three years of withdrawal without regard to that year’s cap. Although these distributions are otherwise taxable for federal income tax purposes, the taxpayer may elect to include the distribution in taxable income ratably over a three-year period. This relief is available to an individual:
2. The CARES Act also provides a temporary waiver of the required minimum distribution (RMD) rules for certain retirement plans and accounts. Under this provision, funds related to RMDs normally required to be made by plan participants during 2020 can instead remain in those participants’ accounts.
Normally, student loan payments made on behalf of an employee are considered as taxable compensation. The CARES Act adds these payments to the types of educational payments that are excludable from income if they are made before January 1, 2021. The per-employee limit for all educational payments $5,250. An eligible student loan repayment includes payments by the employer, whether paid to the employee or a lender, of principle or interest on any qualified higher education for the education of the employee.
Taxpayers who do not otherwise elect to itemize deductions are allowed an above-the-line deduction in 2020 for up to $300 for charitable contributions made in cash (not stock) to any qualifying Section 501(c)(3) public charity, excluding donor-advised funds.
In addition, for individuals who itemize, the CARES Act temporarily increases limitations on deductions for charitable contributions made in 2020. For individuals, the 60 percent of adjusted gross income limitation is suspended for 2020 for cash contributions to qualifying organizations, excluding donor-advised funds. For contributions of food inventory, the limitation is increased from 15 percent to 25 percent. Excess contributions may be carried forward to future years based on the existing charitable contribution carryforward rules.
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