The Legal Brief

Congress Passes COVID-19 Relief Package - INDIVIDUAL TAX INCENTIVES

March 27, 2020

By: Robert G. Tweel and Joshua A. Claybourn

After intense negotiations, Congress passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES”) to provide direct assistance to individuals, businesses, and state and local governments to help them address the coronavirus (“COVID-19”) pandemic. President Trump signed CARES into law.

CARES provides tax relief provisions applicable to individuals, including:

Impact to Individuals

• Individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child (under the age of 17). These are treated as advance refunds of a 2020 tax credit. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.
• The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals. The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. Checks or direct deposits will be issued by the Treasury Secretary soon, about three weeks for direct deposits and six to eight weeks for mail deliveries.
• There is a new $300 above-the-line charitable deduction for those that don't itemize. The 50% charitable contribution cap is also lifted for qualifying contributions.
• CARES provides a waiver of the early withdrawal penalty for certain Covid-19 related withdrawals from qualified retirement plans up to $100,000. Income attributable to those distributions would be subject to tax over three years and the taxpayer can recontribute those funds within the three period without regard to the annual contribution cap.
• The relief package waives required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020.
• There is an exclusion for employer-provided student loan payments up to a $5,250 annual cap, even if those payments are made to the employee or directly to the lender.

 

CARES provides several changes to employment benefits, including a temporary Pandemic Unemployment Assistance program through December 31, 2020, to provide payment to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency. This includes an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months and an additional 13 weeks of unemployment benefits through December 31, 2020, to help those who remain unemployed after weeks of state unemployment benefits are no longer available.