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CARES Act – Individual Provisions

The Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the COVID-19 pandemic. The CARES Act is designed to stimulate the economy with over $2 trillion in relief and provide support for taxpayers.  Below are certain CARES Act highlights, tax law changes, and Frequently Asked Questions with respect to individuals.

Recovery Rebate information can be found on our website HERE.

Use of Retirements Funds:

Congress is waiving the 10-percent early withdrawal penalty on up to $100,000 of coronavirus-related distributions from an eligible retirement plan made after January 1, 2020. The income tax on such distributions may be paid over three years.  Coronavirus-related distributions are to an individual:

    • who is diagnosed with the SARS-CoV-2 or with COVID-19
    • whose spouse or dependent is diagnosed with such virus, or
    • who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, or who is unable to work due to the lack of child care due to such virus, or closing or reducing hours of a business owned or operated by the individual due to such virus or disease.

Required Minimum Distributions:

RMDs for certain plans have been waived for the 2020 tax year for distributions from certain qualified retirement plans or individual retirement accounts.

Charitable Contributions:

The CARES Act makes two key changes to the deductions for charitable contributions.

  • Beginning in tax year 2020, taxpayers who do not itemize can deduct $300 of qualified charitable contributions in addition to deducting the standard deduction.
    • For example, a single taxpayer claiming the standard deduction in 2020 will deduct the $12,400 standard deduction plus up to $300 in charitable donations for a total deduction of up to $12,700.
    • Qualified charitable contributions are gifts of cash (not property) to a qualified charity. Contributions to Donor Advised Funds do not qualify.
  • Taxpayers who itemize deductions are eligible for a 100% deduction of cash contributions, not to exceed AGI, paid to qualified charities during calendar year 2020. Any excess contributions will be carried forward to the next tax year.
    • Contributions to Donor Advised Funds do not qualify and are still subject to a 60% AGI limitation.

Student Loan Updates:

As millions of Americans face economic hardship as a result of the COVID-19 outbreak, the government is stepping in to alleviate some of the financial burden relating to student loans.  The newly enacted CARES Act contains the following key provisions impacting the repayment of student loans.

Federal Student Loan Payments – Federal student loan payments are not required to be made through September 30, 2020.  Borrowers can choose not to make payments prior to this date with no risk of incurring penalties and/or late fees.  In addition, interest will not accrue on any federal student loans during this period.  Borrowers do not need to apply for these benefits, as they will be automatically applied to eligible loans.

The following loans are eligible for the aforementioned benefits:

      1. Federal Direct Stafford Loans,
      2. Federal Direct Consolidation Loans,
      3. Federal Direct Grad PLUS Loans,
      4. Federal Direct Parent PLUS Loans,
      5. Federal Perkins Loans held by the federal government, and
      6. Certain Federal Family Education Loans (FFELP).

Private loans and certain FFELP federal loans are not eligible for these benefits. If a borrower has concerns regarding their ability to pay loans not covered by this provision they should contact the loan provider to discuss payment options.

Employer payment of student loans – Employers can now pay up to $5,250 towards an employee’s student loan obligations on a tax-free basis, meaning the employee will not have to include the loan payments made by the employer in their taxable income.  The payments can be applied towards principal or interest.  These rules apply for payments made between March 27, 2020 through December 31, 2020.

Note: the employee will not be able to claim the student loan interest deduction for the portion of interest that is paid using tax-free funds provided by the employer.

Employees who also receive tax-free tuition assistance from their employer should be aware that the combined total tax-free portion of tuition assistance and student loan repayment received from the employer will be capped at a total of $5,250.

Questions and Answers for Unemployment:

Q. Can Self employed individuals in NYS now apply for unemployment?

A. Yes, under this new law a self employed individual is eligible to apply for unemployment as long as they meet the eligibility criteria under the CARES Act.

Q. Was there an increase in unemployment benefits?

A. Yes individual benefits are calculated at the applicable amount determined under state law plus an additional $600.

Q. How many weeks am I eligible for unemployment payments?

A. Unemployment benefits are payable for up to 39 weeks.

Q. Where can I find out more information regarding unemployment claims?

A. You should go to your respective state Department of Labor. Here is the link for the New York State Department of Labor.  https://www.labor.ny.gov/home/.

How can TBC help?

Please consult with your advisor at TBC to determine how these changes may impact you. We can assist you by:

    1. Analyzing the impact of new legislation on individual projections from a personal financial and tax perspective.
    2. Amending or modifying prior year and current tax returns to help obtain timely relief.
    3. Implementing tax planning strategies given the recent developments to federal and state income tax laws.

Disclaimer: This post was current as of the date of posting.  Any changes made to the law or regulations since original posting has not been incorporated.  Please view the recent postings for current information or contact us directly with any questions.