Individual tax provisions in third coronavirus relief package

Individual recovery rebate/credit

Credit allowed for 2020. Under the CARES Act, eligible individuals will receive a “recovery rebate” equal to $1,200 if you are single filer, $2,400 for joint filers, plus $500 for each qualifying child.

Eligibility for credit. Most individuals are eligible. The credit is not available for nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts.

Phaseout of credit. The amount of the credit is reduced if your adjusted gross income is greater than $75,000 for single filers, $112,500 for heads of household, and $150,000 for joint filers. The credit is completely phased-out for a single filer with AGI exceeding $99,000 and for joint filers with no children with AGI exceeding $198,000. For a head of household with one child, the credit is completely phased out when AGI exceeds $146,500.

Advance rebate of credit during 2020. IRS will use information from your 2019 tax return to determine if you are eligible and to determine the amount of your rebate. IRS will refund or credit any resulting overpayment as rapidly as possible. If an individual hasn't yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer's 2018 return.

If no 2018 return has been filed, IRS will use information from the individual's 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement

Because this is a credit for 2020, IRS will look at your tax information again when you file your 2020 return. If you are eligible for a greater rebate, you will receive it as part of paying your 2020 taxes. If you are eligible for a smaller rebate, the IRS will not require you to pay back what you already received.

No later than 15 days after distributing a rebate payment, IRS must mail a notice to the taxpayer's last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to IRS.

No 10% additional tax for coronavirus-related retirement plan distributions

A distribution from a qualified retirement plan is subject to a 10% additional tax unless the distribution meets an exception. The CARES Act provides that the 10% additional tax does not apply to any coronavirus-related distribution, up to $100,000.

A coronavirus-related distribution is any distribution (subject to dollar limits discussed below), made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan. made to a qualified individual.

The distribution can be contributed back to the retirement plan over 3 years or treated as a taxable distribution and included in income.

Distribution contributed back to retirement plan. Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made.

Distribution included in income over three years. In the case of any coronavirus-related distribution, unless the taxpayer elects not to, any amount required to be included in gross income for such tax year will be so included ratably over the 3-taxyear period beginning with such tax year.

Loans from qualified plans. The CARES Act provides flexibility for loans from certain retirement plans for coronavirus-related relief.

These provisions apply to distributions made on or after January 1, 2020, and before December 31, 2020.

RMD requirement waived for 2020

In general, Code Sec. 401(a)(9) requires a retirement plan or IRA owner to take required minimum distributions (RMDs) annually once the owner reaches age 72.

New law. The CARES Act provides that the RMD requirements do not apply for calendar year 2020 to most retirement plans and IRA accounts.

Charitable deductions

The CARES Act adds a deduction to the calculation of gross income for 2020, for the amount (not to exceed $300) of qualified charitable contributions made by an individual during the tax year. This deduction is available if you don’t itemize deductions.

Tax-excluded education payments by an employer temporarily include student loan repayments

The CARES Act adds to the types of educational payments that are excluded from employee gross income" eligible student loan repayments" made before January 1, 2021. The payments are subject to the overall $5,250 per employee limit for all educational payments.