Individual Tax Considerations for the CARES Act – Alert

Mar 30, 2020

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act, which provides relief to taxpayers affected by the novel coronavirus (COVID-19).  The CARES Act is the third phase of federal government aid related to COVID-19.  The CARES Act covers many aspects including tax.  Below is a summary of the individual provisions and how it may impact you.

Recovery Rebates

The CARES Act provides an “eligible individual” an advance tax rebate in the amounts below plus $500 per qualifying child.  The rebate amounts are advance refunds of credits against tax year 2020 taxes and is phased out by $5 for every $100 in excess of the threshold amount indicated below. This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed). 

  Rebate AmountPhase Out Threshold AmountComplete Phase Out
Single$1,200 $75,000$99,000
Heads of Households$1,200$112,500$136,500
Married Filing Jointly$2,400 $150,000$198,000

Additional rebates may apply per child.  An eligible individual must not be: 1) a nonresident alien, 2) able to be claimed as a dependent on another taxpayer’s return or 3) an estate or trust AND an eligible individual must have a social security number for the taxpayer and if applicable, the taxpayer’s spouse and eligible children.  There may be additional rules that may apply.

Retirement Plan

Qualified employer plans may permit individuals who elect to receive a “coronavirus-related distribution” up to $100,000 without being subject to the 10% tax penalty.  The following conditions apply:

  1. The distribution must be made during tax year 2020;
  2. The distribution is payable to:
    1. an individual,
    2. spouse of an individual who was diagnosed with COVID 19 (a CDC-approved test), OR
    3. an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced work hours;
  3. The amount of withdrawal is subject to tax over a three-year period.

In addition, individuals may re-contribute the withdrawal amounts to a qualified retirement plan without regard to the annual contribution limitations. 

Charitable Contributions

Below are some key temporary changes to the charitable contribution deduction for tax year 2020:

  1. An eligible individual (anyone who is not electing to itemize) can take a qualified charitable deduction up to $300 against their AGI in 2020.
  2. Individuals can claim an unlimited itemized cash charitable contribution deduction (this was previously subject to 50% of AGI).
  3. Temporary increase from a 15% to 25% of AGI limitation on contribution of food inventory.

Student Loans Paid by Employers

The CARES Act permits employers to provide student loan repayment up to $5,250 per employee; such amount would be excluded from the employee’s gross income   This amount can also include payments under the employer’s existing tuition assistance program. The tax-free limitation applies to any payments made by an employer before January 1, 2021.