CARES Act (Coronavirus Aid, Relief, and Economic Security)
Changes are summarized below:
Economic Impact Payments (EIPs) and Recovery Rebate Credits - Eligible individuals with adjusted gross income up to $75,000 for single filers, $112,500 for head of household filers and $150,000 for married filing jointly are eligible for the full $1,200 for individuals and $2,400 married filing jointly. In addition, they are eligible for an additional $500 per qualifying child.
- Eligible taxpayers who received a smaller-than-expected EIP may qualify to receive an additional amount when they file their 2020 federal income tax return. EIPs are technically an advance payment of a new temporary tax credit (recovery rebate credit) that eligible taxpayers can claim on their 2020 return. - If eligible, taxpayers may claim an additional credit on their 2020 tax return, for example, if a child was born, adopted, or placed into foster care in 2020. - The EIP will not reduce a taxpayer’s refund or increase the amount they owe when they file a tax return. It is also not taxable and therefore should not be included in income on a 2020 return.
- An individual who may be claimed as a dependent on another taxpayer’s tax return is not eligible for a payment.
Temporary waiver of required minimum distribution rules for certain retirement plans and accounts - waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020.
Allowance of partial above-the-line deduction for charitable contributions – permits taxpayers who do not itemize deductions to deduct up to $300 of cash contributions to charitable organizations per return. This provision applies to tax year 2020.
Modification of limitations on charitable contributions during 2020 – increases the limitations on deductions for charitable contributions by individuals who itemize. For individuals, the 60% of adjusted gross income limitation is suspended for 2020.
Deferred payment of the employer share of the Social Security tax allows self-employed individuals to defer payment of the employer share of Social Security tax. Half of the deferred amount is due by December 31, 2021 and the other half by December 31, 2022.
Exclusion for certain employer payments of student loans – enables employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer. This provision applies to any student loan payments made by an employer on behalf of an employee after March 27, 2020 and before January 1, 2021.
Higher education emergency financial aid grants Emergency financial aid grants under the CARES Act for unexpected expenses, unmet financial need, or expenses related to the disruption of campus operations due to the COVID-19 pandemic, such as unexpected expenses for food, housing, course materials, technology, health care, or childcare, are qualified disaster relief payments under section 139 of the Internal Revenue Code. This grant is not includible in gross income. Because the emergency financial aid grant is not includible in gross income, taxpayers cannot claim any deduction or credit for expenses paid with the grant including the tuition and fees deduction, the American opportunity credit, or the lifetime learning credit.