Submitted
Editor’s note: The following was written by Peachin Schwartz & Weingardt (PSW). They are CPAs and advisors who deliver accounting, tax planning, consulting and assurance solutions.
The Coronavirus Aid, Relief, and Economic Relief Act (CARES Act) provides many provisions for individuals above and beyond the well-publicized recovery rebate for individual taxpayers. Here are some of the additional provisions that could be beneficial to you depending on your personal situation:
Charitable Contributions
For tax years beginning in 2020, you can now deduct an additional $300 in charitable contributions in addition to the standard deduction as a deduction against your income. If you itemize your deductions, there is no limitation on the amount of charitable contributions.
Retirement Plans
The CARES Act makes several changes to retirement accounts. To allow taxpayers access to their funds, the 10 percent additional tax on early distributions is waived for any qualified coronavirus-related distributions from a retirement plan. Eligible individuals who take such distributions can include them in gross income over a three-year span and have three years to repay the amount. The aggregate amount of distributions received by an individual which may be treated as coronavirus-related distributions for any tax year shall not exceed $100,000.
To qualify as a coronavirus-related distribution, the distribution must be from an eligible retirement plan and be made on or after the date of the enactment of the CARES Act and before Dec. 31, 2020. In addition, it must be made to an individual who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention, or whose spouse or dependent is diagnosed with such virus or disease by such a test, or who experiences adverse financial consequences as a result the coronavirus. Adverse financial consequences can include consequences from being quarantined; being furloughed or laid off or having work hours reduced due to such virus or disease; being unable to work due to lack of child care due to such virus or disease; closing or reducing hours of a business owned or operated by the individual due to such virus or disease.
In addition, for the 2020 calendar year, the required minimum distribution (RMD) requirements generally applicable to retirement plans are suspended with respect to defined contribution retirement plans, including IRAs. As a result, plan participants and beneficiaries will not be required by law to take RMDs for the year. If the participant dies before minimum distributions have begun, and the entire remaining interest must be distributed within five years of the participant’s death, then 2020 will be excluded from the five-year period.
Educational Assistance
Payments made before Jan. 1, 2021, by an employer to either an employee or a lender to be applied toward an employee’s student loans can be excluded from the employee’s income. The payments can be of principal or interest on any qualified education loan. An employer may pay up to $5,250 each tax year toward an employee’s student loans, and that amount would be excludable from the employee’s income. The $5,250 cap applies to the new benefit for student loan repayment assistance and other educational assistance already provided, such as for tuition, fees and books. Any excess of benefits is subject to income and employment taxes.
These are just a few of the provisions of the CARES Act. Please contact your CPA or financial advisor with any questions you may have regarding these new provisions.