Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act
Author: Rebecca L. Van Loon
We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19. Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. Below is an update on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, 2020, as well as a summary of IRS and other federal and state agency actions providing guidance and relief to taxpayers.
Stimulus Payments/Recovery Rebates for Individuals
To help individuals and families stay afloat during this time of economic uncertainty, individuals with gross incomes up to $75,000 will receive $1,200 and married persons filing jointly will receive $2,400. An additional $500 payment will be sent to taxpayers for each qualifying child dependent. There is no “phase-in” and all taxpayers under the phaseout threshold will receive the same amounts. However, the stimulus payments gradually phase out at gross income over $75,000 (individuals or married filing separately), $122,500 (head of household), and $150,000 (married filing jointly). The payment is completely phased out for single filers with AGI over $99,000 and for joint filers with no children with AGI over $198,000. For a married couple with two children, the payment will be completely phased out if their AGI exceeds $218,000.
Non-resident aliens, adults who are claimed as dependents, and trusts or estates are not eligible to receive the rebate.
The non-taxable rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate and the IRS will compute the rebate amount based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement. People who are not otherwise required to file a tax return will need to file a simple return to receive an economic impact payment; however, social security recipients will automatically receive rebate payments without having to file a simple return. The IRS continues to provide guidance and instruction.
Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate. Rebates also will not affect eligibility for federal means-tested programs (Medicaid, SSI, and SNAP).
Filing and Tax Payment Deadlines Extended
The filing deadline for 2019 federal individual income tax returns is postponed to July 15, 2020. The deadline to pay federal 2019 income tax and federal 2020 estimated tax payment otherwise due on April 15, 2020, is also postponed to July 15, 2020. IRS Notice 2020-18.
Gift Tax Returns
The filing deadline for 2019 gift tax returns is postponed to July 15, 2020. The deadline to pay any gift tax or generation skipping transfer tax is similarly postponed to July 15, 2020. This relief is automatic and Form 8892 requesting an extension is not required. However, Form 8892 will be required to be filed by July 15, 2020, to extend the filing deadline to October 15, 2020. IRS Notice 2020-20.
Governor Gavin Newsom issued on March 12, 2020, an executive order regarding California’s response to the COVID-19 pandemic. On March 13, 2020, the FTB provided guidance postponing until July 15 the filing and payment deadlines for all individuals and businesses, including 2019 tax returns, 2019 tax return payments, 2020 first and second quarter estimated payments, 2020 LLC taxes and fees, and 2020 non-wage withholding payments.
Waiver of RMDs
Required minimum distributions (RMDs) that would otherwise have to be made in 2020 from retirement plans or IRAs are waived, including distributions required to be made by April 1, 2020, due to the account owner having attained age 70 ½ in 2019. Note that under the SECURE ACT, the age to begin taking RMDs was increased to age 72 starting on January 1, 2020.
Waiver of 10% Early Distribution Penalty
Generally, a distribution from a retirement plan or IRA prior to the account owner attaining age 59 ½ results in an additional 10% early withdrawal penalty. The CARES Act waives the early withdrawal penalty for distributions made during 2020 by a person who (or whose family) is infected with the coronavirus or who is economically harmed by the coronavirus. Penalty free distributions are capped at $100,000 and subject to guidelines may be re-contributed to the plan or IRA. Note that income arising from the early distribution may be spread out over three years. Employers may need to amend their retirements plans to provide for these distributions. Seek guidance from your financial advisor or attorney before making a withdrawal or taking a plan loan to confirm you fall within the penalty exception.
Pension Funding Delay
The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.
The CARES Act provides the following relief related to charitable deductions:
- taxpayers may claim up to $300 above-the-line charitable deduction to public charities in 2020, allowing a limited charitable deduction to taxpayers who would otherwise claim the standard deduction
- the modified adjusted gross income limitations for charitable deductions for individuals does not apply for contributions to a public charity in 2020, allowing qualifying contributions up to a 100% of modified adjusted gross income for individuals
- the limitation on charitable deductions for corporations for qualifying contributions made in 2020 is increased to 25% of modified taxable income
- the charitable deduction limitation for contributions of food inventory made in 2020 is increased to 25% of taxable income for C corporations and 25% of the net aggregate income for all businesses
Student Loan Relief
Suspension of Loan Payments and Waiver of Interest
Payment on federally held student loans may be suspended through September 30, 2020. Interest on such loans will also be deferred during this period.
Exclusion of Employer Payments
An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.
Tele-Health & High Deductible Health Plans
For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.
Non-Prescription Medical Products
Amounts paid from a Health Savings Account after December 31, 2019, may be treated as paid for medical care even if not paid under a prescription.
California property taxes are due no later than April 10, 2020. If a property owner is unable to pay on time as a result of coronavirus, he or she may file a penalty cancellation request, which will require documents as to how the property owner was impacted by the coronavirus resulting in the inability to timely pay.
Mortgages and Evictions
The CARES Act prohibits foreclosures of federally backed mortgage loans for a period of 60-days beginning on March 18, 2020, and gives borrowers experiencing financial hardship related to the coronaviurs a 180-day deferment on making mortgage payments.
Rent and Evictions
Under the CARES Act, a landlord who has a mortgage insured by HUD, Fannie Mae, Freddie Mac, and others, may not initiate eviction proceedings and may not charge fees related to nonpayment of rent for a period of 120 days from March 27, 2020.
California Temporary Ban on Evictions
On March 27, 2020, Governor Newsom issued an executive order banning evictions of tenants impacted by the coronavirus through May 31, 2020. Within seven days of the rent becoming due, a tenant impacted by the coronavirus must submit in writing to the landlord that the tenant is unable to pay all or some of the rent due as a result of the coronavirus. Tenants should retain documentation supporting their inability to pay rent as a result of the coronavirus. The tenant remains obligated to repay the full amount of rent in a timely manner and eviction proceedings may be commenced after the temporary moratorium is lifted (note that the City of San Diego requires tenants to pay the full amount of rent due by September 25, 2020). The executive order was immediately effective and provides relief to tenants for rent due on April 1, 2020. Importantly, note that cities, through executive order, have been given the power to issue guidance and policies regarding foreclosures and evictions that may be more broad or lenient than the general executive order – be sure to check your local jurisdictional rules.
- IRS Information – https://www.irs.gov/coronavirus
- San Diego County Treasurer-Tax Collector – https://www.sdttc.com/content/ttc/en/about-us/news/2020-coronavirus-response.html#
- Governor Newsom 3/12/2020 Executive Order – https://www.gov.ca.gov/2020/03/12/governor-newsom-issues-new-executive-order-further-enhancing-state-and-local-governments-ability-to-respond-to-covid-19-pandemic/
- FTB News Release No. 3/18/2020 – https://www.ftb.ca.gov/about-ftb/newsroom/news-releases/2020-3-state-postpones-tax-deadlines-until-july-15-due-to-the-covid-19-pandemic.html
- City of San Diego – https://www.sandiego.gov/citycouncil/cd9
- Governor Newsom 3/27/2020 Executive Order – https://www.gov.ca.gov/2020/03/27/governor-newsom-takes-executive-action-to-establish-a-statewide-moratorium-on-evictions/
This is just a general summary, and we expect more changes and clarifications. Your unique circumstances and needs should also be addressed. Please feel free to give us a call if you have further questions/concerns.
***The information provided in this article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.***