Renner Business News; April 1, 2020
Many individuals will receive much-needed financial relief from the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including—
- Recovery checks,
- Additional tax deductions for charitable contributions,
- Waiver of penalties for early pension distributions, and
- Waiver of the requirement for required minimum IRA distributions.
Recovery Rebate Checks
The government will send qualifying individuals a recovery check to help ease the financial impact of the COVID-19 crisis. The amount of the check depends on the amount of income reported on the individual’s 2019 tax return. If an individual has not filed a 2019 return, then the recovery check will be based on the 2018 return, or on Social Security income if no return is filed at all.
Individuals with adjusted gross income of $75,000 or less will receive $1,200 plus $500 for each dependent child under age 17. Joint filers with income of $150,000 or less will receive $2,400 plus $500 for each child.
For individuals and joint filers whose income exceeds these limits, the check amount will go down by 5% of the excess income. Single taxpayers who made more than $99,000 with no dependents—as well as married couples filing joint returns who made more than $198,000 with no dependents— won’t get a check.
To calculate your own check amount:
- Take the full rebate amount of $1,200 or $2,400.
- Add $500 per child to get your potential rebate.
- Take your reported income and subtract the $75,000 or $150,000 income limit to get your excess income.
- Multiply the excess income by 5% to get the reduction in your potential rebate.
- Take your potential rebate and subtract the reduction to get your check amount.
Increased Tax Deductions for Charitable Contributions
Individuals who do not itemize their deductions and are able to contribute to charities during the COVID-19 crisis will be able to take a special deduction of $300 of charitable contributions in 2020.
The CARES Act raises the income limit for computing how much taxpayers can deduct for charitable contributions in one year, from 60% of modified adjusted gross income to 100% for 2020.
Waiver of Early Distribution Penalties
Individuals may consider taking money out of their IRA accounts to make ends meet during the COVID-19 crisis. Generally, taxpayers who take money out of retirement accounts before they reach age 59½ must pay tax on the distribution and pay a 10% penalty. The CARES Act delays paying tax on the income and waives the 10% penalty for distributions during 2020 for individuals infected with—or with families infected with—COVID-19 or individuals economically harmed by the COVID-19 crisis. Taxpayers can elect to spread out the income over three years.
Waiver of Required Minimum Distributions
Taxpayers who have reached age 70½ know that they usually have to take a required minimum distribution (RMD) from their IRA accounts. Some individuals may be reluctant to sell investments while the market is down. The CARES Act allows taxpayers to forgo the RMD if they would rather keep the money invested.
The CARES Act contains many details, and there are still other details yet to be worked out. For specific information on how the provisions of the CARES Act apply to you, contact your financial professional.
Renner & Company Can Help with Your Individual Accounting
Renner & Company provides full-service accounting to fit the needs of individuals. Contact us today and schedule a meeting to learn Renner & Company can help or call 703.535.1200.
Learn about COVID-19 emergency sick leave and family leave provided by the Families First Coronavirus Response Act.
Learn about loans and grants for small businesses and charities provided by the CARES Act.
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