Category Archives: Coronavirus Aid, Relief, and Economic Security Act (CARES ACT)

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides relief designed to increase liquidity in the economy including modifications to the rules on the use and distribution of retirement funds.

Withdrawals

The CARES Act waives the 10-percent penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. For purposes of the penalty waiver, a coronavirus-related distribution is one made during the 2020 calendar year, to an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus.

Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions if made within three years. This relief is commonly granted by Congress in the wake of major disaster declarations, such as those made after a major hurricane.

Loans

The maximum loan amount is increased from the lesser of $50,000 or 50% of vested balance to the lesser of $100,000 or 100% of vested balance. This increase applies to loans made between March 27, 2020 (the date of enactment of the CARES Act) and December 31, 2020.

In addition, if a qualified individual has a loan repayment due date after March 27, 2020 and before December 31, 2020, on an outstanding loan, the payment due date is delayed one year (or, if later, until the date which is 180 days after March 27, 2020). Any subsequent repayments with respect to the loan will be adjusted accordingly and the five-year period for repayment is disregarded.

Similar to the rules on withdrawals, a qualified individual is an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus.

Required Minimum Distributions

The CARES Act also waives required minimum distributions, regardless of whether the taxpayer has been impacted by the pandemic. The waiver applies for calendar year 2020 to defined contribution plans, certain annuity plans, and traditional or Roth IRAs. The waiver allows seniors to hold on to their plan assets when they might otherwise have to sell at market lows.

Additional Modifications

• IRA Contribution Deadline. The deadline to make an IRA contribution is extended to July 15, the extended due date for tax returns.
• Mandatory 20% Withholding. The mandatory 20% income tax withholding on rollovers is also suspended for 2020.

If you would like more information on modifications to the rules on the use and distribution of retirement funds, please call our office. We are here to help you.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act waives all required minimum distributions for 2020, regardless of whether the taxpayer has been impacted by the pandemic.

The required minimum distribution (RMD) rules prevent taxpayers from extending the tax benefit for retirement savings indefinitely. In general, a minimum required distribution must be made for the later of the year in which the participant turns 70 1/2 (or 72, if they have not reached 70 1/2 before 2020) or retires, and for every year thereafter. The required beginning date cannot be delayed until retirement if the participant is a five-percent owner of the employer, or if the account is an IRA. The distribution for the first year can be made as late as April 1 of the following year. For other years, the required distribution must be made during the calendar year.

The waiver under the CARES ACT applies for calendar year 2020 to defined contribution plans, certain annuity plans, and traditional or Roth IRAs. The waiver allows seniors to hold on to their plan assets when they might otherwise have to sell at market lows.

Comment

There may be an additional benefit of the waiver for taxpayers who turned 70 ½ in 2019 and did not take their first required distribution in 2019. For those individuals who chose to wait until April 1, 2020 and had not yet taken the distribution at the time legislation was passed, they can waive both the 2019 and 2020 RMDs.

Conversely, for all taxpayers who have already taken their distribution, it is uncertain if they can still benefit from the waiver. In general, distributions received each year, up to the amount of the individual’s RMD, are not eligible rollover distributions. We must wait for guidance from the IRS to see if the generally applicable rule continues to apply for 2019 and 2020 RMDs that were taken prior to the CARES Act. For now, the distribution is included in income. However, if redepositing the RMD into another tax-qualified account would otherwise qualify as a rollover, then taxpayers may be able to treat it as they would any other rollover (i.e. redeposit it somewhere within 60 days, convert to a Roth, etc.).

If you would like more information on the waiver of RMDs for 2020, please call our office. We are here to help you.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in an effort to make a significant impact on the economy and provide needed cashflow to taxpayers struggling with the impact of COVID-19. The CARES Act provides tax relief and tax incentives for individuals and businesses alike. Included in the numerous tax provisions is the exclusion of up to $5,250 from income for payments of an employee’s education loans.

Normally, employee benefits provided under an employer’s nondiscriminatory educational assistance plan are not includible in the employee’s gross income to the extent the benefits do not exceed $5,250 for the tax year. Educational assistance means the employer’s payment of expenses incurred by or on behalf of an employee for education or the employer’s direct provision of education to an employee. Assistance includes, but is not limited to, tuition, fees, and similar payments, books, supplies and equipment. The employer’s plan must meet certain requirements to qualify.

Under the CARES Act, the definition of educational assistance has been expanded to include the payment of student loans. Payments made before January 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 that is incurred by the employee for the employee’s education.

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 employee. Any excess of benefits is subject to income and employment taxes.

Double benefit denied. No deduction is allowed for student loan interest payments paid by the employer that are excluded from the employee’s gross income.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

Under the CARES Act, the limitation on the deduction of excess business losses for noncorporate taxpayers will not apply for tax years beginning in 2018, 2019 and 2020.An “excess business loss” is the excess of a taxpayer’s aggregate deductions for the tax year from its trades or  businesses over the aggregate gross income or gain for the tax year from those trades or businesses plus $250,000 ($500,000 for joint return filers). Under the Tax Cuts and Jobs Act, a noncorporate taxpayer is not allowed to claim a deduction for excess business losses for tax years beginning after December 31, 2017, and before January 1, 2026. However, the CARES Act now modifies the deduction limitation to apply for tax years beginning after December 31, 2020 and before January 1, 2026.

Because the limitation on excess business losses no longer applies to the 2018 tax year, taxpayers who were subject to the limitation for 2018 have an opportunity to file an amended return and claim a potential refund.

The modification to the loss limitation for shareholders and partners of pass-through businesses and sole proprietors,  will help noncorporate taxpayers utilize business losses and improve their cashflow. Please call our office to determine if you will benefit by filing an amended return. We are here to assist you.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

After days of furious negotiations, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $2.2 trillion price tag for tax relief and incentives for individuals and businesses makes it the most expensive piece of legislation ever passed. It includes a provision for a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis.

The CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer’s full or partial suspension of business or a significant decline in gross receipts. The credit can be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters.

An eligible employer is defined as:

• An employer whose trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease (COVID-19); or
• An employer that experiences a 50% decline in gross receipts for the calendar quarter compared to the same quarter in the prior year.

Qualified Wages. The credit applies to qualified wages paid after March 12, 2020 and before January 1, 2021. If the employer has more than 100 full-time employees, qualified wages are wages paid to employees who cannot work during the COVID-19-related circumstances described above. If the employer has 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.

Comment

This is very similar to the paid leave credits granted to employers under the Families First Coronavirus Response Act signed into law on March 18, 2020, with some changes to the requirements. Most significantly, neither the employee nor the employer has to be directly impacted by the infection.

We are here to assist you during these difficult economic times. Please call our office if you have any questions related to the employee retention credit or any other provisions of the CARES Act.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

After days of furious negotiations, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $2.2 trillion price tag for tax relief and incentives for individuals and businesses makes it the most expensive piece of legislation ever passed. In order to free up employers’ cash flow and retain employees during times of quarantine or shutdown, the CARES Act defers the payment of the employer share of payroll taxes.

In general, under the Federal Insurance Contributions Act (FICA), taxes are imposed on both employers and employees on wages paid to the employee for Social Security (old-age, survivors, and disability insurance (OASDI)), and Medicare hospital insurance (HI). The FICA taxes are imposed on both the employer and the employee at a rate of 6.2 percent for OASDI and 1.45 percent for HI for a total of 7.65 percent for the employee and 7.65 for the employer (15.3 percent total).

Payroll taxes due from the period beginning on the date the CARES Act is signed into law and ending on December 31, 2020, can be deferred. The total payroll taxes incurred by employers, and 50 percent of payroll taxes incurred by self- employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.

In addition to the payroll tax deferment, the CARES Act also provides for an employee retention credit and advance payment of payroll credits for employee paid sick and family leave. Please call our office to discuss your available options.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

After days of furious negotiations, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $2.2 trillion price tag for tax relief and incentives for individuals and businesses makes it the most expensive piece of legislation ever passed. It includes the greatly anticipated provision for recovery rebate credits to individuals.

Under the CARES Act, individual taxpayers will receive advance refunds of credits against 2020 taxes equal to $1,200 for individuals, or $2,400 for joint filers, plus $500 for each qualifying child. Generally, income tax credits reduce a taxpayer’s income tax liability and are claimed on the tax return for the year they arise. However, the government will make advance payments of the credit as soon as possible, with eligibility and credit amounts based on information from 2019 or 2018 tax returns.

The amount of each recovery rebate credit is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed). The phaseout begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. Thus, the rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000. Once the credit for an eligible individual phases out, the credit for each qualifying child phases out with each additional $10,000 in AGI over the threshold.

Example

Pat and Terry are eligible individuals who file a joint return that claims two qualifying children. If Pat and Terry’s AGI is $198,000 or less, they are entitled to a $3,400 advance payment ($1,200 each for Pat and Terry, plus $500 for each child). If Pat and Terry’s AGI is at least $218,000, their advance payment is completely phased out. If Pat and Terry’s AGI is more than $198,000 but less than $218,000, their $3,400 advance payment is partially phased out. For example, if their AGI is $205,000, their $3,400 credit is reduced by $350 (five percent of their $7,000 AGI that exceeds the phase-out threshold).

In order to be eligible for a recovery rebate, the individual must not be:

• a nonresident alien,
• able to be claimed as a dependent on another taxpayer’s return,
• an estate or trust, and
• must have included a Social Security number for both the taxpayer, the taxpayer’s spouse, and eligible children (or an adoption taxpayer identification number, where appropriate).

The advance credit is based on the AGI reported and the qualifying children claimed on the eligible individual’s 2019 return. If the individual requested payment of any refund via electronic funds transfer, the IRS may pay the advance credit to that same bank account. However, if an individual has not filed a 2019 return by the time the advance credits are determined, the advance credit is based on the individual’s 2018 tax return. If the individual has not filed a 2018 return by the time the advance payments are determined, the advance payment is based on information provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Payments by the Railroad Retirement Board, for calendar year 2019.

Although the advance credit is based on earlier tax returns, the rebate actually applies to the 2020 tax year. The advance credit reduces the amount of the taxpayer’s credit for the 2020 tax year, but not below zero. One-half of any advance payment or refund made on a joint return is treated on having been made or allowed to each spouse. Thus, it appears that a taxpayer whose advance credit is reduced or eliminated because of the AGI limits (based on their 2019 or 2018 return) may still be able to claim the credit on a 2020 return if 2020 AGI drops below the phase-out limits.

We will share more information on the recovery rebate credit and other provisions of the CARES Act as it becomes available. We are here to help you in these turbulent times. Please call our office if you have any questions.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act offers enhanced tax incentives for making charitable contributions for the 2020 tax year including an above-the-line deduction for individuals who do not itemize.

In general, the itemized charitable deduction for any tax year is limited to a percentage of the taxpayer’s adjusted gross income (AGI). The percentage is determined by the type of organization receiving the donation and the type of property donated. For the 2020 tax year, individuals can claim an unlimited itemized deduction for charitable contributions which are normally limited to 50 percent of AGI.

Also, beginning in tax year 2020, an individual who does not itemize deductions can deduct up to $300 in charitable contributions made to churches, nonprofit schools, nonprofit medical institutions, and other organizations as an above- the-line deduction in calculating adjusted gross income. This allows an individual to claim a deduction for a charitable contribution, even if the individual does not itemize deductions.

If you would like more information on how you may benefit from the modifications to the charitable contribution limits and the above-the-line deduction, please call our office. We are here to help you.

This blog provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, re-written or redistributed without permission, except as noted here. This blog includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this blog. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does ROBERT J KRATZ & CO have any control over, or responsibility for, the content of any such Websites. All rights reserved.