What is the CARES Act?
In order to help combat the COVID-19 pandemic, Congress passed the CARES Act which was signed into law on March 27, 2020. The CARES Act contains many important tax provisions which impact most individuals. Some of the most noteworthy tax provisions of the CARES Act for individuals are as follows:
- The CARES Act provides recovery rebates for individuals and minor children in the amount of $1,200 per individual and $500 per minor child. These rebates, in effect, are advance tax credits for the 2020 tax year. These payments should have already been received and are based on 2018 or 2019 taxable income, depending on the most recently filed tax return at the time the payment was made. These payments begin to phase out at certain income levels, including $75,000 for single individuals with no children and $150,000 for joint tax filers with no children. In the event a person’s payment was reduced due to their income being above these amounts in 2018 or 2019 but they experience a drop in income in 2020, the excess amount which should have been paid will be a credit against the taxpayer’s 2020 tax obligation. Any overpayment will not have to be repaid, however, so long as the overpayment was due to an increase in income in 2020 as compared to 2018 or 2019.
- The CARES Act also strengthens the charitable contribution tax deduction. Due to the increase in the standard deduction under the Tax Cuts and Jobs Act, fewer individuals can claim charitable deductions on their taxes because their itemized deductions total less than the standard deduction. However, the CARES Act provides a $300 charitable contribution deduction for individuals who take the standard deduction. Therefore, more taxpayers will be able to deduct charitable contributions due to the CARES Act.
- The CARES Act waives the 10% early withdrawal penalty for early retirement account distributions up to $100,000 so long as a taxpayer: (1) contracted COVID-19, (2) had a spouse or dependent contract COVID-19, or (3) suffered an adverse financial impact directly related to COVID-19. While federal income tax would still be owed on such a distribution, the CARES Act allows the tax burden resulting from the distribution to be spread over 3 tax years.
Want to Learn More?
If you have a question about a tax law issue, including tax law issues related to the CARES Act, please contact the attorneys of Trinity Law. Our attorneys handle tax law cases in York, Lancaster, and surrounding counties.