CARES Act – Individual Tax Relief

04/02/20

The CARES Act includes several provisions designed to provide tax relief to individuals, including the following:

Refundable Tax Credit

  • Individual are entitled to a refundable tax credit of $1,200 ($2,400 in the case of individuals filing a joint return), plus a refundable tax credit of $500 for each qualifying child for tax year 2020.
  • The credit begins to phase out (but not below zero) at certain AGI limits - $75,000 for an individual, $112,500 for head of household and $150,000 for joint filers. 
  • The credit will be disbursed to most taxpayers as an advance refund on 2020 tax.

Required Minimum Distributions (RMD)

  • Individuals are not required to take an RMD from their qualified retirement plans or IRAs in 2020.

Early Withdrawals from Retirement Plans

  • The 10% penalty does not apply to a “coronavirus-related distribution” (CRD) from a qualified retirement plan of $100,000 or less taken in 2020.
  • A CRD is a distribution to an individual: 1) who was diagnosed with coronavirus (by a CDC-approved test); 2) whose spouse was diagnosed with coronavirus; or 3) who experienced adverse financial consequences after being quarantined or laid off or having work hours reduced, being unable to work due to lack of child care, closing or, in the case of the owner of business, having to close or reduce hours of the business due to the coronavirus.
  • Plan administrators can rely on an employee’s certification that a distribution qualifies as a CRD.
  • The tax owed on the CRD, which would typically be due in the year the distribution was taken, will be spread over three years (unless the taxpayer elects otherwise).

Charitable Deduction Available for Non-itemizers

  • Individuals who do not itemize deductions will be allowed to deduct up to $300 of qualified charitable contributions (excluding contributions to donor advised funds) made in 2020 against AGI. 
  • This applies only to cash contributions.

Limitations on Charitable Contributions Suspended

  • For cash contributions made to public charities (excluding private foundations, supporting organizations and donor advised funds), individual taxpayers who itemize deductions can elect to deduct up to 100 percent of their AGI remaining after factoring in all other current charitable contributions which are subject to AGI limitations.

Modification of Limitation on Losses for Taxpayers Other Than Corporations

  • The effective date is postponed for Section 461(l) (which limits excess business losses of individuals, trusts and estates) retroactively from tax years beginning after December 31, 2017 to tax years beginning after December 31, 2020.
  • To the extent that a 2018 or 2019 federal income tax return has been filed and reported an excess business loss, a taxpayer (individual, trust, or estate) will have to consider amending the return to claim a refund of taxes or to report a net operating loss under Section 172.
  • The legislation includes a number of technical corrections to the rules applicable to the computation of excess business losses, including one that denies any deductions, gross income, or gains attributable to any trade or business of performing services as an employee. Accordingly, the legislation provides that wage income is not includible as business income for purposes of computing the excess business loss limitation.

This is a fluid and rapidly changing situation and these resources are current only as of the date of publication. We recommend that you contact your local Quarles & Brady attorney regarding the most up-to-date information or with any other questions regarding this subject matter, or contact Kathryn A. Muldoon: (414) 277-5875 / [email protected].