The Senate recently approved the CARES Act Package, a $2.3 trillion dollar stimulus package designed to help America recover from the COVID-19 pandemic. One of its most notable items is the “recovery rebate” provided to taxpayers. These rebates total $1,200 per taxpayer (or $2400 per married couple) and $500 for children. In order to qualify for the full amount, an individual must make no more than $75,000 per year (or $150,000 per couple.) High-earners who make no more than $99,999 in adjusted gross income per year still qualify for a reduced amount. For single heads of household with a child, the maximum income threshold increases to $146,500. For joint filers with no children, the threshold is $198,000. Checks will be distributed by the IRS via direct deposit or paper check, depending on how you have received tax refunds from the IRS in the past.
The package is far-reaching, with even those with no income or only Social Security benefits as income, as well as seniors and veterans, qualifying for a rebate check. The hope is that these rebates will help cushion the financial blow of the coronavirus crisis for individuals and will help small businesses retain their employees amidst a slew of layoffs caused by the pandemic. In a bipartisan victory, both parties have also agreed to extend unemployment insurance and expand eligibility to those affected by layoffs, furloughs, and interruption in self-employed work.
According to Tax Pro Today, the bill also includes financial provisions, including one that allows banks to delay compliance with the credit losses accounting standard until the end of the crisis as well as a moratorium on the IRS’s usual 10% early withdrawal penalty for retirement funds. This also allows taxpayers to make “catch up” contributions over the normal limit in future years if their finances, health, or the health of a spouse are compromised due to COVID-19. In addition, minimum distribution rules for retirement plans such as IRAs have been waived.
Other notable items in the bill include:
- Allowing taxpayers to deduct up to $300 in charitable donations even if they are not itemizing deductions for 2020
- Increased limit on charitable contribution deductions
- Tax-free student loan repayment benefits for some employers
- Employee retention credit to companies whose businesses were partially or fully suspended due to Coronavirus
- Delayed payment of payroll taxes for employers
- Modifications for net operating losses for corporations
- Increase on limitation of deductible business interest
- Increase in limit of loss applicable to pass-through business owners and sole proprietors
While the CARES Act Package does not solve all of America’s economic woes, it is a positive step towards limiting financial damage to both companies and individual taxpayers who have been affected by Coronavirus. To learn more about the Act and read it in its entirety, you can click here.