The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed by President Trump on March 27 provides needed stimulus for individuals. Notably, getting cash in the pockets of individual taxpayers has been a focus of Congress.
This article summarizes income tax provisions in the CARES Act impacting individuals.
Recovery Rebates
Eligible individuals are starting to receive tax rebate checks from the Internal Revenue Service (IRS). The rebates equal $1,200 for single filers and $2,400 for joint filers, plus $500 for each qualifying child.
To be eligible for the full rebate, an individual must:
- Be a U.S. resident
- Not be a dependent of another taxpayer
- Have a valid social security number
- Have adjusted gross income (AGI) of $75,000 ($150,000 for joint filers) or less
Eligible individuals with AGI greater than $75,000 ($150,000 for joint filers) may receive a partial rebate. The rebate amount is reduced by $5 for each $100 that an eligible individual’s AGI exceeds $75,000 ($150,000 for joint filers). The rebate amount is fully phased-out when AGI exceeds $99,000 ($198,000 for joint filers).
The IRS will use the AGI reported on an eligible individual’s 2019 tax return to determine the amount of the rebate. If the 2019 tax return has not been filed, the IRS will utilize information from the individual’s 2018 tax return.
If individuals do not receive the full rebate based on 2019 (or 2018) AGI, they might receive the remaining rebate when they file their 2020 return if their 2020 AGI is less than the income thresholds noted above. Conversely, they will not be required to repay the rebate if their 2020 AGI exceeds the income thresholds.
No action is required by an individual to receive this payment. The IRS will automatically calculate and send rebates to those eligible. Taxpayers can check the status of their recovery rebate and confirm how they want to receive their payment (direct deposit or check) on the IRS website at https://www.irs.gov/coronavirus/get-my-payment.
Expansion of Charitable Contribution Deductions
For individuals that do not itemize deductions, taxpayers can receive a deduction of up to $300 for cash contributions made to qualified charitable organizations. This deduction will be available for tax years beginning in 2020.
For individuals that itemize deductions, the deduction percentage limitation for charitable contributions of cash to qualifying charitable organizations has been removed. This is effective for the 2020 tax year only. Before the CARES Act, cash contributions could only offset 60% of an individual’s AGI. This one-year suspension of the limitation means that individuals may offset 100% of their AGI by making cash contributions to qualifying charitable organizations in 2020.
It is important to note that non-cash contributions to qualifying charitable organizations and both cash and non-cash contributions to private foundations and donor-advised funds are still subject to deduction percentage limitations under the current tax law.
Deferral of Excess Business Losses
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a limitation on business losses deductible by individuals (and other noncorporate taxpayers) against other nonbusiness income for tax years beginning after December 31, 2017. The CARES Act defers the excess business loss limitation until tax years starting after December 31, 2020. Taxpayers impacted by this limitation for 2018 and 2019 may want to consider amending their 2018 and 2019 tax returns.
Reminder: Filing and Payment Deadline Extensions
Before the passage of the CARES Act, Treasury extended the April 15 deadline for filing federal income tax returns and making payments to July 15, 2020. The extension applies to payments of federal income tax, tax on self-employment income, and federal estimated tax payments due April 15. The deadline for making contributions to IRAs and health savings accounts is also extended to July 15.
The IRS also postponed to July 15, 2020 the due date for filing gift and GST tax returns and paying gift and GST taxes originally due April 15. This change impacts taxpayers who made reportable gifts during 2019.
On April 9, 2020, the IRS expanded this relief to include other federal income tax filings including estimated tax payments due on June 15, 2020.
For more information on how the Coronavirus is impacting businesses across multiple industries, visit our COVID-19 resource page: