Given the broad impact that COVID-19 has on the U.S. economy at large and on personal finances, legislation offers opportunity for relief. The Families First Coronavirus Response Act (FFCRA Act), The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and other rules have been enacted to help.
Here are the features that impact individuals:1
- Delayed Filing of 2019 Federal Income Tax Return. A 2019 federal income tax return that was due on April 15, 2020 is postponed to July 15, 2020. State filing deadlines vary. The postponement is automatic.
- Delayed Payment of 2019 Federal Income Taxes. Taxpayers can defer federal income tax payments due on April 15, 2020 to July 15, 2020 without incurring penalties and interest. This applies to federal income tax returns only. State rules regarding deferral of payments vary.2
- Delayed Filing of First 2020 Estimated Quarterly Income Tax Payment. The filing of a 2020 Estimated First Quarter Income Tax Payment originally due on April 15, 2020 is postponed to July 15, 2020. However, second quarter payments are still due on June 15, 2020.
- Additional Time to Make IRA and HSA Contributions. The deadline for an individual to contribute to an IRA or HSA for 2019 is extended to July 15, 2020 instead of the original date of April 15, 2020.
- Required Minimum Distributions (RMDs) Waived. IRA and qualified plan RMDs are waived for 2020. This also includes RMDs for beneficiaries of inherited IRAs. RMDs are still required from defined benefit plans.
- Distributions from IRAs and Qualified Plans. The 10% early withdrawal penalty on withdrawals from qualified retirement accounts is waived for COVID-19 related distributions up to $100,000.3 The income taxes associated with the withdrawal may be paid over three years and the distribution may be recontributed over the next three years without being subject to annual contribution limits.
- Retirement Plan Loans. Loan limits from a qualified plan increased to the lesser of $100,000 or 100% of the owner’s vested loan balance. Outstanding loans with repayments due through December 31, 2020 may be delayed for up to one year. Plans are not required to permit these changes.
- Charitable Deductions. Individuals may deduct up to $300 in cash contributions to a qualified charity in 2020 without itemizing deductions. Also, the charitable income tax deduction for a cash contribution to a qualified charity is increased from 60% to 100% of adjusted gross income.
- Stimulus Checks for Qualified Taxpayers. Eligible taxpayers will receive stimulus checks of up to $1,200 for individuals, $2,400 for joint taxpayers and an additional $500 for each qualifying child.4
- Student Loan Payments. Student loan payments due after March 13, 2020 are automatically suspended through September 30, 2020. Interest will not accrue during this time period.
- Student Loan Payment Relief. Employers can make tax-free contributions of up to $5,250 towards an employee’s student loan through January 1, 2021. A contribution made on an employee’s behalf will not be included in the employee’s income.
- Enhanced Unemployment Insurance. Unemployment insurance coverage is extended to include workers who are traditionally not eligible for unemployment benefits under state law. Unemployment payments are increased by $600 weekly through July 31, 2020. An additional 13 weeks of unemployment benefits will be provided through December 31, 2020 for individuals who remain unemployed after their eligible state unemployment benefits are exhausted.
Talk to your financial professional
You don’t have to face this alone. Your financial professional can help you determine how your plans are affected by the legislation. To get started, Find a Financial Professional among the Penn Mutual network of professionals to help you navigate these changes.
1More information is available at https://www.irs.gov/coronavirus.
2More information is available at https://www.taxadmin.org/state-tax-agencies.
3A “coronavirus-related distribution” is defined as a distribution made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
4Generally individuals with adjusted gross income (AGI) of up to $75,000 ($150,000 married filing jointly) should be eligible for the full amount of the recovery rebate. The stimulus check rebate completely phases out at $99,000 for single taxpayers, $146,500 for those filing as Head of Household and $198,000 for joint filers with no children. More information is available at https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know.
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Note: Federal laws are subject to change and the information above may not reflect recent changes in the laws. You should consult with your personal tax and legal advisors regarding your personal situation. The material contained in this document is based on Penn Mutual’s understanding and interpretation of current law. Penn Mutual, its affiliates, employees, financial professionals and representatives may not give legal or tax advice. Any discussion of taxes in this document is for general information purposes only and does not purport to be complete or to cover every situation. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.
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