In addition to the recovery rebates for eligible individuals (up to $1,200 single filers; $2,400 joint filers plus $500 for each qualifying child), there are many other provisions affecting individual taxpayers. Below is an explanation of some of the key provisions.
2020 Estimated Tax Payments
Federal estimated tax payments due April 15, 2020 are
deferred until July 15, 2020. Currently federal second quarter
estimated payments due June 15, 2020 are not deferred. The states are generally
following federal but may differ. For example, Georgia is currently following
the federal deferral period for the payments due April 15, 2020 only.
California is deferring payment of both the first and second quarter 2020
estimated tax payments to July 15, 2020. North Carolina has extended the time to
pay taxes due April 15, 2020, to July 15, 2020, but is currently not waiving
any interest that may accrue during the deferral period including the 2020
underpayment of estimated tax penalty which is considered interest. Mississippi
is currently only extending the April 15 deadline to May 15.
Business Net Operating Losses
Net operating losses (NOLs) arising in tax years beginning in 2018, 2019, and 2020 have a five-year carryback period and an unlimited carryforward period. The carryback is mandatory unless you elect out. An extension of time to make the "elect out" election is provided. The provision limiting an NOL deduction to 80 percent of taxable income does not apply to NOLs arising in these years.
Minimum distribution rules are waived for calendar year 2020 for IRAs and certain defined contribution plans. As written, it appears there are currently no waivers specifically provided for a distribution from a 401(k) plan unless previously rolled into an IRA. Waiver does not apply to "required beginning dates" related to initial mandatory distributions from an account in calendars year after 2020. Amounts which would otherwise be required to be distributed are not eligible rollover distributions.
Coronavirus-related distributions from eligible retirement plans are not subject to the 10% excise tax on early distributions. Distributions must be made on or after January 1, 2020 and before December 31, 2020 to an individual who is diagnosed with SARS-CoV-2 or COVID-19, whose spouse or dependent is so diagnosed, or who experiences financial hardship because of quarantine or other factors. Coronavirus-related distributions may not exceed $100,000 in the aggregate for any taxable year. Taxpayers may elect to ratably spread the income over a 3-year period beginning with taxable year 2020. Taxpayers may also avoid income recognition by repaying the distribution to the retirement plan within three years of receipt.
Loans from qualified employer plans up to $100,000 (increased from $50,000) are permitted in the 180 days beginning on the date of enactment, March 27, 2020. In addition, if a qualified individual has a loan repayment due date after March 27, 2020, and before December 31, 2020, on an outstanding loan, the payment due date is delayed one year.
Qualified individuals. A qualified
individual for this purpose is any individual who would qualify for a
coronavirus-related distribution of the CARES Act. Accordingly, to qualify for
this treatment, the loan must be made on or after March 27, 2020, and before
December 31, 2020. In addition, it must be made to an individual: who is diagnosed with the virus SARS-CoV-2 or with
coronavirus disease 2019 (Covid-19) by a test approved by the Centers for
Disease Control and Prevention; whose
spouse or dependent is diagnosed with
such virus or disease by such a test; or who
experiences adverse financial consequences as a result the coronavirus. Adverse financial consequences can include consequences
from any of the following: being
quarantined; being furloughed or laid off
or having work hours reduced due to such virus or disease; being unable to work due to lack of child care due to
such virus or disease; closing or
reducing hours of a business owned or operated by the individual due to such
virus or disease; or other factors as
determined by the Secretary of the Treasury.
The deadline for making
contributions to an IRA, or for an employer to make contributions to its
workplace-based retirement plan on account of 2019, is extended to July 15,
2020. In addition, participants may make contributions to an HSA or Archer MSA
for 2019 at any time up to July 15, 2020.
For plan years beginning on or before December 31, 2021, a safe harbor for health savings accounts (HSAs) provides that a health plan will not fail to be treated as a high-deductible health plan (HDHP) for failing to impose a deductible for telehealth or other remote care services.
A high deductible health plan (HDHP) may, without affecting its status as a HDHP, provide health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Such benefits are disregarded for purposes of determining the plan's status as a HDHP.
Beginning for amounts paid or incurred after 2019, over-the-counter menstrual care products are treated as paid for medical care for purposes of health savings accounts (HSAs), Archer medical savings accounts (MSAs), health reimbursement arrangements (HRAs), and health flexible savings accounts (FSAs). The same rule with respect to menstrual over-the-counter drugs applies for reimbursement plans generally including HRAs and FSAs, for expenses incurred after December 31, 2019. Plans are now free to change their plans to treat some or all over-the-counter medications as covered expenses. Plans do not have to do this, however, except in the case of menstrual care products.
For the 2020 tax year, the deduction percentage limitation for charitable contributions of cash to public charities has been removed for individual taxpayers. The TCJA had provided for an increased limitation of 60% for cash contributions; however, the CARES Act would suspend the percentage limitations entirely. This simply means that any qualified contribution is allowed to the extent that the aggregate of such contributions does not exceed the taxpayer's adjusted gross income. This provision does not apply to private nonoperating foundations subject to certain exceptions and to donor advised funds.
Beginning in tax year 2020, an individual who does not itemize deductions can deduct up to $300 in charitable contributions made to churches, nonprofit schools, nonprofit medical institutions, and other organizations as an above-the-line deduction in calculating adjusted gross income (AGI).
Exclusion from Income for Student Loan Payments by Employer
Certain payments made by an employer, up to $5,250 on a qualified student loan of an employee before January 1, 2021, are excluded from the employee's gross income.
Excess Business Losses of Noncorporate Taxpayers
The limitation on the deduction of excess business losses for noncorporate taxpayers will not apply for tax years beginning in 2018, 2019, and 2020. The deduction limitation will apply for tax years beginning after December 31, 2020. A number of technical amendments clarify the computation of the deduction. An excess business loss is the excess, if any, of the taxpayer's aggregate deductions for the tax year from the taxpayer's trades or businesses, determined without regard to whether or not such deductions are disallowed for such tax year under the excess business loss limitation; over the sum of: the taxpayer's aggregate gross income or gain for the tax year from such trades or businesses; plus $250,000, adjusted annually for inflation ($255,000 in 2019, $259,000 in 2020) (200 percent of the $250,000 amount for a joint return: $510,000 in 2019 and $518,000 in 2020).