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The CARES Act is the most substantial federal legislation to pass in response to the coronavirus pandemic. It contains several notable changes that impact individual financial plans, which are outlined here:

Charitable Gifting in 2020

The CARES Act adds a new above-the-line charitable contribution deduction, of up to $300 for qualified cash charitable contributions made by an eligible individual. In this instance, an eligible individual is a taxpayer that does not itemize.

For those who itemize: The CARES Act provides that, with qualifications, charitable contributions* made with cash are not subject to the 60% adjusted gross income (AGI) limitation in 2020. It seems a taxpayer could use carryovers and other charitable contributions (appreciated securities up to 30% of modified adjusted gross income) before making cash contributions to public charities that could offset the rest of the taxpayer’s modified adjusted gross income for 2020.

* Important Note: Contributions to supporting organizations and donor advised funds (DAFs) are specifically excluded for purposes of this AGI waiver for 2020.

Retirement Plan Provisions

Required minimum distributions (RMDs) from employer-sponsored retirement plans and IRAs - In general, a retirement account owner is required to take RMDs annually once the owner reaches age 72. The CARES Act waives this requirement for calendar year 2020 and includes 2019 RMDs that were due to be drawn by April 1, 2020.

COVID-19 Victims - The CARES Act provides that the 10% additional tax for pre-59.5 retirement account distributions does not apply to any qualified coronavirus-related distribution, up to $100,000. A qualified individual is an individual diagnosed with the virus SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC). Also qualified will be a spouse or dependents diagnosed with the virus or disease or those who have experienced adverse financial consequences as a result of being quarantined, being furloughed, laid off or having work hours reduced due to the disease, being unable to work due to lack of child care due to such disease, closing or reducing hours of a business owned or operated by the individual due to such disease, or other factors as determined by the Secretary of the Treasury.

The income attributable to such distributions is subject to ordinary income tax over three years. The taxpayer may recontribute the funds to an eligible retirement plan, for which the taxpayer is a beneficiary, within three years from the date of distribution without consideration of that year’s contribution limitation.

Deadlines for making a 2019 contribution to an IRA or HSA have been extended to July 15, 2020.

Recovery Rebates

Most individuals will receive a direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed (2018 returns in cases where a 2019 return hasn’t been filed) and sent automatically via check or direct deposit to qualifying individuals. To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.

The amount of the recovery rebate is $1,200 ($2,400 if married filing a joint return) plus $500 for each qualifying child under age 17. Recovery rebates are phased out for those with AGI exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household). For those with AGI exceeding the threshold amount, the allowable rebate is reduced by $5 for every $100 in income over the threshold.

While details are still being worked out, the IRS will be coordinating with other federal agencies to facilitate payment determination and distribution as quickly as possible. For example, eligible individuals collecting Social Security benefits may not need to file a tax return in order to receive a payment.

This is very similar to the stimulus checks sent out in response to the 9/11 attack and the 2008 Global Financial Crisis. These funds will be sent by the Treasury as soon as they can create the lists of eligible individuals. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.

Personal Tax Filings and Payments

Prior to the CARES Act, tax filing rules for individuals and trusts had already been modified so that 2019 filing deadlines have been changed to July 15, 2020, with no dollar limit on the amount of tax due as first announced. Along with this change, 2019 federal income tax payments and the federal first quarterly estimated income tax payment for 2020 are also due on July 15, 2020. The extension does not apply to second quarter estimated tax payments which, as of this writing, remain due June 15, 2020.

You do not need to file for an extension or submit any additional forms to delay filing and making tax payments until July 15, 2020.

*Special Note: Some, but not all states, have adjusted their filing deadlines as a result of the federal rules. Be sure to check what the requirements are in the state, or states, that you need to file taxes in.

Student Loans

The legislation provides a six-month automatic payment suspension for any student loan held by the federal government; this six-month period ends on September 30, 2020.

Under already existing rules, up to $5,250 in payments made by an employer under an education assistance program could be excluded from an employee’s taxable income; this exclusion is expanded to include eligible student loan repayments an employer makes on an employee’s behalf before January 1, 2021.

Aviation Excise Tax Suspension for 2020

Private aircraft owners will not have to pay excise taxes for 2020.

For more information, please contact your Key Private Bank Advisor.

Publish Date: April 1, 2020.

Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice.

Investment products are:

NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY