Our community is strong. Even when we can't be together, we stand together—as families, neighbors, and local businesses helping each other through this difficult time. As a community partner, Tompkins Financial Advisors is here to help you sort through all the information coming from what feels like every direction.
With the recent passing of the CARES Act, we thought it would be helpful to provide you the basics of the bill, and summarize how its varied elements may affect you.
Premature Distributions from Qualified Retirement Accounts:
If you intend to take premature distributions from retirement accounts to help alleviate financial challenges related to Coronavirus, up to $100,000 in distributions are not subject to the 10% tax penalty in 2020. This applies to distributions on or after January 1, 2020, but before December 31, 2020. The regular tax on these withdrawals may be paid over a period of three years, and the withdrawn funds can be recontributed to the plan within three years regardless of contribution limits.
Required Minimum Distributions (RMDs):
RMDs are waived for certain IRAs and retirement plans for 2020. It’s important to note that these RMDs are waived for everyone, not just individuals directly affected by Coronavirus. An individual who has already taken the RMD this year may potentially have the option to roll the distribution back into the account or treat it as a Coronavirus-related distribution.
Public Charity Gifts:
In order to encourage donations to organizations in need, the CARES act outlines various tax incentives. For those who have or will donate to charity in the future, and do not itemize their tax return, may deduct up to $300 on their federal tax return. Individuals who do itemize may be able to deduct 100% of their contributions up to their adjusted gross income. Any excess contributions may be carried forward for five years. All contributions must be made in cash and to a public charity. Contributions to a supporting organization or donor advised fund are prohibited. The CARES Act states that this begins in 2020, but did not advise an end date. We recommend you consult your tax advisor to discuss the specifics.
Direct Payment Checks to Individuals:
Perhaps one of the most publicized aspects of the CARES Act is the direct payment to individuals. Individuals who earn up to $75,000 per year will receive $1,200. Individuals earning up to $99,000 per year will receive a lower payment (reduced by $5 for every $100 in income over $75,000). Joint filers earning up to $150,000 per year will receive $2,400, with reduced checks for filers who earn up to $198,000. Individuals and joint filers who meet the previously mentioned income restrictions will receive an additional $500 per child (up to 17 years old). The payments are based on taxpayers’ 2020 income tax return, but advanced based on the 2018 or 2019 (if filed) return. If the IRS has your direct deposit information on file, this is how your payment will be processed. If they do not, a paper check will be used.
Although there are many more elements of the CARES Act to dive into, we feel these last few items are most important to share in the short term. The Act temporarily increases the amount of unemployment benefits and expands eligibility. Additionally, Enhanced loan options including increased limits on retirement loans and flexible repayment options for Qualified Individuals are available. Lastly, the federal tax filing deadline has been postponed to July 15, 2020.
We hope you find this information helpful as we navigate these challenging times, together. As always, please contact your wealth advisor if you have any questions or concerns.