On Friday, March 27, 2020, the President signed into law H.R. 748 (https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf), the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Iowa State University’s Center for Agricultural Law and Taxation has detailed a number of relief provisions under the CARES act, including tax provisions, designed to sustain Americans during the COVID-19 health and economic crisis.
This post provides an overview of key individual tax provisions implemented by the law. A separate post looks at business tax provisions (specifically Employee Retention Credit and Payroll Tax Deferral) and special provisions expanding small business loans (Paycheck Protection Program (PPP)).
Economic Impact Payments (Stimulus Checks/Recovery Rebates)
The Economic Impact Payments, also known as the 2020 recovery rebates or stimulus checks, is the most wide-reaching provision in the new law. These payments, which are an advanced credit against 2020 taxable income, will be issued for $1,200 for “eligible individuals” or $2,400 for “eligible individuals” who file a joint tax return. In addition, “eligible individuals” will receive $500 for each “qualifying child.” This generally includes dependent children under the age of 17. “Eligible individuals” include “any individual” except for nonresident alien individuals; individuals who can be considered a dependent of another individual; and an estate or trust.
Eligible taxpayers who filed federal income tax returns for either 2019 or 2018 will automatically receive a payment. If you already filed your tax return for 2019, the IRS will use this information to calculate the payment amount. If you haven’t filed your tax return for 2019 but filed a 2018 federal income tax return, the IRS will use the information from your 2018 tax return to calculate the payment amount. IRS notes that payments will be made throughout the rest of 2020. If you don’t receive a payment this year, you can also claim it by filing a tax return for 2020 next year.
Social security recipients who are otherwise not required to file a tax return are also eligible and will not be required to file a return. No minimum income is required for the payment. The IRS will use the information from your 2019 benefits to generate a payment to you if you did not file tax returns in 2018 or 2019. You will receive your payment as a direct deposit or by mail, just as you would normally receive your federal benefits.
Amount of Payment
To allow the IRS to efficiently determine the amount of the payment for each individual and pay that amount quickly, the law defines an “advance refund amount.” The US Treasury Department will distribute this payment to taxpayers “as rapidly as possible.”
“Eligible individuals” with adjusted gross income (AGI) up to $75,000 for individuals and up to $150,000 for married couples filing joint tax returns will receive the full Economic Impact Payment. For “eligible individuals” with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds, until it is $0.
The US Treasury Secretary may certify and disburse the payments electronically to an account to which the payee has authorized the delivery of a tax refund. If direct deposit is not available, the IRS will mail a check to the address of the taxpayer. Within 15 days of the date the payment is distributed, notice of the payment shall be mailed to the taxpayer’s last known address.
Farmers that have filed their 2019 tax return, or 2018 tax return if 2019 has not been filed, have been having issues if they needed to pay in. IRS will not send payments to accounts used to make a payment to the IRS. IRS has established a “Get My Payment” tool (https://www.irs.gov/coronavirus/get-my-payment) on their website that will allow you to submit your bank account information if your payment has not been processed. Providing your bank information is the fastest way to receive your payment. If IRS does not have your bank information, your payment will be mailed to the address that is on file.
The IRS will not use your federal Economic Impact Payment to pay federal or state tax debts but will use it to pay past due child support payments that the states have reported to the IRS (Treasury Offset Program Bulletin 2020-8).
Farmers should review this information and determine their eligibility. These payments are NOT taxable income and will not impact your 2020 income tax return in a negative way. It can only help you, it can’t hurt you. This is a rare, taxpayer win-win situation. If you have any questions about the Economic Impact Payment and when you can expect to receive it, reach out to your tax preparer/accountant or visit the IRS website https://www.irs.gov/coronavirus/economic-impact-payment-information-center.
Federal Filing Delays
To help taxpayers, the Department of Treasury and the Internal Revenue Service announced that Notice 2020-23 (PDF) extends additional key tax deadlines for individuals and businesses.
Taxpayers with a federal tax filing or payment deadline on or after April 1, 2020 or before July 15, 2020, are extended to July 15, 2020. These extensions are automatic and apply to all taxpayers, including individuals, businesses, trusts, estates and other non-corporate tax filers. No late-filing penalty, late payment penalty or interest will be due.
Besides the April 15, 2020 estimated tax payment previously extended, today’s notice also extends relief to estimated tax payments due June 15, 2020. This means that any individual or corporation that has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15, 2020 to make that payment, without penalty.
Wisconsin Filing Delays
IRS extensions may be used for Wisconsin income and franchise tax and pass-through withholding tax purposes. For returns that have a federal due date on or after April 1, 2020 and before July 15, 2020, regardless if it is the original or extended federal due date, the due date is extended to July 15, 2020.
Unpaid income and franchise taxes due on or after April 1, 2020, and before July 15, 2020, will not accrue interest or penalties until July 16, 2020 and unpaid pass-through withholding taxes due on or after April 1, 2020, and before July 15, 2020, will not accrue interest or penalties until August 15, 2020. This applies to all persons whose original or extended federal income tax return filing deadline is extended.
2019 Wisconsin Act 185 provides relief for taxpayers affected by the COVID-19 pandemic. Persons may request an extension of time to file, or a waiver of interest and penalties from, certain taxes and fees that become due during the COVID-19 public health emergency. See the article here: https://www.revenue.wi.gov/Pages/TaxPro/2020/COVIDwaiver.aspx
Retirement Plan Changes
Section 2202 of the CARES Act provides that a taxpayer may take up to $100,000 in distributions from a qualified retirement plan without being subject to the ten percent penalty imposed by IRC § 72(t) if that distribution is “coronavirus-related.” This includes distributions made on or after January 1, 2020, and before December 31, 2020, to:
- individuals diagnosed with COVID-19,
- individuals whose spouse or dependent was diagnosed with COVID-19, or
- individuals who experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due the virus, being unable to work due to the lack of child care due to the virus, or closing or reducing hours of a business owned or operated by the individual due to the virus.
An individual receiving such a distribution may repay it within three years. In addition, the taxpayer may include the income from the distribution in gross income ratably over a period of three years.
Retirement Plan Loans
The law also relaxes the rules for loans from qualified plans, including temporarily increasing the loan limit from $50,000 to $100,000 and delaying repayment dates for some outstanding loans by one year.
Waiver of RMD Requirements
Section 2203 of the law temporarily waives Required Minimum Distributions (RMD) for calendar year 2020 for a number of retirement plans and individual retirement accounts. An individual, including beneficiaries, do not have to take payments during 2020.
Individual Retirement Account (IRA) Contributions
Contributions to an IRA for 2019 must be made by the due date for filing your income tax return. Since this date has been postponed to July 15, 2020, the date for making contributions to an IRA is also postponed to July 15, 2020.
Federal Student Loan Changes
To provide relief to student loan borrowers, the CARES Act has suspended federal student loan payments through September 30, 2020. Federal student loan borrowers are automatically being placed in administrative forbearance, which allows borrowers to temporarily stop making monthly loan payments. Interest rates have been temporarily set to zero on a number of federal loans during this period. If you have any questions or to see if your student loans qualify, please visit https://studentaid.gov/announcements-events/coronavirus
More information on individual tax provisions under the CARES Act can be found on the Center for Agricultural Law and Taxation website (https://www.calt.iastate.edu/blogpost/whats-cares-act-part-one-individual-tax-provisions and https://www.calt.iastate.edu/blogpost/irs-significantly-expands-deadline-relief-notice-2020-23)