The $2 trillion coronavirus economic recovery bill, dubbed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a daunting 880 pages long, but it contains lots of good news for individuals and businesses, including meaningful tax relief.
The Coronavirus Aid, Relief and Economic Security Act, says taxpayers making up to $75,000 in adjusted gross income will receive $1,200 checks, and $500 for each child. The same rules apply for married couples who file returns under $150,000. Above that threshold, the money starts to phase out. People making over $99,000 and married couples making above $198,000 will not be eligible.
The bill also provides a temporary waiver of required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020.
All RMDs may be suspended at your direction, including those for inherited IRAs as well as traditional IRAs of those over age 70½.
If you already took the 2020 RMD, you might still have some options. Please contact your advisor to discuss further.
Coronavirus-related distributions from IRAs are tax-favored
The new act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans for “affected individuals”. The tax would be due, but could be spread over three years, and the funds could be repaid over the three-year period.
How do you qualify?
For now, here’s what the CARES Act says.
A coronavirus-related distribution is a distribution of up to $100,000 from an eligible retirement plan, including an IRA, that is made on or after 1/1/2020 and before 12/31/2020 to an individual:
* Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced due to COVID-19.
* Who is unable to work because of lack of childcare due to COVID-19 and experiences adverse financial consequences as a result.
* Who is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention.
* Whose spouse or dependent (generally a qualifying child or relative who receives more than half of his or her support from you) is diagnosed with COVID-19 by such a test.
* Who owns or operates a business that has closed or had operating hours reduced due to COVID-19 and has experienced adverse financial consequences as a result.
* Who has experienced adverse financial consequences due to other COVID-19-related factors to be specified in future IRS guidance.
Beware of Stimulus Payment Scams
Here’s what you need to know about stimulus payment processing in order to protect yourselves from scammers:
- Be alert for phone scams.
The Internal Revenue Service (IRS), Treasury Department, or any other government agency will not contact you by phone to collect information for stimulus payment processing. Period.
- Be alert for phishing scams.
Government agencies will not email or text you to collect information for stimulus payment processing. Watch for suspicious emails or texts with links or attachments requesting information for processing stimulus deposits or checks. If you receive one, do not click the link or open the attachment. It’s a scam. Delete it.
- Be alert for state-related scams.
State agencies will also not call, email or text you to collect information or a fee to process a stimulus payment. To date, no state has introduced their own version of a stimulus payment.
As of now, we are only aware of one communication a taxpayer will receive from the IRS. No later than 15 days after distributing a stimulus payment, the IRS is required to mail a notice to the taxpayer indicating the payment amount, whether the payment was mailed or deposited, and a phone number to call if the taxpayer did not receive the payment.
Victims or targets of stimulus payment scams should report it immediately to the Federal Trade Commission, www.ftc.gov/complaint .
–By Financial Directions, LLC.