COVID-19 – CARES Act, relief for US taxpayers
On 27th March 2020 President Trump enacted the largest package in the history of the United States – ‘Coronavirus Aid, Relief, and Economic Security Act’ (CARES Act) – which is designed to save the US from the economic hardship it is currently suffering in relation to the Covid-19 pandemic.
The $2 trillion CARES Act is aimed at helping US individuals and companies affected by the pandemic. It also applies to green card holders and US taxpayers who are located outside of the US.
The following are just some of the reliefs that the US Government have included within the CARES Act:
Economic Impact Payments
Starting within the next 3 weeks and continuing throughout the rest of 2020, the IRS will distribute economic impact payments to individuals who have a US Social Security Number. Non-resident aliens, trusts, estates and individuals who can be claimed as a dependant on another person’s tax return are, however, excluded from the credit.
The economic impact payments are $1,200 per individual ($2,400 for joint filers), and $500 for each qualifying child. These payments will be automatic, but individuals who typically do not file a US tax return will need to submit a simple tax return in order to receive the payment. Social Security beneficiaries who are not typically required to file a tax return are excluded and will receive the payment automatically.
For individuals with adjusted gross income (AGI) over $75,000 ($150,000 for joint filers), the economic impact payment is reduced by $5 for each $100 over the threshold, meaning that the credit is fully phased out for single and joint filers with AGI of $99,000 and $198,000 respectively. The IRS will use information from 2019 tax returns (or 2018 where the 2019 return has not yet been filed), or Form SSA-1099 and Form RRB-1099, for the basis in calculating an individual’s AGI.
Payments will be made via direct deposit or by cheque via post, if the IRS does not hold an individual’s bank account details.
Retirement Plan Distributions
As a result of the pandemic, it is now easier for certain individuals to access funds from their retirement accounts during 2020. Known as ‘coronavirus-related distribution’, a distribution of up to $100,000 will not be subject to early withdrawal penalties or mandatory income tax withholding.
Although exempt from withdrawal penalties, the amount of the distribution is still considered taxable income and must be included within an individual’s tax return (either fully in 2020, or spread equally over the next three years). However, if the distribution is repaid into the individual’s retirement account at any time within the three year period, the distribution is not considered as taxable income.
The waiver on early withdrawal penalties is only available on distributions during 2020 for individuals who:
have tested positive for Coronavirus (or their spouse/dependant has tested positive); or
experience unfavourable financial results because of quarantine, furlough, redundancies or other factors related to Coronavirus
Finally, the CARES Act has abolished the minimum distribution requirement for eligible retirement plans (qualified trusts, annuity plans, deferred compensation plans) and IRAs for 2020, and relaxed the loan repayment rules for loans from qualified employer plans.
Employee Retention Credit
Designed to keep employees on payroll, the US Government launched the employee retention credit on 31st March 2020 aimed at employers of any size.
Businesses that have been fully or partially suspended due to Coronavirus and whose gross receipts for the calendar quarter are less than 50% of the comparable quarter in 2019 will be eligible for the credit.
The credit is 50% of the wages that the affected employer has paid, up to a maximum of $10,000.
Tax Return filing extension
On 21st March 2020, the IRS announced an extension to the federal tax return filing deadline, from 15th April 2020 to 15th July 2020. This deferral also includes income tax payments for the 2019 tax year and 2020 quarterly payments.