Individual Tax Provisions Found in the CARES Act

The CARES Act provides tax relief for individuals, specifically in the form of cash rebates and generous deductibility of charitable contributions. 

Recovery Rebates for Individuals

Amount of Assistance

Subject to limitations, an eligible individual will receive $1,200 ($2,400 for individuals filing a joint return).  They are also eligible for an additional $500 per child under age 17.

Eligibility

All U.S. citizens or residents with adjusted gross income under $75,000 ($112,500 for head of household and $150,000 married), who are not a dependent of another and have a social security number are eligible. 

Reduction in Rebate

For those taxpayers whose income exceeds the threshold, the amount of the refund will be reduced by 5% for every dollar the taxpayer’s income exceeds the thresholds stated above.  If a 2019 tax return has not been filed, the 2018 tax return will be used. If a 2018 return has not been filed, information from Form SSA-1099 Social Security Benefit Statement or Form RRB-1099 Social Security Equivalent Benefit Statement will be used.

Date of Payment

The Treasury has not issued information on an expected payment date.  The bill states that the payment will be made as rapidly as possible.  We should anticipate that the payments will be made in batches over a period of time.  There is mention in the bill of a communication campaign by the IRS.  We would recommend regularly visiting the IRS website at www.irs.gov.

Method of Payment

The payment will be sent via direct deposit to any taxpayer that received a tax refund electronically on their 2018 or 2019 Form 1040.  If the bank information is not available, the payment will be mailed in the form of a paper check.  After the IRS payment is sent, the Treasury Secretary will provide written notice to the taxpayer’s last known address. The notice will inform the taxpayer of the method the payment was made, the amount of the payment, and a phone number to contact the IRS to report failure to receive payment.

2020 Tax Return Filing Related to the Rebate

The rebates are essentially an advance payment of a tax credit to be received on each taxpayer’s 2020 individual income tax returns.

The 2019 or 2018 tax returns will be used to calculate the rebate advance to taxpayers, but taxpayers eligible for a larger rebate based on their 2020 income will receive it when filing their 2020 tax return.  Taxpayers with higher incomes in 2020 than in 2018 or 2019 will have their excess rebate forgiven.

The rebates will not be taxable income for 2020.

Allowance of Partial Above the Line Deduction for Charitable Contributions

For 2020, a new deduction of up to $300 of qualified charitable contributions will be allowed. This deduction will be taken as an “above the line” deduction to arrive at your adjusted gross income.  In other words, taxpayers who do not claim itemized deductions will be able to benefit from the charitable contribution of up to $300.

An eligible individual is a taxpayer who files a tax return and does not elect to itemize their deductions.  The charitable contribution must be made in cash and donated to a qualified charity and not a donor advised fund or a private non-operating foundation.

Sec. 2205. Modification of Limitations on Charitable Contributions during 2020

For 2020, there is a temporary suspension of limitations on certain cash contributions. Prior to 2020, cash contributions were limited to 60% of a taxpayer’s adjusted gross income. For 2020, the deduction will be allowed for up to 100% of adjusted gross income with any excess carried over to the next five years.

As your trusted advisors, we are committed to keeping you well-informed with any new legislation passed by Congress as well as any new pronouncements by the Department of Treasury that may affect you. Please do not hesitate to reach out to KHA with any additional questions you may have.  

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