On Friday March 27, the President signed into law the CARES Act as the federal response to the economic impact of the COVID-19 pandemic. We have, understandably, received many inquiries about the Act and it’s impact on taxpayers and investors. Rather than list out the features of the act, below is a FAQ on specifics within the bill. I hope you all find this useful.
2019 Filing Dates
When is my 2019 tax return due? When I last wrote about COVID-19 (here: COVID-19 and 2019 Taxes )the due date of filings had not been pushed back but the due date for any tax due had been. That has changed. Returns are now due July 15, 2020 and any resulting tax is due that date as well. Maryland and most states have complied with the July 15, 2020 due date.
When are my 2020 quarterly estimated taxes due? Quarter 1 estimate is now ALSO due 7/15/20. Oddly, quarter 2 estimate remains due 6/15/20. Quarters 3 and 4 due dates remain unchanged.
What about April 15? As strange as it seems, April 15 is not a relevant tax date this year. No extensions need to be filed and nothing needs to be done. The new due date for filing (7/15/20) is automatic.
Should I still try and file? Sure. IRS is still processing returns. If you usually get a refund we can still file and get that refund as quickly as possible. If you file now but owe money YOU CAN STILL WAIT UNTIL JULY 15 TO PAY.
Does this impact anything that normally is tied to the April 15 filing date? Yes. IRA, HSA and similar contributions for 2019 are now due by July 15, 2020.
My thoughts: We are still working through April 15 somewhat normally. We will be working a more “normal” schedule after that date meaning little or no weekends. Realize that nothing needs to be done with respect to July 15. It is automatic for all individual taxpayers. If you are expecting a refund, we should get that return in. If you expect to owe money, you have until July 15 to pay it. There is no rush.
What is the stimulus payment amount? A payment of $1,200 per individual ($2,400 for a joint couple) PLUS $500 for each dependent child UNDER 17.
Who qualifies? Joint filers with adjusted gross incomes (AGI) below $150,000 (single $75,000) will receive the stimulus payments. Filers with AGI in excess of those limits will have their payments reduced until they are fully phased out with AGI of $198,000 joint ($99,000 single).
Which year’s AGI determines your eligibility? OK bear with me here because this is convoluted. Taxpayer’s 2020 AGI will determine their qualification. However, since that won’t be known until December 31, 2020 the IRS will use your 2018 or 2019 AGI to determine (whichever you have most recently filed). If you are ineligible via your 2018 or 2019 AGI but will be eligible once you file your 2020 return, you will receive credit for the payment on your 2020 return. Oddly. if you are eligible for the payment via your 2019 AGI but are not eligible based on 2020 income you will NOT have to REPAY the advance payment. (NOTE: This is a correction from the original post). There is NO CLAWBACK of advance payments that taxpayers are later proven ineligible to receive.
I don’t typically have to file a return, should I do so anyway? Yes. You have to have filed a 2018 or 2019 return to get the stimulus payment. (Edit 4/1/20: Treasury reversed course late last night and will automatically pay those people receiving Social Security payments. They do not need to file).
How will I receive payment? If you have requested direct deposit or electronic tax payment in the past, the IRS will use that account to direct deposit into. If your account has changed, there will be a process to amend this information. My assumption is that filers that did not use direct deposit will receive physical checks.
When will I receive the payment? Unclear. My guess is it will be May 1 at a minimum before payments start hitting accounts.
Here is a similar FAQ from the IRS with more info on the stimulus payments: IRS FAQ
My thoughts: This is going to be a bit of a disaster IMO (in my opinion). I deal with the IRS on a daily basis. The idea that they are going to have a hotline or a form one can fill out and the IRS will magically correct this is hard for me to believe. I also think Congress made this unnecessarily complicated. They should have just sent every taxpayer the check and then had them pay it back via the 2020 Form 1040. I hope this payment program works but I fear it would be poorly implemented.
I need some cash now…can I access my retirement plan? That is a more attractive option now. The bill allows up to $100,000 to be withdrawn from a retirement account for individuals impacted by COVID-19 without being subject to the 10% early withdrawal penalty. Impact is fairly liberally defined so my expectation is that many people qualify for the impact test.
Is the distribution taxable? Yes but not subject to the 10% penalty tax. Also, the taxability of the income will be spread over 3 years. For example, Taxpayer withdraws $30,000 from her 401(K) in 2020 as an impacted person. That income will be taxable as $10,000 each on the 2020, 2021 and 2022 returns. There will be an election to simply include the full amount in 2020 if that makes sense.
I may want to pay back some or all of the retirement distributions I take? Taxpayers can repay amounts withdrawn over 3 years starting the day after the distribution is taken.
My retirement account has taken a huge hit and I don’t really want to sell just to take a RMD…what can I do? RMDs are NOT REQUIRED for 2020. If you took an RMD early in 2020 there MAY be ways to unwind that but you would have to act VERY quickly.
I’d rather take a loan against my 401(k) than a taxable distribution…what do you think? Loans against retirement plans have been expanded to include larger amounts ($100k), a larger amount of your vested balance (up to 100%) and a delay of repayment start date.
My thoughts: Retirement plan distributions and/or loans are an option. They do create tax issues that need to be considered, however. Please contact us if you are considering a distribution or loan from your retirement accounts.
I lost my job due to the social distancing policies…what do I do? File for unemployment ASAP. Generally, unemployment is not payable until the second week of unemployment. Under CARES, payments begin immediately in week 1.
Do self-employed individuals get unemployment? Under traditional unemployment-No. But CARES includes a budget for Pandemic Unemployment Assistance making self employed taxpayers eligible to collect.
How much do I receive? Traditional unemployment benefits are based on some percentage of your wages. In this bill, that calculated amount will be supplemented by an additional $600/week.
Unemployment will likely be a reality for many of our clients. Please don’t hesitate to tap into these more robust unemployment programs.
There are several other provisions directed to small business than individual taxpayers. Please refer to our Coronavirus page for details on some of those programs: Coronavirus Info
Obviously, if you have any questions about any of this information, please do not hesitate to contact us. We hope you and your families are staying safe and healthy in this unprecedented time.