Updated September 16, 2020
On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (officially referred to as H. R. 748) was passed. This stimulus package is designed to provide relief and stimulate the U.S. economy as part of the national emergency relief operations during the COVID-19 pandemic.
Economic Impact Payments (Stimulus Payment)
Single adults who have an adjusted gross income (AGI) less than $75,000 will receive $1,200. Married adults will get $2,400, and each child in a given household will add another $500 to the total amount.
If your AGI is above $75,000 as a single filer, the stimulus relief starts phasing out at a rate of $5 for every $100 you make above the threshold. The relief phases out completely once AGI reaches above $99,000.
The IRS will begin sending economic impact payments in early to mid April; most taxpayers do not need to take any action to receive their payment.
The Department of the Treasury will use information from your 2019 tax return to determine AGI, dependents, and whether to send your payment by check or direct deposit. If you haven’t filed your 2019 taxes, your 2018 tax return information will be used.
Taxpayers who would like their payment to be sent by direct deposit can provide bank information to the IRS using the Get My Payment tool. The tool will also help you track your stimulus payment and see when it is scheduled to arrive.
If you collect certain government benefits but haven’t filed in either year because you are usually not required to file, the IRS will coordinate with the appropriate organization to know where to send your Economic Impact Payment. This group includes:
- Social Security recipients
- Railroad Retirement recipients
- Social Security Disability Insurance (SSDI) recipients
- VA benefit recipients
- Supplemental Security Income (SSI) recipients
You’ll receive your EIP as you would normally receive your benefits, either through direct deposit or by paper check. To receive the $500 stimulus payment per child as part of your initial payment, you must use the Non-Filers tool. If you receive government benefits, aren’t required to file a tax return, and never received the additional $500 per qualifying child, use the Non-Filers: Enter Payment Info tool to update your information. SS, SSI, RR, and VA recipients must act before Wednesday, September 30 to receive their additional payment in October.
It is unclear whether SSDI recipients could qualify for this window to update their information, but it doesn’t hurt to try—at the end of the day, you should receive your additional $500 when you receive your refund in 2021 if you don’t get it sooner.
For those who didn’t file a tax return in 2018 or 2019 and don’t receive any of the benefits listed above, the IRS has released the Non-Filers: Enter Payment Info tool so you can register for your Economic Impact Payment.
These stimulus payments, which will be available through the end of the year, are considered advance refunds and are not treated as taxable income. Any amount you qualify for but didn’t receive could be claimed on your 2020 tax return. Also, if you receive too much, you won’t be required to pay it back. Be sure to keep your confirmation letter for the EIP—it should arrive within a few weeks after you receive your payment.
Retirement Funds Used for Coronavirus Costs
Typically, taking a distribution from your retirement plan means paying both an income tax and also a 10% penalty. The CARES Act now allows taxpayers to take up to $100,000 penalty-free for a coronavirus-related distribution.
To qualify as “coronavirus related,” the distribution must have been made by a taxpayer who is diagnosed with SARS-COV-2 or COVID-19 by a CDC-approved test for either themselves, a spouse who meets the above qualifications, or, if not directly infected, experiences a hardship due to quarantine, lack of work, or childcare in 2020.
Though the distribution can be spread over a 3-year period, income tax will still be owed on the distribution amount. If the distribution is repaid within that 3-year period, the taxpayer can avoid any income recognition.
Changes to Charitable Contributions
While charitable contributions are usually only deductible if you itemize, the CARES Act allows for a $300 above-the-line deduction for donations to qualifying charitable organizations. Taxpayers can take both this deduction and their standard deduction without having to itemize, and it’s here to stay – you can continue to take this deduction beyond 2020. Note: If you do itemize, you would not also take the new above-the-line deduction.
The CARES Act also changes the limitation on qualified cash charitable contributions from 60% to 100% of AGI in 2020.
Employer Payment of Employee Student Loan Debt Not Taxed as Income
Usually, any payments an employer makes for student loan debt of an employee is counted as taxable income to that employee. The CARES Act now allows $5,250 of employer-paid student loan payments to be tax-free. Note that this limit also applies to current employer-paid education expenses, so current and loan payment expenses are only tax free for the first $5,250 of combined expenses.
Any student loan interest will not be deductible to the employee if it is covered by the tax-free amount.