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Provisions Affecting Individuals

Recovery Rebates

All U.S. residents who have a work eligible Social Security number and cannot be claimed as a dependent by another taxpayer are eligible for a recovery rebate as follows:

 Amount of RebateStarts Phasing OutFully Phased Out (Assuming no qualifying child)
Single$1,200$  75,000$  99,000
Head of Household$1,200$112,500$146,500
Married Filing Joint$2,400$150,000$198,000
    
Each Additional Child Under the age of 17$   500  

No action is required in order to receive a rebate check. The IRS will be making payments now through December 31, 2020 and will make payments electronically if you provided direct deposit information to the IRS on your 2018 or 2019 tax return.

The IRS will base the amount of the recovery rebate on the 2019 tax return. If a 2019 tax return has not yet been filed, they will base it on the information from the 2018 tax return. If a tax return has not been filed for either year, they will base their calculation on your Form SSA-1099, Social Security Benefit Statement.

The recovery rebate is really an advance payment. The final calculation for the amount of the rebate is to be based on tax year 2020. If the amount of the rebate calculated for tax year 2020 is higher than the advance payment actually received, the additional credit will be applied to the 2020 tax return. If the amount of the rebate calculated for tax year 2020 is lower than the advanced payment, no adjustment will be made. The IRS won’t require the excess payment to be repaid nor will it be required to pick up the excess payment as income.

The IRS has launched a way for people who qualify for the $1,200 stimulus check to register to receive them. This will be helpful for those who did not file a 2018 or 2019 tax return, because their income was below the filing threshold.

https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here

If you have filed a 2018 and/or 2019 income tax return and want to check on the status of your economic impact payment, you can do so using the link below:

https://www.irs.gov/coronavirus/get-my-payment

[GPW INSIGHT: It may be to a taxpayer’s advantage to delay filing their 2019 return if it would result in less of a rebate than based on the 2018 return. Conversely, if the taxpayer’s 2018 income is phased out, but their 2019 income would qualify, it would be more advantageous to file the 2019 return as quickly as possible.]

Required Minimum Distributions Waived for 2020

For anyone who would normally be required to take a ‘Required Minimum distribution’ from their retirement account in 2020, the required minimum distribution rule is waived just for 2020 under the CARES Act.

Withdrawal from retirement plans

The CARES Act waives the 10% penalty for distributions of up to $100,000 made in 2020 to an individual:

  • who is diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC,
  • whose spouse or dependent is diagnosed with one of the two diseases, or
  • who experiences adverse financial consequences as a result of being quarantined, furloughed or laid off or having work hours reduced, or being unable to work due to lack of childcare.

Though the penalty has been waived, these distributions are still subject to income tax. The CARES Act permits the spread of the amount to be taken into income over a 3-year period beginning in 2020. However, if the individual repays the distribution fully within 3 years, none of the distribution is taxable.

Charitable Contributions

For 2020 only, the charitable contribution limitation for individuals has been increased to allow contribution deductions of up to 100% of Adjusted Gross Income. Any excess contributions will continue to be carried forward for five years. The 100% threshold only applies to cash contributions.

The CARES Act now also allows individuals who take the standard deduction to take an above-the-line deduction for charitable donations for up to $300.

For individuals who itemize their deductions, no similar above-the-line deduction is available.

[GPW INSIGHT: This provision provides a great tax planning opportunity to maximize the effectiveness of charitable contributions.]

Relief to Foreigners Stranded in the United States due to the Coronavirus

There was concern that travel restrictions resulting from the global outbreak of the COVID-19 virus could cause individuals who had no intention of staying in the United States indefinitely to be at risk of being classified as a resident for US tax purposes under the ‘substantial presence test’. Being classified as a resident for US tax purposes subjects the individual to worldwide reporting of income and disclosure of certain activities such as foreign business interests, foreign bank accounts, and other onerous reporting requirements. 

An individual is a resident under the substantial presence test in the calendar year if:

  1. the individual is present in the United States for at least 31 days during the current year; and
  2. the sum of the number of days present during the 3-year period (as calculated below) total 183 or more.
    1. Number of days you were present in the current year, plus
    2. 1/3 of the days you were present in the first preceding year, plus
    3. 1/6 of the days you were present in the second preceding year.

In calculating days present in the United States for purposes of the substantial presence test the Internal Revenue Code provides for certain exceptions, one of which is a medical condition exception.  This exception allows taxpayers to ignore days present in the United States for which the taxpayer had a medical condition which arose while in the United States and prevented them from leaving as intended.   

In order to address the potential unintended consequences of remaining in the United States longer than intended due to COVID-19 the IRS issued Revenue Procedure 2020-20 which provides that the COVID-19 Emergency is considered a medical condition and has created a “COVID-19 Medical Condition Travel Exception” which can be utilized by an eligible individual who was unable to leave the United States due to the COVID-19 Emergency.  

An eligible individual utilizing the ‘COVID-19 Medical Condition Travel Exception’ can exclude up to 60 calendar days of continuous presence in the United States (starting on or after February 1, 2020 and on or before April 1, 2020) in calculating the number of days present in the United States for purposes of determining if the substantial presence test has been met.  Individuals who are required to file Form 1040NR are required to file Form 8843 and follow the procedures in the Revenue Procedure. 

https://www.irs.gov/pub/irs-drop/rp-20-20.pdf