Employees
Special Rules for Use of Retirement Funds. (This one is good)
Strategic planning with this code could be a great opportunity.
Deadline December 31, 2020
The CARES Act provides some retirement account relief for coronavirus related distributions.
First, the 10% early withdrawal penalty from qualified retirement accounts is waived for distributions of up to $100,000 if a withdrawal from a retirement account is for a coronavirus-related distribution.
A “coronavirus-related distribution” is defined as a distribution made to an individual:
(1) who is diagnosed with COVID-19,
(2) whose spouse or dependent is diagnosed with COVID-19, or
(3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
In addition, the time period in which to pay the income tax attributable to a coronavirus related distribution is extended to allow for payments of this tax over three years.
Taxpayers may re-contribute the funds withdrawn for a coronavirus-related distribution within three years without regard to that year’s cap on contributions.
Provisions that provide for increased loans from certain retirement plans are also revised so there may be some circumstances in which pursuing one of the loan options may provide for a way to minimize the tax costs from what would otherwise be a coronavirus-related distribution.
The Act also waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts.
Treatment of Charitable Deductions
Generally, taxpayers must itemize their deductions to take advantage of charitable deductions. This itemized deduction requirement is eliminated for charitable deductions of up to $300 for most contributions for the 2020 tax year.
Note that not all charitable deductions are eligible for this treatment. Specifically, charitable contributions made to a private foundation or donor-advised fund, are not eligible for the above-the-line charitable deduction.
In addition, the limitation that applies to the amount of a charitable deduction that can be claimed by individual taxpayers is based on a percentage of the individual taxpayer’s adjusted gross income is also eliminated for 2020.
Unemployment
• Creates a temporary Pandemic Unemployment Assistance program through December 31, 2020. This program will provide payment to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others).
• Provides payment to states to reimburse nonprofit organizations, government agencies, and Indian tribes for half of the costs they incur through December 31, 2020 to pay for unemployment benefits.
• Includes an additional $600 per week payment, on top of state benefit levels, to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months, through July 31. (Laid off workers currently qualify for up to 26 weeks of unemployment insurance. Benefit levels vary by state with most replacing about half of an individual’s wages during that time.)
• Provides an additional 13 weeks of federally-funded unemployment insurance benefits beyond the normal 26 weeks through December 31, 2020 to help those who remain unemployed after state unemployment benefits are no longer available. The amount provided would be the same as the regular benefit paid by the state.
• Provides funding to support “short-time compensation” programs, where employers reduce employee hours instead of laying off workers and the employees with reduced hours receive a pro-rated unemployment benefit. Under the bill, the federal government would pay 100% of a state’s short-time compensation benefits for up to 26 weeks of benefits.
• Not all states have short-time compensation programs, but they can choose to develop one in order to take advantage of the federal assistance. If they choose to establish a program after the passage of this bill, the federal government would pay up to 50% of the state’s benefit costs.
• Provides states with temporary, limited flexibility to hire temporary staff, re-hire former staff, or take other steps to quickly process unemployment claims.
• Includes funding for Labor Department Inspector General oversight of the program.
