Here is an overview of key provisions in the recent COVID relief legislation that affect individuals.
ECONOMIC IMPACT PAYMENT
The act provides for a refundable recovery rebate credit for 2020 that will be paid in advance to eligible individuals. The amount of the rebate is $600 per eligible family member (($1200 for married filing joint plus $600 per qualifying child). The credit is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for joint returns or $112,500 for head of household filers, or $75,000 for single filers.
DEDUCTIONS
*The educator expense deduction of $250 will include supplies for PPE and other COVID related items that were purchased after March 12, 2020. IRS is directed to issue guidance to that effect by Feb 28th. *7.5%-of-AGI "floor" on medical expense deductions is made permanent. *Mortgage insurance premium deduction is extended by one year. *Above-the-line charitable contribution deduction is extended through 2021. Individuals who do not itemize deductions can take up to a $300 above-the-line deduction for cash contributions to qualified charitable organizations. The Act extends this through 2021 and increases the deduction allowed on a joint return to $600. It remains at $300 for all other taxpayers. * Extension through 2021 of the allowance of charitable contributions up to 100% of an individual's adjusted gross income rather than the usual 60% of adjusted gross income.
TAX CREDITS
*Individuals may elect to base 2020 refundable child tax credit (CTC) and earned income credit(EIC) on 2019 earned income. For both these credits, "earned income" means wages, salaries, tips, and other compensation if includible in gross income for the tax year. But for determining the refundable CTC and EIC for 2020, the ACT allows taxpayers to elect to substitute the earned income from the preceding year, if that amount is greater than taxpayer's earned income for 2020. * The non-business energy credit is extended by one year, through 2021. * Residential energy-efficient property (REEP) credit is extended by two years. Individual taxpayers are allowed a personal tax credit equal to the applicable percentages of expenditures for qualified solar efficient property, qualified solar water heating property, qualified fuel cell property, qualified wind energy property and qualified geothermal heat pump property,
DISASTER RELATED CHANGE IN RETIREMENT PLAN RULE
The Act provides that the 10% early withdrawal penalty does not apply to any “qualified disaster distributions" from an eligible retirement plan.
We hope this has been of interest to you. Please contact us with any questions or concerns.