While we’ve been focusing on the aspects of the stimulus package targeting businesses (largely because these require that business owners take action to benefit from these programs), we also want to provide a recap of those aspects of the stimulus package targeting individual taxpayers and highlight a few relevant action items. There are a lot of items here, not all of which will apply to you, but we’ve tried to lay them out here in order of importance/impact (keeping in mind that this may vary from person to person) and in (relatively) plain English.
Extension of Filing and Payment Deadline to July 15, 2020
The deadline to file and pay your federal income tax has been extended from April 15, 2020, to July 15, 2020. It’s worth noting, however, that if you are going to receive a refund you should file your tax return ASAP to get that money in your pocket. The IRS has also extended the deadline to July 15, 2020, to fund your IRA and HSA for 2019.
Recovery Rebate – The IRS Sends Taxpayers Money
The IRS will be sending taxpayers up to $1,200 (if you’re single) or $2,400 (if you’re married and file a joint tax return), plus an additional $500 per child under the age of 17. The amount you’ll receive will decrease if your income is over $75,000 ($150,000 if you’re married), and if your income is over $99,000 ($198,000 if you’re married) you will not receive a payment.
The income level used to determine your payment amount will be based on your 2019 tax return (or your 2018 return if you haven’t yet filed for 2019). If you haven’t filed either, you may still be eligible. When you file your 2020 tax return you’ll reconcile the amount you received based on your 2020 income level, but you won’t be required to pay back any overpaid amounts (and may in fact receive additional credits if your 2020 income decreased from prior years).
Required Minimum Distributions (RMDs) are Not Required for 2020
The IRS has waived the requirement that taxpayers take their RMD for 2020.
Expanded Unemployment – Increased Amounts and Coverage for Self-Employed Taxpayers
In addition to state unemployment, unemployed individuals may qualify for up to $600 per week of unemployment compensation for up to 39 weeks through the end of 2020. This also waives required waiting periods and job seeking requirements normally imposed by states.
Benefits are also expanded to include self-employed individuals, including contractors, freelancers, and other gig workers.
Early Retirement Plan Withdrawals are NOT Subject to the 10% Penalty
Under normal circumstances, if you withdraw funds from your retirement plan before you are of age to do so, you will be subject to a 10% penalty (with some exceptions). This penalty has been waived for up to $100,000 of early withdrawals.
Changes to Charitable Contribution Deductions – Above the Line Deduction and Unlimited Contributions
The 2020 tax return will allow taxpayers to take an above-the-line deduction of up to $300 of charitable contributions. This means that taxpayers who don’t itemize their deductions will be able to deduct up to $300 of charity on top of the standard deduction
Additionally, deductions for charitable contributions are normally limited to 60% of the taxpayer’s income, however, for 2020 this limitation has been removed, effectively allowing taxpayers to donate all of their 2020 income to charity and receive a deduction for the full amount.
Freeze on Payments and Interest on Federal Student Loans
The freeze is in place until September 30, 2020, however, certain student loans such as private loans will not qualify.
In Conclusion
Unlike the business side of the stimulus package, there aren’t a ton of immediate action items that go along with the individual aspects of the program. The key takeaways as far as next steps to take are:
- Don’t worry about getting your tax return filed by April 15, but file ASAP if you’re expecting a refund
- Consider not taking your RMD
- If you’re unemployed, file for unemployment
- Keep receipts for your charitable contributions (even if you don’t expect to itemize in 2020)
Not sure if these apply to you? Questions about how your business can be capitalizing on the stimulus package? Let us know, we can help!