The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes $250 billion earmarked for individuals and families in the form of direct payments from the IRS. Penalties for using retirement funds also will be waived for a period of time. Here is a brief summary:
The IRS will use 2019 tax returns (or if not yet filed, 2018 tax returns) to determine rebate amounts, so the vast majority of Americans do not need to take any action to receive a rebate.
Eligibility for IRS payments:
- Individuals with adjusted gross income up to $75,000 are eligible for the full IRS rebate of $1,200.
- Joint tax filers with combined adjusted gross income up to $150,000 are eligible for the full IRS rebate of $2,400.
- An additional $500 rebate is available per dependent child.
- Individuals and Joint Filers must not be dependent upon another taxpayer and must have work-eligible social security numbers to receive the rebates
Rebate amounts are reduced by 5% of the tax-payer’s adjusted gross income that exceeds the following thresholds:
- $75,000 for individuals;
- $150,000 for joint filers;
- $112,500 for head of household filers.
Low income individuals who filed federal tax returns to take advantage of the refundable Child Tax and Earned Income Tax Credits will also receive IRS rebates.
Use of Retirement Funds
The CARES Act waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for COVID-19 related purposes, between January 1, 2020 and December 31, 2020.
COVID-19 related purposes include:
- Individuals diagnosed with COVID-19;
- Spouses or dependents diagnosed with COVID-19;
- Adverse financial consequences from being quarantined, furloughed, laid off, work hour reductions, or inability to work due to lack of childcare due to COVID-19.
Anyone receiving a COVID-19 related distribution may repay some or all of it either at one time, or through multiple repayments at any time during the 3-year period beginning on the day after the date the distribution was received.
Individuals should consult with their tax adviser regarding the implications of relief under the CARES Act.