MERRY CHRISTMAS & HAPPY NEW YEAR
As we get near the end of 2020, most of us will breathe a sigh of relief. Covid-19 has had a very serious impact on every country, starting with the lives lost and ending with economies literally decimated. Practically everyone was affected in some way where a loved one passed away, a job loss, or some other financial calamity. The fact that it was an election year too, made matters worse. Many tax changes had to be made to protect taxpayers, and this is the primary purpose of our newsletter. We’ll do our best to keep you apprised of these changes, and their expiration dates so that there are no surprises at tax time.
Review your tax withholding – The first item is a reminder to check your tax withholding and tax payments for 2020 to avoid any tax surprises when you file your return. This link will take you to the IRS Estimator.
Expiring deduction – The CARES Act also authorized a deduction of up to $300 for cash donations by individuals who don’t itemize. This special break will expire at the end of 2020 unless Congress extends it.
Required minimum distributions (RMDs) – Usually, individuals must begin taking RMDs from qualified retirement plans and traditional IRAs after reaching a specified age. Recent legislation changed the starting age from 70½ to 72, for those who attain age 70½ in 2020 and later years. The CARES Act suspended the RMD rules — including those for inherited accounts — for 2020. Beginning in 2021, the RMD rules will kick back in unless Congress takes further action.
Early retirement account withdrawals – If you take a taxable withdrawal from a qualified retirement plan or IRA before age 59½, you’re normally assessed a 10% tax penalty on top of the regular federal income tax hit. But there are several exceptions to the penalty. The CARES Act added a new exception for 2020: An account owner can take one or more COVID-19-related distributions, as defined, totaling up to $100,000 in 2020 without incurring the 10% penalty. This break will expire at the end of 2020 unless Congress extends it.
COVID-19-related retirement account distributions – The CARES Act provides additional tax relief for distributions totaling up to $100,000 in 2020 from qualified plans and IRAs made to someone who’s diagnosed with COVID-19 or who experiences adverse financial consequences due to COVID-19. The latter group can include people who, because of COVID-19, have been laid off or furloughed, had their work hours reduced, suffered reduced self-employment income, or been quarantined.
COVID-19-related distributions are still taxable. However, you can spread out the incremental taxable income over three years or completely avoid any federal income tax hit by recontributing a COVID-19-related distribution within three years. This break will expire at the end of 2020 unless Congress extends it.
Expanded unemployment benefits – As part of the historic broadening of jobless benefits under the CARES Act, lawmakers created three programs to help out-of-work Americans. While the $600 payment enhancement lasted only four months, the other two run through the week ending December 26, which is the last weekend of the year.
Pandemic Emergency Unemployment Compensation program – This provides an additional 13 weeks of federally paid benefits to those who run out of state payments, which typically last 26 weeks. Funding for this program is typically split between the states and the federal government, but the latter has picked up the entire tab during the pandemic — a measure that also expires on December 31.
Student loan payment pause – In March, the US government automatically suspended payments and waived interest on federal student loans. That meant millions of borrowers could skip making their monthly payments without their balances getting any bigger. Initially, the relief — which was included in the $2 trillion congressional stimulus package — was set to expire at the end of September. But Trump later moved the date to December 31 by executive order.
Eviction protection – A Centers for Disease Control and Prevention order that went into effect in September temporarily halted evictions through the end of the year. It applies to renters who meet certain income requirements, have experienced significant losses of income and have made their best efforts to find rental assistance and pay their rent. Since the order does not cancel or freeze rent, all of a tenant’s back rent will be due January 1 if the moratorium is allowed to expire.