COVID-19 Individual Tax Relief Information

INDIVIDUAL TAX RELIEF

Recovery Rebates

The most well-publicized provision is the $1,200 recovery rebates for individual taxpayers. The rebate amounts are advance refunds of credits against 2020 taxes, and equal to $1,200 for individuals, or $2,400 for joint filers, with a $500 credit for each child. The amount of each rebate is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed), and the phase-out begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. Thus, the rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000.

In order to be eligible for a recovery rebate, the individual must not be: (1) a nonresident alien, (2) able to be claimed as a dependent on another taxpayer’s return, (3) an estate or trust, and (4) must have included a Social Security number for both the taxpayer, the taxpayer’s spouse, and eligible children (or an adoption taxpayer identification number, where appropriate). The bill includes additional rules for the application of the credit.

The Secretary of the Treasury is directed to provide the rebate as rapidly as possible.

Retirement Plans

The bill also waives the 10-percent penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. For purposes of the penalty waiver, a coronavirus-related distribution is one made during the 2020 calendar year, to an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus. Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions if made within three years.

Grant, Millman & Johnson will continue to monitor developments and keep you updated.