SUMMARY ADAPTED FROM Tax Changes and Key Amounts for the 2020 Tax Year
Americans are facing a long list of tax changes for the 2020 tax year…and it’s never too early to start thinking about next year’s return.
1) Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, most
Americans will receive direct economic recovery rebate payments of $1,200
($2,400 for couples filing jointly), plus $500 more for each child under age 17.
Technically, the rebate is an advance payment of a special 2020 tax credit. You’ll
reconcile your rebate on your 2020 return. For most people, the rebate will equal
the tax credit allowed. Taxpayers whose credits exceed their rebates can claim the
balance on their 2020 returns. We expect you won’t have to repay the IRS if the
payment you got is more than your credit.
2) There are a lot of changes in 2020 for retirement plans. Most of the changes come
from the SECURE Act, which was signed into law late in 2019. However, the
CARES Act includes a few provisions affecting retirement accounts, too. Both
acts significantly impact the required minimum distributions (RMDs). For example,
under the SECURE Act, the beginning age for taking RMDs rises from 70½ to 72.
(This change only applies to account owners who turn 70½ after 2019.) The
CARES Act allows seniors to skip their RMDs in 2020 without penalty.
3) The act also waives the 10% penalty on pre-age-59½ payouts from retirement
accounts for up to $100,000 of coronavirus-related payouts. A coronavirus-related
distribution can also be included in income in equal installments over a three-year
period and you have three years to put the money back into your retirement
account and undo the tax consequences of the distribution. Second, it allows
eligible individuals to borrow more from workplace plans such as 401(k)s—up to
the lesser of $100,000 or 100% of the account balance—until September 23, 2020.
Repayments on retirement plan loans due in 2020 are also delayed for one year.
4) More donations to charity can be deducted for 2020 under the CARES Act. The
60%-of-AGI limit on deductions for cash donations by people who itemize is
suspended (gifts to donor-advised funds and private non-operating foundations are
excluded).
5) Non-itemizers can also write off up to $300 of charitable cash contributions. This
is a new “above-the-line” deduction for people who don’t file Schedule A.
6) The Families First Coronavirus Response Act includes tax relief for self-employed
people who can’t work because of the coronavirus. The law forces many
employers to provide paid sick and family leave for workers affected by the virus.
However, tax credits against the self-employment tax are also allowed for self-employed people who can’t work for a reason that would entitle them to
coronavirus-related sick or family leave if he or she were an employee.
(Employers also get tax credits to help them pay for the paid leave they are
required to give their employees.
7) The CARES Act allows employers to pay down up to $5,250 in workers’ college
loans in 2020. The payments are excluded from the workers’ wages for federal
tax purposes. The $5,250 cap applies to both student loan repayment benefits
and other educational assistance (e.g., tuition, fees, books, etc.) offered by an
employer under current law.
8) The residential solar credit falls to 26% for 2020, which is down from 30% in It drops again to 22% next year and ends after 2021. Ditto for the tax breaks for geothermal heat pumps, residential wind turbines and fuel cell property.
9) The CARES Act lets employers defer payment of the Social Security taxes they owe on wages paid from March 27 through December 31, 2020. Self-employed people can defer 50% of their self-employment tax. Employers affected by the coronavirus can also claim a new payroll tax credit for 2020 if they retain and continue to pay their workers.
10)The IRS confirmed their position that business expenses paid with Paycheck
Protection Program (PPP) funds that are forgiven cannot be deducted for federal
tax purposes. This guidance now places the responsibility on Congress to take
legislative action if their intention was to ensure deductibility of business
expenses that are funded with a forgiven PPP loan
From the Desk of Ebere Okoye, The Wealthbuilding CPA
5020 Sunnyside Avenue, Ste 206, Beltsville, MD 20705.
Office: 301-441-4538, www.thewealthbuildingcpa.com, info@thewealthbuildingcpa.com