In addition to providing direct financial aid to businesses, organizations, hospitals, individuals, and families, the CARES Act or the Coronavirus Aid, Relief and Economic Security Act brought about several changes to the tax structure by offering rebates to taxpayers, which provided additional relief. The benefits extend from individual taxpayers to businesses to a large section of people who can now avail special rebates and tax credits that will ease some of the financial hardships encountered due to the stoppage of work and business due to the Covid19 pandemic. William D King leads us through the various tax changes and benefits now available.
Benefits for individual taxpayers explained by William D King
The economic stimulus plan implemented under the CARES Act allows a tax rebate of $1200 per adult and $500 for each child. The amount of rebate reduces gradually for individuals whose income exceeds $75,000 per year. A similar reduction in rebate is applicable for heads of households having a total income of $112,500 and above, and the lower limit of income for joint filers is $150,000 per annum. The Treasury arranged to send the payments at the earliest.
In addition to the rebate mentioned above, taxpayers are eligible for additional deduction from adjusted gross income for contributions made to charitable trusts up to $300. Other relaxations on limits apply for charitable contributions.
Borrowing from 401 and retirement plans
With guidance from the IRS, the government introduced a plan that allowed people to take special loans and disbursements from retirement funds that offer a tax advantage of up to $100,000 without attracting any penalty. It waived the applicable required minimum distribution or RMD rules pertaining to 401 (k) plans and IRAs or individual retirement accounts together with the 10% penalty on premature withdrawals up to $100,000 from 401 (k) funds. Account holders can repay the distributions in the coming three years and make extra contributions for the purpose.
The above measures are applicable for everyone who faces economic hardships due to the pandemic, including those who have contracted the disease. Participants eligible for making the withdrawals has become longer than before under the guidance of the IRS. It now includes anyone who lost the job or has undergone deferment of offer for employment. The spouses of the affected individuals are also eligible for making the withdrawals even if the spouses might be working.
Employee Retention Credit for businesses
Employers can now claim Employee Retention Credit (ERC) for payments made towards employment taxes. The step had seen an encouragement to employers for retaining their employees instead of terminating their services while paying them even during the times when the business operations were partially or fully suspended in any quarter due to the impact of the coronavirus pandemic and its related restrictive measures enforced by the government and public health agencies. However, businesses that received Small Businesses Interruption loans are not eligible to avail of the scheme.
Deferment of employer payroll taxes for 2020 was another measure of relief to employers. They need to pay 50% taxes in 2021 and the remaining 50% taxes in 2022.