Stone Mid-Year Tax Check-In

Aug 11, 2020

The Coronavirus Aid, Relief and Economic Security (CARES) Act created some favorable tax provisions for eligible individuals who are in need due to the ongoing Coronavirus pandemic. We wanted to take this opportunity to remind you of some options that may be available to you.

1. Suspension of Required Minimum Distributions (RMDs) for 2020: RMDs from all retirement accounts except defined contribution plans are optional for 2020. If you had already taken your RMDs for 2020 and wish to reverse that action, you can recontribute the distribution to your retirement account if done by August 31, 2020. This applies to accounts such as IRAs, 401 (k) plans, inherited IRAs and Roth IRAs.

2. Favorable tax treatment for withdrawals from workplace retirement plans including 401(k) plans, 403(b) plans,
profit sharing plans and IRAs. Under this provision:

a. Eligible individuals can withdraw up to $100,000 from their plans for COVID-19 related relief. The funds must be withdrawn by December 31, 2020.

b. Since the income in (a) above is includable in taxable income, taxpayers can either report it ratably over three

years (1/3 in 2020, 1/3 in 2021 and 1/3 in 2022) or report it as a lump sum in 2020.

c. 10% early withdrawal penalty for individuals under the age of 59 ½ is waived.

d. The money can be repaid to your retirement plan within three years, in which case you can amend your tax return to claim any taxes previously paid on the withdrawal.

e. The withdrawals are not subject to mandatory withholdings.

3. Expanded loan options:

a. Some workplace plans provide the ability for participants to borrow up to $100,000 in COVID-19 related relief. This option is only available until September 22, 2020.

b. If you already had an outstanding loan from your workplace retirement plan on or after March 27, 2020, you may be able to suspend repayment for up to a year under the CARES Act.

4. Expanded Unemployment Benefits: The CARES Act expanded unemployment benefits eligibility to cover worker who would otherwise not be eligible for unemployment benefits including self-employed individuals an independent contractors. Unemployment benefits are subject to federal taxes and in most states including MA they are also subject to state income taxes.

It is important to note that in order to qualify for the provisions 2 & 3 above, you must have been directly affected by COVID-19 in one of the following ways:

a) You were diagnosed with the virus

b) Your spouse or your dependent was diagnosed with the virus

c) Your finances were adversely affected as a result of the ongoing pandemic

We encourage you to contact your employer or plan administrator to determine if your plan has been modified to accommodate the distribution and loan rules provided under Section 2202 of the CARES act.

Our experienced team of tax professionals is available to assist you with you tax planning needs to help reduce the likelihood of a surprise tax bill during the filing season. For additional information, please contact us at: info@stonecpas.com

Contributors: Caroline Waweru, CPA, MSA, MBA and Donald J. Zidik Jr, CPA, PFS

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