CARES Act Primer
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CARES Act Primer

Dear Valued Client, Here at WealthSouth, we are committed to providing the highest quality advice and service, which is even more critical during these chaotic times. As such, we are writing to inform you of certain changes and benefits you may be able to take advantage of due to the recently-passed legislation (commonly referred to as the CARES Act) from Congress in response to the COVID-19 pandemic.

1.  No RMD Required for 2020

The Act waives the Required Minimum Distribution in 2020 for individuals with certain defined contribution plans and all individuals with IRAs. Please note that the age when RMDs are required to start was recently changed to 72.  Therefore, if you do not wish to take your RMD for 2020, there is currently no mechanism that would allow for a later rollover or for this exception to apply to a later year.

2.  Retirement Account Distributions Related to COVID-19

As you are likely aware, early distributions from retirement accounts normally are assessed with a 10% early distribution penalty.  However, the 10% penalty will not apply in 2020 under the following conditions:

  1. The distribution is for no more than $100,000 AND
  2. The taxpayer is either diagnosed with COVID-19, has a spouse or dependent diagnosed with COVID-19, or has experienced adverse financial consequences as a result of being quarantined,

While the penalty is waived, these distributions are still subject to regular income tax, but the tax can be paid over a three-year period.

Should these conditions apply to you and you wish to take a penalty-free distribution, please

3. Changes to Charitable Contributions

To address the negative impact on charitable gifting from the downturn in the economy, the 50% of Adjusted Gross Income (AGI) limit for cash gifts is eliminated for 2020, and non-itemizers can deduct up to $300 charitable deductions “above the line.” For corporations, the 10% limit is raised to 25% for 2020.

4.  Payroll tax changes

The CARES Act provides a refundable credit against the employer share of the Social Security tax for 50% of qualified wages paid to employees between March 20, 2020 and December 31, 2020.

The Act also will allow employers and self-employed individuals to defer payment of the employer share of Social Security tax (6.2%).  For taxes normally paid in 2020, these can be paid half by December 31, 2021 and half by December 31, 2022.  Self-employed individuals may be able to reduce 2020 quarterly estimates to reflect this change.

5. Filing dates

These changes are not technically part of the Act but were announced by IRS in the days leading up to the passage of the Act.  Most Federal filings and payments otherwise due on April

15, 2020 are extended without penalty or interest to July 15, 2020.  This would include Form 1040 and the first quarter tax estimate, Form 1041 and Form 1120.  It also includes IRA contributions (including SEP-IRAs).  The taxpayer does not need to take any action related to this.  However, please note that second quarter estimates, which are due June 15, have not been extended. Kentucky has also granted similar relief, and they passed legislation this week to also waive penalties and interest.  Other returns, such as payroll and gift tax returns, have not been granted this relief.

6.  Stimulus Checks

These have been covered in detail in the media, so we won’t try to repeat all the rules here.  However, we can help you with any questions you may have about amount and/or timing of a rebate that you or a family member may have.  Apparently, these rebates are not taxable, but we await IRS clarification.

There are many other provisions in this nearly 1,000-page bill, and those mentioned above are those which we thought would have the broadest interest.  Also, keep in mind that these are Federal rules – states (including Kentucky) have not had time to consider how these changes filings.

Important note: You should consult with your tax advisor before making any final decisions regarding the tax provisions mentioned above.

As always, thank you for placing your trust in us to help you navigate through this challenge. Should you have any questions about the information above, other provisions in the Act, or anything related to your accounts, please do not hesitate to reach out to us. Based on information available as of 3/31/2020.

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