TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTIONS (RMD)
A retirement plan or IRA owner must take a required minimum distribution (RMD) annually once the owner reaches age 72. However, for calendar year 2020, the CARES Act waives the required minimum distribution rules for certain defined contribution plans. The wavier applies to all required minimum distributions that would have been required in 2020. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020.
This does not mean you cannot take a distribution, it only means you are not required to take a distribution in 2020.
WAIVER OF 10% EARLY WITHDRAWAL PENALTY FOR CORONAVIRUS-RELATED DISTRIBUTION
The CARES Act waives the 10% penalty for distributions of up to $100,000 from qualified retirement accounts for coronavirus-related purposes made during 2020. To qualify, the distribution must be made to an individual who:
is diagnosed with COVID-19
whose spouse or dependent is diagnosed with COVID-19
who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned and operated by the individual due to COVID-19, or other factors as determined by the Treasury
Repayments can be made at any time during the 3-year period beginning on the day after the date of distribution. It can be repaid in one payment or in multiple payments. These repayments will be treated as rollovers made within a 60-day period, even though you have 3-years to make the repayment. You don’t have to repay the distributions, but you can if you want to.
RETIREMENT PLAN LOAN LIMIT INCREASED
The loan limit for loans from an employer retirement plan has been raised from $50,000 to $100,000 for a 180-day period beginning on March 27th, 2020.
RETIREMENT PLAN LOAN PAYMENTS CAN BE DELAYED
Any retirement plan loan that is due between March 27th, 2020 and December 31, 2020 can be delayed for one year.
$300 CHARITABLE DEDUCTION ALLOWED IF TAKING THE STANDARD DEDUCTION
For taxpayers who do not itemize deductions, there will be a $300 deduction available for donations to charities in addition to the standard deduction amount.
EMPLOYEE RETENTION PAYROLL TAX CREDIT
The CARES Act allows eligible employers to receive a 50% payroll tax credit up to $5,000 ($10,000 x 50%) per employee for qualified wages paid after March 12, 2020 and before January 1, 2021. If the credit amount exceeds the employer’s liability, the excess is refundable via a new IRS Form 7200.
Employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings are eligible for the credit. In addition, eligible employers include those who have experienced more than a 50% reduction in quarterly revenue compared to the same period in the prior year.
Wages include health benefits and are capped at the first $10,000 in wages paid by the employer to an eligible employee. For employers with an average number of full-time employees in 2019 of 100 or fewer, all employee wages (including wages of those furloughed) are eligible. For employers with a larger average number of full-time employees in 2019, only the wages of furloughed or reduced hour employees would count.
EMPLOYER PAYROLL TAX DELAY
Under the CARES Act, businesses are allowed to defer paying the 6.2% employer share of the Social Security tax (but not the 1.45% employer share of the Medicare tax) through the end of 2020. The tax would be payable over the following two years with half paid by December 31, 2021 and the other half by December 31, 2022.