In March 2020, the unemployment rate was 4.4 percent; just one month later the number had skyrocketed to 14.7 percent－the highest figure since the Great Depression of the 1930s. Some 29 million Americans are now temporarily or permanently out of work.
COVID-19, the pandemic coronavirus, in many ways, has crippled the U.S. economy. The good－or at least better－news is that the federal government has made a flurry of tax and process decisions that should bring relief to many in the form of The Coronavirus Aid, Relief and Economic Security program, or The CARES Act.
Here's a quick review of the leading tax breaks, stimulus payments and policy changes that Americans can take advantage of to blunt the impact of the new economic reality.
Extension of Tax Filing Deadline, Estimated Payments and Interest Accrual -- The traditional tax filing deadline of April 15 has been extended for another 60 days, to July 15, for 2020 only. This should be a benefit to those who expect to have to make tax payments. The April 15 quarterly estimated tax payments are also extended along this same timetable. Money owed for the 2019 tax year won't begin to accumulate interest and penalties until July 16. Many states and local taxing agencies are following this same deadline extension.
Stimulus Checks -- With millions forced to leave their jobs, Congress passed a bill to provide checks to many less wealthy Americans in order to preserve some economic security to individuals and families and to stimulate spending on a macro level.
Most who made less than $75,000 as shown on either their 2018 or 2019 tax returns (the latest year turned in to the IRS) will receive a tax rebate payment of $1,200. Married couples filing jointly will receive $2,400 total. In addition, they'll receive $500 for every dependent child. Qualifying Americans will get this one-time payment regardless of whether they owe federal taxes.
The amount will be reduced and gradually phased out to those claiming more than $75,000 in adjusted gross annual income for 2018 or 2019. There will be no tax rebate for individuals with an adjusted gross income exceeding $112,500 individually or $150,000 jointly. Congress is considering a second phase of stimulus checks, but there's no final decision on that at this time.
$600 Weekly Federal Unemployment Benefits -- This is a bonus payment through July 31, 2020 in addition to state benefits for unemployed workers, as part of the Federal Pandemic Unemployment Compensation (FPUC) program. Unlike traditional state unemployment program regulations, even the self-employed or independent contractors might qualify. Congress is considering extending the July 31 deadline for FPUC payments.
2020 Waiver of Early Distribution From Retirement Accounts -- The CARES Act also waives the ten percent penalty on early withdrawal from 401(k)retirement accounts, up to the withdrawal amount of $100,000, during calendar year 2020.
Deferral of Social Security Payments for the Self-Employed -- Through 2020, self-employed Americans will be able to defer the Social Security portion of self-employment taxes owed to two future installments. Half will be due December 31, 2020 and the other half December 31, 2022.
Tax Credit on Student Loan Debt Paid by Employers -- Currently, employees can exclude from federal taxation up to $5,250 annually paid for by their employers for educational assistance programs. For 2020, employers can add payment of employees' student loan debt in this same tax credit.
Find Out How the CARES Act Impacts Your Tax Situation
This is only a brief overview of some of the leading tax and taxation policy changes brought about by the federal government to help mitigate the financial harm of the coronavirus.
Your own business or individual tax situation might suggest additional strategies or taking advantage of additional components of The Cares Act. That's why it's important to meet with your tax advisor in the next few weeks and see what the right moves are for you in 2020 as we all address the financial challenges ahead as best we can.