We have been getting a lot of questions surrounding the rules for the CARES Act, tax benefits, who qualifies and who does not. So we created this quick article to help.
Coronavirus-related distributions
What are the tax benefits for CRDs (coronavirus-related distributions)? Who qualifies and who does not?
CRDs
Available for 2020 Only
$100,000 Overall Limit (from IRAs or Plans)
What are the tax benefits for CRDs?
CRDs receive three special tax benefits:
1 – A CRD is exempt from the 10% early distribution penalty.
Affected individuals who are age 59 1⁄2 or over (not subject to the 10% penalty) can still take advantage of the three-year income tax deferral and payback.
2 – Income on a CRD can be spread ratably over three years.
3 – All or part of a CRD can be repaid to an IRA or company plan within three years.
Who qualifies for CRDs? And who does not?
-Qualified individuals include: Individuals diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by the CDC;
-Individuals whose spouse or dependent is diagnosed; OR
An individual who experiences “adverse financial consequences” due to the individual, a spouse, or a member of the household … (Updated by IRS Notice 2020-50 – released on June 19, 2020)
1)Being quarantined;
2)Being furloughed or laid off or having work hours reduced;
3)Being unable to work due to lack of childcare; or
4)Closing or reducing hours of a business owned or operated by the individual, a spouse or member of the individual’s household
The individual, the spouse or a member of the household:
5)Having a reduction in pay
(or self-employment income)
6)Having a job offer rescinded, or
7)Having a start date for a job delayed
A member of the individual’s household is someone who shares the individual’s principal residence
This could be a friend, relative, partner or roommate
When will taxes on CRDs be due?
-3-year income spread is available
-Or all in 2020, if elected — may be low tax bracket year
The income inclusion period selected (3 years or one year) is irrevocable, once the tax return is timely filed (including extensions)
If the individual dies before the entire CRD has been taxed, any remainder due would be included on his final tax return.
When can CRD repayments be made and to which accounts?
-3 years from the day after the CRD
-Repayment can go to an IRA or company plan (if plan allows)
If you want help understanding your current financial situation, how the CARES Act effects you, RMDs, or Stretch IRAs contact us at info@crosspointwealth.com
