IRS Outlines New Tax Benefits Under Expanded CARES Act Provisions
Distributions and loans have been increased without penalties under new IRS guidelines under CARES Act provisions. Other expanded CARES Act provisions provide more tax relief for many individuals affected by COVID-19.
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1. Under IRS Notice 2020-50, the CARES Act provisions were expanded to allow people to take cash out of their retirement plans, including IRAs or 401ks, without penalty, if the distribution was related to a reason due to Coronavirus. Distributions as gross income may now be reported and paid to the IRS over a three-year period, or re-distributed to the same or other retirement plan if re-distributed within three year period. Further, plan members do not have to prove the extent to which they were negatively impacted by Coronavirus to take a withdrawal, nor to prove the amount of the withdrawal taken.
Usually, there is a 10% penalty, if money is taken out before 59.5 years, without an exception.
Usually, distributions treated as gross income and must be figured into your annual taxes.
Normally, Must re-distribute back into the retirement plan within 60 days if you do not want it to reported as gross income.
Normally, hardship withdrawal exceptions to distributions from your retirement plan must correspond to the direct financial impact on that individual.
2. The IRS also expanded CARES Act provisions Notice 2020-50 to allow an increase of the amount of a loan from an employer-contributed plans (but still not from IRAs) to a maximum loan amount of 100,000.00, or 100% of the participant's vested retirement account balance. Also, if you had a loan on your employer-contributed retirement plan as of March 27,2020, payments on that loan are now deferred for one year, at the election of the plan's sponsor. Further, plan members do not have to prove the extent to which they were negatively impacted by Coronavirus to take a loan, nor to prove the amount of the loan taken.
Usually, the maximum loan balance one may take from an employer-contributed retirement account balance is 50,000.00, or 50% of the vested account balance.
Usually, loans on retirement plans due December, 31, 2020.
Normally, hardship loans from your employer-contributed retirement plan must correspond to the direct financial impact on that individual, using receipts and employee bills to determine the amount of the loan.
3. CARES Act expanded the list of eligible individuals to take advantage of the CARES ACT provisions as they apply to IRS tax benefits. Per Notice 2020-50, the IRS now qualifies individuals to include the following people, in addition to its previous qualified individuals:
a. "the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19
b. the individual’s spouse or a member of the individual’s household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
c. closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19."
Before, the IRS limited qualified individuals eligible to receive benefits under the CARES Act Provisions to include only the following people:
a. an individual..."who is diagnosed with the virus SARS-CoV-2 or with Coronavirus disease 2019 (referred to collectively in this notice as COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act);
b. whose spouse or dependent (as defined in section 152 of the Code) is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act; or
c. who experiences adverse financial consequences as a result of:
the individual being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
the individual being unable to work due to lack of childcare due to COVID-19; or
closing or reducing hours of a business owned or operated by the individual due to COVID-19."
4. Under Notice 2020-29, the IRS expanded flexibility of health care spending under the CARES Act to include coverage for telehealth and remote care services, received on or before January 1, 2020, under a High-Deductible Health Plan (HDHP) without a deductible, or with a deductible below the minimum deductible allowed by law. This also allows individuals to contribute to their HSA, even if they received services under their HDHP before satisfying the HDHP deductible, or despite receiving coverage for these services outside the HDHP.
5. Under Notice 2020-29, CARES Act expanded their list of qualified health expenses, for purposes of IRS deductions to apply to various tax-advantaged accounts (HSAs, Archer MSAs, Health FSAs, and HRAs) to include the following:
a. menstrual health products, such as tampons, pads, liners, cups, sponges or other similar products.
b. over-the-counter products and medications are now reimbursable without a prescription.