This page provides details on the following areas that are changing for calendar year 2020 including the CARES Act. It also includes Tax Cuts and Jobs Act resources on the IRS website:
- CARES Act Tax Provisions
- Changing or inflation adjusted provisions
- Extender provisions that are still in effect
- Kiddie Tax change for 2020 and beyond
- EITC Maximum Credit Amounts
- Retirement distribution and contribution changes
- Tax Cuts and Jobs Act Resources
CARES Act Tax Provisions
Here is a summary of the tax provisions included in the CARES Act that was enacted on March 27, 2020:
How the Economic Impact (Stimulus) Payments will affect the 2020 return
The Economic Impact (stimulus) payment is really an advance payment of the Economic Impact credit which will be part of the 2020 federal return. A new refundable credit form will be added and all taxpayers that received a payment during 2020 and those who were eligible but did not, will need to complete it for 2020. The credit will be calculated based on income, filing status and children information on the 2020 federal return.
For the vast majority of taxpayers the credit on their 2020 return will be zero since they already received a payment during 2020. The credit calculated (based on their 2020 income, filing status and eligible children) will be reconciled with the payment they received in 2020.
For those taxpayers who did not receive an economic impact credit, they will show a refundable credit on their 2020 federal return.
Also for those who might have received a lesser economic impact payment because of the AGI limitation they may receive a refundable credit if their AGI for 2020 is lower than in 2019.
Retirement Distributions Related to COVID-19
- For qualified COVID-19 distributions, an individual can withdrawal funds (up to $100,000) from a retirement account free of the 10 percent early withdrawal penalty and can spread the taxable portion on that distribution over a three year period.
- Any qualified COVID-19 withdrawal will not be taxable if it is recontributed within three years of the date of distribution.
- Increases the maximum loan amount for COVID-19 purposes to $100,000.
There are two provisions for charitable contributions as follows:
- Above the Line Charitable Contribution Deduction
Taxpayers can take up $300 as an adjustment to income beginning in 2020
- Modification of limitation on charitable contributions for 2020
The 50 percent of AGI limitation is suspended for 2020
Qualified Improvement Property – Technical Amendment
Allows qualified improvement property to be depreciated over 15 years and be eligible for bonus depreciation. This is a retroactive change which means that taxpayers can amend their 2018 and 2019 returns for eligible qualified improvement property.
Net Operating Loss Changes
- Net operating losses that occur in 2018, 2019 or 2020 can be carried back 5 years
- These NOLs can fully offset income in the prior years
- Applicable to individuals and corporations
- Temporarily suspends the loss limitation of $250,000 ($500,000 for joint filers) for non-corporate taxpayers for losses arising in 2018, 2019 and 2020.
Employee Retention Credit
Legislation provides eligible employers a refundable payroll tax credit equal to 50% of qualified wages paid to employees. Eligible employers must have carrying on a trade or business in calendar year 2020 whose:
- Operations were fully or partially suspended due to the COVID 19 crisis
- Gross receipts declined by more than 50% compared to the same quarter in the prior year
For employers with greater than 100 full-time employees, qualified wages are wages paid to employees (between March 12, 2020 and December 31, 2020) when they are not providing services due to COVID-19 circumstances.
For employers with 100 or fewer full time employees, all employee wages qualify for the credit.
The credit is capped at the first $10,000 of compensation, including health benefits, paid to the employee. The credit is refundable to extent it exceeds the employer portion of social security taxes reduced by paid sick leave and paid extended FMLA established by the Families First Coronavirus Response Act.
Eligibility for the credit begins in the first in which the employer’s gross receipts declined by greater than 50% of the corresponding calendar quarter of the prior year, and ends with the quarter following the calendar quarter in which the gross receipts excess 80% or corresponding calendar quarter in the prior year.
For more information see the FAQs: Employee Retention Credit page on the IRS website.
Business Interest Limitation Changes
For 2019 and 2020 the interest expense that businesses are allowed to deduct is increased to 50% of taxable income.
Changing or inflation adjusted provisions for 2020
- Single/MFS: $12,400
- MFJ/Qualifying Widow(er): $24,800
- Head of Household: $18,650
Standard Mileage Rates
- 57.5 cents per mile – Business purposes (up to four vehicles
- 17 cents per mile – Medical/Moving purposes
- 14 cents per mile – Charitable purposes
Extender Provisions still in effect for 2020
Here are some of the most relevant individual extender provisions that will expire at the end of 2020 and therefore are still in effect for 2020:
- Tuition and Fees Deduction (Form 8917/Form 1040, Schedule 1, line 21)
- Medical expense deduction floor remains at 7.5% of AGI
- Exclusion of gain from income of foreclosed home mortgage debt (Form 982, line 1e)
- Ability to treated mortgage insurance premiums as qualified mortgage interest (Schedule A, line 8d)
- Nonbusiness Energy Property Credit – Form 5695, Part II
See the 2019 IRS Publication 17 (Tax Guide for Individuals) – Impact of New Legislation section for a full list of the extended provisions that are applicable through tax year 2020.
Kiddie Tax Change
The Tax for Certain Children Who Have Unearned Income that is reported on Form 8615 was changed in the Secure Act which was included in the 2020 Appropriations legislation enacted on December 20, 2019.
Effective for tax years beginning in 2020 the kiddie tax reverts back to the rules that were in effect before 2018. Therefore the tax will be determined using the tax rate of the parent.
EITC Maximum Credit Amounts
For tax year 2020 the maximum EITC amounts are:
- $6,660 with three or more qualifying children
- $5,920 with two qualifying children
- $3,584 with one qualifying child
- $538 with no qualifying children
Individual Retirement Account Reminders and Changes
The SECURE Act that was included in the 2020 Appropriations legislation that was enact in December 2019 included changes to the rules for contributions and distributions for IRAs. Here are the most relevant changes and a reminder of what the IRS Contribution limits are for 2020.
IRA Contribution Limits for 2020
- $6,000 – Under Age 50
- $7,000 – Age 50 and Older
The SECURE Act that was included in the Appropriations legislation that was enacted in December 2019 included the following changes that affect IRA contributions and withdrawals that begin in 2020.
Age restriction on traditional IRA contributions has been eliminated
For tax years beginning in 2020 an individual may make contributions to a traditional IRA after reaching age 70 1/2.
Required Minimum Distribution Age has been increased to 72
For individuals who reach 70 ½ after 2019 they will not have to begin taking a required distribution until they become 72.
If an individual turned 70 ½ before 2020 they still would have to begin taking a required distribution when they reached 70 ½.
Additional penalty exemption for some distributions prior to age 59 ½
Starting in 2020 distributions prior to age 59 1/2 of up to $5,000 from a retirement plan that are used to pay expenses for child birth or adoption will not be subject to the 10% early distribution penalty.
Allows contributions to traditional IRA for 70 ½ and beyond
Provided an individual has earned income they can make a contribution to a traditional IRA after they reach 70 ½.
For more information see the following on the IRS website:
- Publication 590-A (Contributions to IRAs) – What’s New for 2019 and 2020 sections
- Publication 590-B (Distributions from IRAs) – What’s New for 2020 section
Tax Cuts and Jobs Act Resources
2020 will be the third year that the Tax Cuts and Jobs Act provisions have been in effect. Below are resources that give detail on these provisions:
- IRS Tax Reform page
- IRS Publication 5307 (Tax Reform: Basics for Individuals)
- IRS Publication 5318 (Tax Reform: What’s New For Your Business)
- Qualified Business Income Deduction
- Tax Reform Guidance
- Tax Reform Resources