On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“the Act”). This Act set the framework for a variety of forms of financial relief to those affected by the Coronavirus pandemic. Part of that relief is a relaxation of the rules governing required withdrawals from 401k and IRA accounts. Under tax law passed prior to the Act, the owner of such a retirement account (and the surviving spouse of such an owner) must begin taking withdrawals from the account by April 1 of the year in which s/he turns age 72. Other beneficiaries must begin taking distributions immediately following the owner’s death.
Waiver of Required Minimum Distributions
The Act waives the required minimum distribution (RMD) rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals otherwise required to withdraw funds from such retirement accounts.
This also includes individuals who turned 70 1/2 in 2019 but elected to defer their initial distribution to April 1, 2020. If an individual has taken their RMD, they can redeposit it if sixty days have not elapsed since the date of the distribution.
Hardship IRA/401(k) Withdraws
The Act will allow Coronavirus-related withdrawals from their 401(k) and IRA accounts up to $100,000 during 2020 and avoid the normal 10% “early withdrawal” penalty for those who have not reached the required minimum age of 59 1/2. Reasons for Coronavirus-related withdrawals include:
• An account owner diagnosed with COVID-19, or
• A spouse or dependent is diagnosed with COVID-19, or
• An individual who experiences adverse financial consequences because of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to the coronavirus, or
• Closing or reducing hours of a business owned or operated by the individual due to Coronavirus, or
• Other factors as determined by the Treasury Secretary.
You are still required to pay income taxes but won’t have to pay the penalty amount. You also may spread that tax due over three years. Another option is to redeposit the withdrawn amounts back within three years.
Treatment of Charitable Deductions.
Generally, taxpayers must itemize their deductions to take advantage of charitable deductions. This itemized deduction requirement is eliminated for charitable deductions of up to $300 for most contributions for the 2020 tax year. Note that not all charitable deductions are eligible for this treatment. Specifically, charitable contributions made to a private foundation or donor-advised fund are not eligible for the above-the-line charitable deduction.
In addition, the limitation that applies to the amount of a charitable deduction that can be claimed by individual taxpayers is based on a percentage of the individual taxpayer’s adjusted gross income is also eliminated for 2020.
Federal Tax Filing Deadlines Extended
The IRS, in Notice 2020-18, postponed the time for filing income tax returns and paying income taxes from April 15, 2020 to July 15, 2020. Shortly thereafter, Notice 2020-20 was issued postponing the time for filing and paying gift tax returns and payment to July 15 as well.
Mississippi Filing Deadlines Extended
While the federal government and many other states have postponed their income tax filing and payment deadlines to July 15, Mississippi has currently elected to move its filing deadline to May 15 in order to meet statutory requirements of a balanced budget as of the fiscal year end, which is June 30. The deadline cannot be extended past the fiscal year end without express approval from the legislature and the governor because this will create a $500,000,000 deficit for the current fiscal year.
In addition, the homestead exemption application deadline has been extended for one month, until May 1, 2020.
Penalty and Interest Waiver
Mississippi has taken the steps to suspend the accrual of interest and penalty on all new assessments and prior tax liabilities. Penalty and interest accrual has been suspended effective March 15, 2020 and will continue until the end of the national emergency.
CARES Act Payments Not Counted for SSI Eligibility
On April 3, the Commissioner of Social Security issued the following statement regarding persons eligible for Supplemental Security Income (SSI) payments who also receive stimulus payments under the Act:
Please note that we will not consider economic impact payments as income for SSI recipients, and the payments are excluded from resources for 12 months. We will continue to update Social Security’s Coronavirus COVID-19 web page as further details become available.”