Senate Reaches Historic Deal On $2T Coronavirus Economic Rescue Package

[urn2bfree]

The relevant section on RMD's in the Senate bill is Sec. 2203-- as I read it, RMD's from most IRA, 401k, 457b are all waived for 2020. But it is not straightforward to read as it is an amendment to the 1986 law and refers a lot to it which I have not read. I believe this means the inherited IRA I got from my mother is included in the waiver and I do not have to take the RMD. here is the bill-



https://www.politico.com/f/?id=00000171-0319-d8a3-a3f5-73bfe5b20000

 

[fandk]

CNBC is unclear

Yes, CNBC is my original source. However, they keep confounding the new retirees (age 72) with current retirees (> age 70.5). I'm 71, and have been withdrawing an RMD since last year. It is this year's RMD suspension relief that is unclear.


Thanks.

 

[Another Reader]

I assume it applies to inherited IRA's as well. It did in 2009. I wonder if you can redeposit some or all of the amount you already took.

 

[fandk]

2009 was 2y before I retired. I am aware of the economic issues from then, of course, but I didn't know there was a similar waiver then. Do you recall many of the details?

 

[Markola]

They started off at $500 billion for big businesses with no strings and no oversight and secrecy for six months and ended up with solicitor general and congressional oversight, no funds for major politician-controlled businesses, stock buybacks forbidden for a while and, supposedly, transparency about where our money went. I’m glad they took a few days to achieve some taxpayer protections.

 

[Gumby]

It seems to me that using any prior years income to determine eligibility for payment is wrong. The need for money is determined by the fact that people are not making any money this year. Maybe you had a decent income last year or in 2018, but you got laid off when this all started in January. This also requires the IRS to cross reference your income, with some having filed for 2019 and some not. That will unnecessarily delay the distribution.

It would make far more sense to just send money to everyone immediately. Then true it up in next year's tax filing based on your actual 2020 income. If you are over the limit in 2020, when you actually got the money, there is a graduated claw-back provision.

That's what I would do.

 

[Dtail]

SEE! I knew taking SS before 70 would pay-off!

Just catching up on this thread and you beat me to it. Good thing I read yours first.

 

[Aerides]

It seems to me that using any prior years income to determine eligibility for payment is wrong. The need for money is determined by the fact that people are not making any money this year. Maybe you had a decent income last year or in 2018, but you got laid off when this all started in January. This also requires the IRS to cross reference your income, with some having filed for 2019 and some not. That will unnecessarily delay the distribution.

It would make far more sense to just send money to everyone immediately. Then true it up in next year's tax filing based on your actual 2020 income. If you are over the limit in 2020, when you actually got the money, there is a graduated claw-back provision.

That's what I would do.

Exactly, and this excludes all young workers who had no W2 in 18, and haven't yet filed in 19. They will no longer be children I guess, and won't qualify. Meanwhile I probably will, as will my parents. It also will underpay those who live in higher COL areas, where $150k isn't that much money, especially for larger families.

I would prefer send it all now to everyone, and let everyone know that if you're in a high tax bracket for 2020 to expect a modest claw back. Or have a massive campaign to donate and spend. Or both.

 

[Dtail]

Exactly, and this excludes all young workers who had no W2 in 18, and haven't yet filed in 19. They will no longer be children I guess, and won't qualify. Meanwhile I probably will, as will my parents. It also will underpay those who live in higher COL areas, where $150k isn't that much money, especially for larger families.

I would prefer send it all now to everyone, and let everyone know that if you're in a high tax bracket for 2020 to expect a modest claw back. Or have a massive campaign to donate and spend. Or both.

Interesting situations for my household.
Me - already filed 2019 return. No taxes owed and no SS - so I expect zero.
DGF - already filed 2019 return. Has over 2500 SS, but only owed 973 taxes, so assume the check will be for 973.
Her son - no effective income for 2018, has over 2500 in 2019, but return not filed yet. His father claimed him in 2018, but can't in 2019, but his income over the limit. So due to lack of timeliness in filing in 2019, it sounds like no refund for him.

Does the above make sense?

 

[Toocold]

This year, you’ll be able to take a coronavirus-related distribution of up to $100,000 from your retirement plan or IRA without the 10% early withdrawal penalty, according to the most recent version of the bill.

Lovely... You can withdrawal your 401k after one of the biggest drops in the market without penalty...

From a pure selfish point of view, I'm just glad they took out the part about no dividends.

 

[TriumphTR3fan]

Do pensions qualify as income for the purposes of this bill?

 

[cathy63]

Some last minute disagreements over the amount of unemployment compensation in hte bill are holding up voting in the Senate.

Aside from that, this article presents the clearest list of the bill's provisions that I have seen: https://www.journalofaccountancy.co...onomic-relief-coronavirus-tax-provisions.html

 

[fandk]

Hi, cathy63 and others:


I followed the link to find this: "The bill temporarily suspends the required minimum distribution rules in Sec. 401 for 2020."


While that *seems* to be pretty broad, I'd sure appreciate a bit more explanation in non-CPA language. ;-) Thanks!

 

[aja8888]

With respect to the helicopter money....

From the above referenced summary:

Recovery rebates: The bill provides for payments to taxpayers — “recovery rebates” — which are being treated as advance refunds of a 2020 tax credit. Under this provision, individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals. The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.

 

[TriumphTR3fan]

Thanks for the link. If I am reading the article correctly this appears to be an additional 2020 tax credit with an advance refund that will zero out on the 2020 tax liability due in 2021 if taken now. If it is simply an advance on the 2020 refund it is not nearly as desirable. I'm still looking for clarity about pensions qualifying as income for this tax credit. It seems that it does. Since we have already filed our taxes this year the IRS will use our 2018 taxes to determine if we qualify. Or will we be able to wait for the next tax season?

 

[statsman]

If it is simply an advance on the 2020 refund it is not nearly as desirable.

If that ends up being the case, I hope it can be declined.

 

[teejayevans]

If that ends up being the case, I hope it can be declined.

Talk about useless, I was hoping the $100,000 IRA withdrawals were going to be tax free, this won’t result in me spending a extra penny.

 

[RetiredAt55.5]

Talk about useless, I was hoping the $100,000 IRA withdrawals were going to be tax free, this won’t result in me spending a extra penny.

I'm not sure the government would be ok giving up that much deferred tax due. That could be $20k-30k or more.

If they allowed that, everyone would be jumping on that in droves.

 

[cathy63]

Thanks for the link. If I am reading the article correctly this appears to be an additional 2020 tax credit with an advance refund that will zero out on the 2020 tax liability due in 2021 if taken now. If it is simply an advance on the 2020 refund it is not nearly as desirable. I'm still looking for clarity about pensions qualifying as income for this tax credit. It seems that it does. Since we have already filed our taxes this year the IRS will use our 2018 taxes to determine if we qualify. Or will we be able to wait for the next tax season?

It's a credit that lowers your 2020 tax liability. If you are single and your total tax liability on your 1040 next year (before this credit) is $2000 and you have $1500 withholding this year, then you would normally expect to write a check for $500 to make up the difference. With this credit, your total liability will be reduced to $800, but you'll have already received back $1200 of the $1500 that was withheld, leaving $300 in the IRS' coffers. So you'll still owe the same $500 at tax time. If you don't get the $1200 back now for some reason, then you'll be due a refund of $700 next year. Either way, you'll end up paying the same amount of tax.

The part that is not clear to me is whether the credit is refundable. I.e. if your total tax liability for 2020 is below $1200 and the IRS has already given you that money, do you have to give back the difference? In the Senate's original bill it looked like you would, but in the latest iteration it seems like you might not. We really need to see the final text that gets signed into law before we'll know for sure.

 

[cathy63]

Talk about useless, I was hoping the $100,000 IRA withdrawals were going to be tax free, this won’t result in me spending a extra penny.

I saw a provision that they were waiving the penalty if you're under 59 1/2 and you could spread the tax due over 3 years. It's only for people who are actually hurt by the COVID epidemic though -- diagnosed with it, spouse diagnosed, lost job, lost childcare, etc. There's a list of qualifiers in the bill.

I don't know if the provision to spread the tax out means that you account for it as if you took a withdrawal of $33.3K in each of the three years, or if you calculate the tax on $100K at your current rate and divide that by 3.

 

[SpinDoctorTX]

I don't think early retirees will receive a check, because it requires minimum $2500 earned income to qualify (i.e. wages, self employed) ... at least according to the GOP proposal.

https://www.finance.senate.gov/imo/media/doc/Section-by-Section Coronavirus Tax Relief Measures.pdf

Bummer. I was already counting the bills out (not). I think my pension might be seen as a "Pay Check" for me doing nothing. DH will def be counted out, as he is all SS income.

I suspect that even if we get anything, it would be counted against us in the next tax year.

No free lunch.

 

[PatrickA5]

So, what is "tax liability" for this purpose? For example my DD and SIL get Child Tax Credit and Earned Income Credit which completely eliminates their tax liability. Does this mean they don't get the $1200 each? Do they get $600 each? Crazy. People with families making $50K are exactly the types of people that need this money the most.

 

[RetiredAt55.5]

If that ends up being the case, I hope it can be declined.

How do you decline a direct deposit?

 

[ivinsfan]

I saw a provision that they were waiving the penalty if you're under 59 1/2 and you could spread the tax due over 3 years. It's only for people who are actually hurt by the COVID epidemic though -- diagnosed with it, spouse diagnosed, lost job, lost childcare, etc. There's a list of qualifiers in the bill.

I don't know if the provision to spread the tax out means that you account for it as if you took a withdrawal of $33.3K in each of the three years, or if you calculate the tax on $100K at your current rate and divide that by 3.

These qualifiers are a joke.and almost impossible to prove..you're going to send your private medical records to the IRS.?

 

[RetiredAt55.5]

These qualifiers are a joke.and almost impossible to prove..you're going to send your private medical records to the IRS.?

No, it'd probably be honor system, like deducting medical expenses or charitable contributions. But, you'd be expected to have receipts/records to prove it if audited.