Additional Financial Resources from the CARES Act
There are additional resources available via the CARES Act for folks that may need to access funds in the event that they may continue to suffer a negative economic impact as a result of the pandemic.
The CARES Act includes a provision that allows individuals affected by COVID-19 to withdraw up to $100,000 from employee-sponsored retirement accounts like 401(k)s and 403(b)s, as well as personal retirement accounts, such as traditional individual retirement accounts, or a combination of these. Normally, these types of withdrawals are subject to restrictions and rather punitive tax consequences.
The CARES Act includes a provision whereby the 10% penalty will be waived for distributions made in 2020 and there are no mandatory withholding requirements.
The distribution can be taxed as income spread evenly over tax years 2020, 2021 and 2022. However, if the amount of the withdrawal taken out is paid back within three years, a claim for a refund on those taxes may be made.
401(k) plan participants can now take out 100% of their vested balance (previous rules limited borrowers to 50%) as a loan up to $100,000, and payments on this loan can be delayed for up to one year.
The CARES Act also waives required minimum distributions from retirement accounts in 2020 — a significant update for today’s retirees.
While it is generally inadvisable to withdraw funds from a retirement account, in situations where it may be necessary, the option to do so is available in a much more palatable form than what was in place prior to the CARES Act’s passage. At the time of this writing, there is substantial uncertainty as to what may or may not go into the next "stimulus package".
Tax-Related Matters
I hope that everyone made it through “tax time” without too much strife. The Federal income tax filing deadline has passed (some may be on extension to October 15, 2020). Some items to consider are described within the following excerpt derived from IRS’s Tax Tip 2020-91.
Check the status of a refund Taxpayers can check on their refund using the Where’s My Refund? tool. It is available on IRS.gov and the IRS2Go app. Taxpayers without access to a computer can call 800-829-1954. To use this tool, taxpayers need the first Social Security number on the tax return, the filing status and the expected refund amount. The tool updates once daily, so there’s no need to check more often.
Do a Paycheck Checkup All taxpayers are encouraged to do a Paycheck Checkup by using the Tax Withholding Estimator on IRS.gov. This will help them make sure their employers are withholding the right amount of tax from their paychecks. Doing this now will help avoid an unexpected year-end tax bill and possibly a penalty.
Taxpayers can use the results from the Estimator to help them fill out the Form W-4 and adjust their income tax withholding with their employer. Taxpayers who receive pension income can use the results to complete a Form W-4P and give it to their payer.
Review payment options Taxpayers who owe taxes can review their options online. They can:
View federal tax account balance online
Pay their taxes owed or make a partial payment with IRS Direct Pay
Apply online for a payment plan
New users will need to authenticate their identity through the Secure Access process. Taxpayers should go to IRS.gov to view their federal tax information.
Find out about amending a tax return After filing their return, taxpayers may find they made an error or forgot to enter something on it. Taxpayers can use the Interactive Tax Assistant, Should I File an Amended Return? to help determine if they should correct an error or make other changes to the tax return they already filed. Common errors taxpayers should fix are those made about filing status, income, deductions and credits. Taxpayers usually do not need to file an amended return to fix a math error or if they forgot to attach a form or schedule. Normally, the agency will correct the math error and notify the taxpayer by mail. Similarly, the agency will send a letter requesting any missing forms or schedules.
Currently, taxpayers must file Form 1040-X, Amended U.S. Individual Income Tax Return on paper. Those expecting a refund from their original return, should not file an amended return before the original return has been processed.