The CARES Act enacted earlier this year waived required minimum distributions (RMDs) from most retirement accounts for 2020 and created the Coronavirus-Related Distribution rules for retirement account owners distinctly impacted by the pandemic.
The act also included provisions affecting charitable contributions, student loan repayment, and qualified medical expenses.
Qualified Charitable Contributions
The act created a new and temporary “above-the-line” income adjustment for cash donations made during 2020. The adjustment is limited to $300 per taxpayer, and because the deduction is “above-the-line,” taxpayers who do not itemize their tax deductions can reduce their taxable income by donating cash to a qualified organization. Those who itemize are prohibited from using this deduction.
As charitable contribution deductions are typically limited to taxpayers who itemize, this temporary rule will allow those using the standard deduction to receive a benefit for their donations. Please note that contributions to donor-advised funds or 509(a)(3) “supporting organizations” do not qualify for this specific deduction.
In addition, the current year deductibility of charitable cash contributions is temporarily raised to 100% of adjusted gross income (AGI). In other words, in 2020 an individual may eliminate their taxable income by donating cash to qualifying charities. This contrasts with previous years where taxpayers would only have been able to offset a maximum of 60% of their AGI. Generally, excess charitable contributions may be carried forward for up to five years.
Relief for Student Loan Borrowers
Employers can exclude student loan repayments from compensation. Until the end of this year, employers may pay employees up to $5,250 for student debt repayments, and the payments will not be taxable to the employee.
Qualified Medical Expenses
The act expanded the number of products that are considered “qualified medical expenses” for Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), and Flexible Spending Accounts (FSAs). The list of items considered qualified medical expenses is extensive and now includes over-the-counter medications and menstrual care products.
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All the best,