COVID-19 has changed everyone’s schedule, including the government’s. As we wrote about last month, there have been a number of tax-related changes made this year in response to the pandemic. There have been so many changes, in fact, that we thought it might be helpful to provide an overview of the key changes that have been announced this year, including a few new changes that didn’t make it into last month’s article.
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Early distribution penalty waived. The 10% early distribution penalty on up to $100,000 of retirement withdrawals for coronavirus-related reasons is waived during 2020. New tax rules allow tax liabilities on these distributions to be paid over a three-year period. So if you need the funds, you won’t see your tax bill skyrocket in one year. Even better, you can return these distributions back into your retirement account over a three-year period and not be subject to the annual contribution limits. If your financial situation has been affected by the coronavirus, this could be a way to handle emergency payments until you receive a stimulus check, unemployment payments, or a pending small business loan.
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Required minimum distributions (RMDs) waived for 2020. Required minimum distributions (RMDs) in the year 2020 for various retirement plans is suspended. The corresponding 50% penalty associated with not taking an RMD is also suspended in 2020. Taking unnecessary distributions in a bear market can hurt retirement income for many years. This change allows you to wait to let the value in your retirement account rebound before you withdraw funds.
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IRS installment agreement suspension. The IRS is suspending payments of all amounts due from April 1 through July 15, 2020. If you do not pay your IRS installment payment during this time your installment agreement will not be in default. Interest will continue to accrue on these installment agreements.
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Offers-in-compromise. The IRS will allow you until July 15, 2020 to provide additional requested information for any pending offers-in-compromise (OIC) and will not close out the OIC during this time without your consent. The IRS is also suspending any payments due under an OIC until July 15, 2020.
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Enforcement activities suspended? Sort of. The filing and enforcement of liens and levies will generally be suspended. However, IRS Revenue Officers will continue to pursue high income non-filers and initiate other actions when warranted.
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No new audits. The IRS will not initiate new audits during this time, but will act to protect the statute of limitations.
If you have any questions about these changes or how they might affect your personal tax situation, please contact our office.