Representor Summer 2020 - The Subject Is Taxing!

Update on COVID-19 and the IRS

by Stanton B. Herzog, CPA

Stanton B. Herzog, CPA, principal in the firm of Applebaum, Herzog & Associates, P.C., Northbrook,Ill., serves as ERA’s accountant and is a regular contributor to The Representor. He is available to speak at chapter or group meetings on a variety of financial and tax-related topics. He also participates in Expert Access, the program that offers telephone consultations to ERA members. You can call Stan Herzog at 847-564-1040, fax him at 847-564-1041, or e-mail him at

The IRS is doing its best to make things easier for taxpayers in this pandemic period. The newer information seems to be getting more lenient as time progresses. Many of the changes involve retirement plans, specifically IRAs, 401(k)s, and profit sharing plans, but not pension plans.

Starting with people under the age of 65, here is the current situation. The IRS rules affect the following people:

a. Those who have or have had COVID-19.
b. Those who have been quarantined, furloughed, laid off, or have suffered reduced hours.
c. Unable to work because they can’t obtain child care.
d. Having pay or self-employment income reduced due to COVID-19.
e. Had a job offer rescinded or delayed due to COVID-19.

Taxpayers under 59.5 won’t be charged a penalty for withdrawing retirement funds up to $100,000 under the above conditions through the year 2020. Unfortunately, they will owe the income tax. However, there is other news. They can opt to report the income over a three-year period (2020-2022), which is important because not only is the tax deferred, but the tax bracket is also lowered. Further, the amount can be repaid any time within those three years, and the prior period returns can be amended to recoup the tax paid.

Plans can allow loans to participants up to $50,000. Between March 27 and Sept. 22, 2020, the limit has been raised to $100,000.

For those rare individuals under 59.5, who entered into an agreement to receive periodic payments from their retirement plans, they are stuck — no relief.
For those over 70.5 who are required to withdraw a Required Minimum Distribution (RMD), there are a number of concessions.

The RMD for 2020 has been waived; if you can afford to leave your funds in the plan (or any portion thereof) you can do so.

Originally, the IRS said that funds withdrawn as all or part of RMD after a date in March could be paid back by July 31. This has been revised. Any amount taken out of a retirement plan (other than pension plans) from Jan. 1, 2020, on, can be returned by Aug. 31. This includes people who turned age 70.5 in 2019 but delayed removing their RMD until April 15, 2020.

Note that the new law changed the age at which the RMD takes effect from age 70.5 to age 72 effective for the year 2020; so there should be no new entrants to the RMD rules for the year 2020.

COMPANIES – If you have your own retirement plans, you must make plan changes to agree with the above changes to your plans. The IRS has given you until Jan. 1, 2022, to incorporate the required changes. The IRS has also prepared a recommended amendment for your plan, and this can be found in the appendix to IRS Notice 2020-51.

Finally, on a completely different note, incorporated in the 2019 tax law changes is a provision entitling taxpayers who no longer itemize their deductions to deduct on page one of the Form 1040 the extremely generous amount of $300 for charitable donations. Maybe it’s the start of something big.