In response to the evolving COVID-19 global pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Friday. The bill includes several financial relief measures for Americans. In the summary below, we will highlight those that are most relevant to our clients – households and small businesses.
Highlights for Households
- A rebate of up to $2,400 for those married filing jointly and up to $1,200 for all other taxpayers will be sent via check (last known address) or deposited into the bank account the IRS has on file. This rebate increases by $500 for each child in your household under the age of 17. The government will use your Adjusted Gross Income (AGI) to determine if you qualify for the credit. See below for income limits:
Tax Filing Status
$75,001 - $99,000
Married Filing Jointly
$150,001 - $198,000[GN2]
- The phase out is calculated by reducing your rebate by $5 for every $100 above the lower income range.
- Your 2019 tax return will be used to determine your income. If you have not filed your 2019 return, your 2018 return will be used. Additionally, if you do not receive a rebate based on your income in 2018 or 2019, but your income falls into the limits above in 2020, you will receive the rebate when you file your 2020 tax return. For those who receive a credit this year, but whose income is above the limits in 2020, will NOT have to pay their rebate back when they file their 2020 return.
Retirement Fund 10% Early Withdrawal Penalty Waiver
- Up to $100,000 may be withdrawn from qualified retirement accounts (IRAs, 401(k)’s, etc.) without penalty if you have been impacted by COVID-19. You may elect to claim this income over a 3-year period for tax purposes (2020, 2021, and 2022). Additionally, you may re-contribute the amount that was withdrawn at any point over the next three years. Qualifications for being considered “impacted” by COVID-19 are:
- Have been diagnosed with COVID-19;
- Have a spouse or dependent who has been diagnosed with COVID-19;
- Experience adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced because of the disease;
- Are unable to work due to lack of childcare as a result of the disease;
- Own a business that has closed or operate under reduced hours because of the disease; or
- Meet some other qualifying reason, as decided by the IRS.
Required Minimum Distributions (RMDs) are waived for 2020
- Required Minimum Distributions from IRAs, SIMPLE IRAs, SEP IRAs, Inherited IRAs, 401(k)’s, 403(b)’s and Governmental 457(b) plans have been suspended for 2020.
- If you have already taken your RMD for 2020, it is possible that you can re-deposit the distribution into your IRA. This applies for all accounts except Inherited IRAs:
- If you took your RMD within the last 60 days, you may simply write a check to deposit all or a portion of your RMD back into your retirement account. (In the rare case you have already completed an IRA-to-IRA rollover in the past 12 months, you would not be able to do so.)
- If your RMD was distributed prior to the last 60 days, you can still potentially move the distributed amount back into your retirement account if can prove that you were impacted by COVID-19 (see above).
Unemployment Insurance Expansion
- The 1-week waiting period for unemployment has been suspended, allowing those who lose their job to qualify immediately.
- In addition to the unemployment benefits provided by each state, the Federal government will pay an additional $600/ week.
- In the event that people are nearing – and ultimately reach – the maximum number of weeks of unemployment compensation provided under state law, the CARES Act will allow them to receive such benefits for an additional quarter.
- Self-employed individuals (who are generally ineligible for unemployment compensation benefits), and other individuals who are ineligible for ‘regular’ unemployment, extended unemployment or pandemic unemployment insurance, or run out of such insurance, will be eligible for up to 39 weeks of benefits via this provision.
Above-the-Line Charitable Deduction
- Up to $300 of charitable gifts to churches, medical research organizations, educational organizations, and several other types of charity may be deducted “above the line” this year. This ensures you get a deduction and may help lower other taxes.
Student Loan Payments Deferral until September 30, 2020
- While in deferment, interest will not accrue on loans.
- You must take action to stop automatic payments.If you are currently on track to qualify for a student loan forgiveness program, you will still get credit for making payments during this deferment period.
Highlights for Small Business Owners
Paycheck Protection Program
- The Paycheck Protection Program is a loan that is fully guaranteed by the Small Business Administration (SBA). The loan must be applied for by June 30, 2020 and must not exceed a term of 10 years.
- To be eligible for the loan, your business must have less than 500 employees or less than the number of employees listed for your type of business under the NAICS code (if larger). In addition, you must make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.
- The maximum loan amount equals the lesser of $10 million or 2.5x average monthly payroll cost of the previous year (excluding employee compensation that is greater than $100,000).
- The proceeds may be used for payroll costs, group health insurance premiums, salaries/ commissions, rent or mortgage interest, utilities, or other business interest incurred prior to February 15, 2020.
- A portion of the loan is forgivable!! But, to qualify for any loan forgiveness, you must have the same number of employees from February 15, 2020 through June 30, 2020 as compared to either:
- The same period in 2019; or
- January 1, 2020 to February 15, 2020.
- The forgivable portion of the loan equals 100% of the amounts spent on the following items during the 8-week period following issuance of the loan:
- Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000;
- Rent pursuant to a lease in force before February 15, 2020;
- Electricity, gas, water, transportation, telephone, and internet access expenses for services which began before February 15, 2020; and
- Group health insurance premiums and other healthcare costs.
- The forgivable debt is non-taxable.
- Maximum interest rate is 4% and initial payments will be deferred for 6-12 months.
Employee Retention Credit
- Employers are eligible for a 50% refundable payroll tax credit on wages paid to each employee during the crisis, up to a maximum of $10,000 of wages per employee. The credit would be available to employers whose businesses were disrupted due to virus shutdowns and those that had a decrease in gross receipts of 50% or more when compared to the same quarter last year. The credit can be claimed for employees who are retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees. Your business qualifies for the credit until the earlier of the end of 2020 or when your suspended operations resume for the quarter, or when revenue is greater than 80% of the same calendar quarter in 2019.
Deferral of Payment of Payroll Taxes
- All companies can defer 2020 payroll taxes. 50% of the deferred taxes will be due on 12/31/2021 and the remaining 50% will be due on 12/31/2022.
More Generous Net Operating Loss Deduction Rules
- Previously, Net Operating Losses (NOLs) could only be carried back two years or forward 20 years. The CARES Act allows NOLs to be carried back up to five years (applies to 2018, 2019, or 2020 NOLs). In addition, NOLs will now be able to offset 100% of taxable income (up from 80%).
Employer Payments of Student Loans
- Certain employer payments of student loans on behalf of employees are excluded from taxable income. Employers may contribute up to $5,250 annually toward student loans, and the payments may be excluded from an employee’s income.