On Friday, March 27th, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act. This historic relief package allocates some two trillion dollars in aid to combat the economic impact of the ongoing coronavirus crisis. It’s no secret that the pandemic is having a huge effect on economic systems—from baseline workers to companies to state and federal agencies.
Here are some key highlights of the bill. While not part of the CARES Act, remember that the IRS extended the federal filing deadline from April 15th to July 15th of this year.
Relief for Individuals
Direct Stimulus Payments
One of the more eye-catching provisions of the CARES Act is the direct payment of stimulus funds to qualified individuals. Eligible adults who earn $75,000 or less may receive a check of $1200. Couples who earn $150,000 or less may receive a direct payment of $2400. Households with children may receive $500 for each child under age 17. Beyond these thresholds, payments phase out to the limits of $99,000 / $198,000 (individual and couples, respectively).
Stimulus payments are determined by 2019 AGI figures (or 2018 AGI if 2019 taxes have yet to be filed). For those whose 2019 income excludes them from stimulus payments, but their 2020 income does qualify, direct payments may be claimed as a tax credit on 2020 taxes.
Unemployment Insurance Expansion
The CARES Act provides three major extensions of unemployment insurance coverage.
- An additional $600 weekly payment on top of whatever an individual currently receives through their state’s unemployment program. These additional payments can last for up to four months.
- An extension of state unemployment benefits coverage, which have been stretched for another 13 weeks.
- Unemployment benefits to independent contractors and self-employed individuals.
Mortgage and Student Loan Relief
Federally-backed mortgages may be eligible for a forbearance of an initial 180-day period. This temporary forbearance may be extended for another 180-day period after. Payments on Dept. of Education student loans can be delayed until Sept. 30th, 2020 (during the forbearance period loans will receive a 0% interest rate).
Generally, early withdrawals from retirement funds are subject to a 10% penalty. However, under the CARES Act, the penalty is dismissed for withdrawals (up to $100,000) that are used for coronavirus related reasons. This provision is retroactive to January 1st. While distributions can be received penalty-free, they are still subject to taxation. Individuals can spread their tax-burden evenly over three years and will have a three-year period for repayment.
Individuals can now borrow up to $100,000 from their 401(k). This doubles the previous loan ceiling of $50,000.
The CARES Act suspends required minimum distributions for 2020. This is a significant form of relief for retirees and pre-retirees. Since many IRAs and 401(k)s are tied to the stock market, account owners, without the CARES Act provision, would be required to withdraw and face taxation on percentages of their account balance. Accountholders now have more flexibility and an opportunity for portfolio recovery. It may be possible to undo RMDs taken this year if distributions are eligible to be rolled over.
Non-Designated IRA Beneficiaries
Non-designated beneficiaries who inherited an IRA balance from 2015 to 2020 (subject to the 5-year payout rule) now have an extra year to exhaust accounts.
2019 IRA Contributions Deadline
The deadline for IRA and Roth IRA contributions matches the new federal tax filing deadline of July 15th.
Relief for Businesses
Through the CARES Act, businesses have a variety of resources to help their operations. Some $500 billion of the relief package has been set aside for large corporations, through repayable loans and aid subject to disclosures and other requirements. A smaller, but no less impressive, $377 billion is set aside for small businesses. The following information focuses on the small business provisions.
Paycheck Protection Program
Small businesses—that is those with less than 500 employers—may be eligible for loans of up to $10 million to cover payroll. The time period of eligibility is from Feb. 15th to June 30th. Loan amounts may be forgiven if employees maintain the number of its full-time employees. Forgiveness amounts will be reduced relative to the number of full-time employee reductions and any amounts forgiven will not be included on the employer’s taxable income.
Payroll Tax Relief
Employers are eligible for a refundable payroll tax credit for 50% of wages paid if:
- Operations were suspended—partially or fully—due to the coronavirus crisis, or;
- Gross receipts were down by more than 50% when compared to last year’s quarter.
Credits are provided up to the first $10,000 of compensation. For organizations with more than 100 full-time employees, qualified wages are those paid to individuals not working due to the above conditions. For organizations with less than 100 full-time employees, all wages are eligible for the credit.
Employers may defer payroll taxes through the end of the year. Owed taxes can be spread over the next two years (2021 and 2022). If an employer receives loan forgiveness through the Paycheck Protection Program, they will not be eligible for deferral.
Net Operating Losses
The CARES Act allows net operating losses from 2018, 2019, and 2020 to be carrybacked by five years. With this provision, corporations may be able to claim a tax-refund of previously paid federal income taxes.
Obviously, with a large bill such as the CARES Act, there is far more detail and nuance than we can delve into here. The important thing for you to keep in mind, as you work with your individual clients, your small business owners, and even with your own firm, is that there is a wide range of help available during this trying time.
While a great deal of uncertainty remains as we move forward, there are still opportunities for you to do business and have a positive impact on the lives of your clients and prospects.