The CARES Act was enacted on Friday, March 27,2020. This Act was created to provide financial relief from the COVID-19 virus that has wreaked economic havoc over much of our country. Below we break down highlights of the Act and action steps you can take. Please reach out to us for help if you want to know more about any of these programs.
Recovery Rebates-
These are the checks everyone has been hearing about. They are essentially credits against 2020 taxes, and will be received as a check. Who is eligible, and the amount for which you are eligible depends on tax filing status and income. Income is based on the 2019 tax year, or if not yet filed, based on 2018.
Single filer with maximum income of $75k receives $1200 Married filing jointly maximum income of $150 receives $2400 Head of Household maximum income of $112k receives $1200 Each child under the age of 17 receives $500
If you earned over these amounts there are Phase Outs that decrease the amount you will receive.
Action step-If you have not yet filed your tax return for 2019 and it was a low-income year that would qualify you for a Recovery Rebate check, we suggest you file your return as soon as possible. If your 2020 income will be less than 2019 and will qualify you, you will receive the benefit when you file your 2020 taxes.
TAX AND RETIREMENT PROVISIONS
Changes have been made to retirement account withdrawals, Required Minimum Distributions, and taxes that may provide financial support to you.
Retirement account withdrawals-
You can now take a withdrawal of up to $100k from an IRA/employer retirement plan, or combination of both. The withdrawal must be taken in 2020 and must meet the following criteria-
- You, your spouse, or a dependent was diagnosed with COVID-19
- You have suffered adverse financial consequences as a result of COVID-19 (for example, no access to childcare)
- You have suffered from reduced business hours, or your place of employment has been forced to close
This provision waives the 10% penalty from early withdrawal, waives mandatory withholding typically required from employer retirement plans, and allows you to spread tax payments from the withdrawal over 3 years.
Action step-If you meet the specified criteria and need to take a withdrawal from a retirement account, let’s talk first. That said, the process is that you call the plan administrator and tell them you have been a victim of the virus and your withdrawal qualifies as a COVID-19 related distribution. It might be in your best interest to pay the taxes due in 2020 if your income has dropped substantially.
Loans from Employer retirement plans-
The maximum you can now take is $100k. You can also take a withdrawal of 100% of your vested balance, and any payments due on the loan will be delayed one year.
Changes to Required Minimum Distributions (RMDs)–
RMDs required for 2020 have now been suspended. This applies to not only IRAs, but Inherited IRAs.
If you have taken an RMD within the past 60 days, you can roll it back in an IRA. Any RMDs taken earlier in the year cannot be rolled back.
Unemployment Compensation Relief-
Changes have been made to provide for unemployment compensation for self employed persons and 1099s who were previously not eligible for unemployment.
There is no waiting period, and coverage starts the first week of unemployment. Essentially, this benefit provides an additional $600/week to the unemployment benefit for four months. Be careful here, and consider having taxes withheld from unemployment. Otherwise, you may have a rude awakening when taxes are due next year.
BUSINESS RELIEF PROVISIONS
There are two separate programs that apply to small businesses affected by the COVID-19 pandemic. We have attached a separate brochure from the US Chamber of Commerce further detailing out what you need to know about these loans. In a nutshell, they are-
1. Economic Injury Disaster Loans (EIDL)-These are available now by applying directly to the SBA at sba.gov
2. Paycheck Protection Program (PPP)– These will not be available until late April, but you can apply for EIDL now, and convert it to a PPP loan later. You’ll also apply for these through SBA.
Economic Injury Disaster Loans-
- Available to small businesses and non profits that have suffered working capital losses from the disaster. Must have no more than 500 employees.
- Loans of up to $2million that can be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster.
- You can request an advance of up to $10,000
- Maximum interest rate is 4% for businesses, 2.75% for non profits
- Up to 30 year loan repayment
- No collateral required for loans below $25,000, but lack of collateral will not lead to a loan declination
- These loans will not be forgiven
Paycheck Protection Program-
- Must have 500 employees or less
- Maximum loan amount is $10million or 2.5 times the average monthly payroll cost of the prior year and excluded employee compensation greater than $100k.
- Must be used to pay Payroll, salary, rent, mortgage, utilities, gas, water, electric, transportation, phone, internet, group health plans, business expenses incurred before 2/15/2020
- Loan must be used within 8 weeks of receipt for the above expenses.
- Must have the same number of employees from 2/15-6/30 as you did during the period of 1/1- 2/15/2020 and you cannot cut employee compensation by more than 25% if it is under $100k.
- These loans are forgiven if criteria are met.
Action step-You’ll want to contact your local SBA office to get this process started asap. You can also apply online at sba.gov.
Employee Retention Credit-
This is a credit equal to 50% of wages paid to each employee with a maximum of $10k per person to cover payroll taxes. The credit continues to end of 2020 or when revenue is greater than 80% of the same quarter in 2019.
Eligibility-
- Business must be suspended either partially or fully
- Revenue has decreased by 50% from same quarter in 2019
Deferral of Payroll Taxes-
For any employers, this provision provides for deferring the employers portion of Social Security payroll tax until 1/1/2021 with half due by 12/31/21 and the second 50% due 12/31/22
OTHER RELIEF PROVISIONS
Student Loan Deferrals-
All Federal student loan payments can be deferred until 9/30/2020. Loans will NOT accrue interest during this period.
Action step-Payments will automatically be stopped, so there are no steps you need to do here.
H.S.A./FSA changes-
Over the counter medicines will now qualify for H.S.A/FSA payment
There are quite a few financial relief resources here that you might consider taking advantage of. For employers, we suggest speaking with your CPA regarding the PPP or EIDL loans, and with respect to anything tax related. We would also suggest speaking to your financial planner before making moves around your RMDs or taking funds from retirement accounts. You can also reach out to us with any questions on navigating the CARES Act.
