by: Remie Longbrake | published: April 13, 2020
In lieu of the Coronavirus and it’s devastating impact on our economy, Congress passed the Conronavirus Aid, Relief, and Economic Security (CARES) Act, a 2 Trillion stimulus package that our President signed into law on March 27. Essentially, this bill provides funds to help stimulate the economy and our work forces, many of which have been without work or in limited hours since restrictions have been in place.
Many people and businesses are in a hard place. This outline is to help those effective understand your options by the introduction of the CARES Act. Keep in mind, the circumstances are evolving and complex in many cases. There is a lot to this; we broke it down the best we could in the simplest terms to apply to most people and businesses. Summary is outlined below.
1. Unemployment Compensation
The CARES Act includes provisions that increases unemployment payments and extend benefits for those individuals that would not generally qualify for unemployment. Some of those role include: gig workers, furloughed employees, self-employed, and contract workers. To be eligible to receive unemployment benefits under these provisions, the reason for the claim must be due to COVID-19 related reasons.
Eligible individuals will receive an extra $600 in benefits each week for up to four months. Also, for those who have exhausted benefits under their regular unemployment compensation, those individuals can receive up to 13 weeks of additional benefits.
2. Government Payments
The CARES Act, will provide most Americans with a direct payment from the government. This will not require any action in order to receive a check or direct deposit, providing your bank or address information has not changed. Payments are stated at $1,200 for individuals and $2,400 for married couples. Each child is an additional $500. Income limits start at $75,000, and $150,000 for married couples, and are based on your most recently filed tax return. Payment will be phased-out when income exceeds $99,000 for single, $146,500 for head of household with a child, and $198,000 joint with no children. The reduction limits are reduced by $5 for every $100 that a taxpayer exceeds the income threshold.
Individuals who can be claimed as a dependent by another taxpayer, nonresident aliens, and trusts and estates are not eligible.
3. Health Benefits
The CARES Act allows for additional care in and less financial impact in a number of ways.
Notably, OTC drugs can be paid with HSA, HRA, or HFSA accounts, removing the prescription requirement. Menstrual care products are now treated as a medical expenses as well, which was previously withheld.
High-deductible health plans, HDHP, will now allow for remote care service and telehealth to be covered without first meeting a deductible.
Most group plans are being required to cover coronavirus testing and doctor visits at no charge to their patients. This now includes testing for SARS provided these tests are FDA approved.
4. Retirement Plans
The CARES Act included several ways to offer relief for retirement savers.
Required Minimum Distributions are suspended for 2020, allowing individuals to defer taking distributions from retirement accounts if desired. For those who’ve already taken Required Minimum Distributions in 2020, they may actually be able to return those funds to their IRA and push any further distributions into 2021.
Additionally, taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to a 10% additional tax for early distributions. These distributions can be taken up to Dec. 31, 2020. Coronavirus-related distributions may be repaid within three years. For these purposes, an eligible taxpayer is one who has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or whose spouse or dependent has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or who has had his or her work hours reduced, or who is unable to work due to lack of child care services. Any resulting income inclusion can be taken over three years. The bill also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.
5. Deferred Tax Deadlines
The deadline for filing and paying federal income taxes for the 2019 tax year is now extended to July 15th, 2020. The deadline for making IRA and HSA contributions is also now July 15th. However, contribution deadlines for employer retirement accounts remain the same.
6. Self-Employed Tax Credits
The Families First Coronavirus Response Act, FFCRA has some provisions for those who are self-employed. Some of the major items include: a tax credit for sick leave and family leave. This includes up to $200 a day or 67% of average daily pay. Also, emergency paid sick leave for COVID-19 related issues, which includes up to $500 a day or 100% of average daily pay.
7. Student Loans
In regards to student loans, there are several ways that the CARES Act may impact you.
Firstly, all interest on federal student loans will be waived. Payments and interests may also be suspended for up to 6 months.
Additionally, those students who need to leave their higher education institution due of the coronavirus, may have the amount of their loan covering the period of time they are withdrawn be eliminated.
Lastly, employers can now provide a student loan repayment benefit to employees on a tax-free basis up to $5,250; excluded from employee’s income. This is effective for until until December 31, 2020 for payments an employer contributes to their employee’s federal student loan.
8. Charitable Contributions
The CARES Act does provide additional opportunities to contribute to charitable organizations, although limited.
The main changes are for those who itemize, a $300 above-the-line deduction for cash donations to a charitable organization for 2020. It is also increased the deduction of AGI, which is now 100%, up from 60%. Those who take the standard deduction can also claim the $300 above-the-line deduction.
For corporations, charitable contribution deduction limits have been increased to 25 percent, up from 10 percent of taxable income.
The CARES Act allocates $350 billion to small businesses to help keep workers employed from the pandemic and it’s impact. The Paycheck Protection Program, PPP, provides federally guaranteed loans to small businesses going through difficult circumstances from losses incurred. These loans may be forgiven if businesses maintain their payrolls or restore payrolls after the restrictions have been lifted. These loans are guaranteed 100%, through the PPP.
These are some of the important provisions that might impact you and your business:
9. Employee Retention Credit
The allows for an employee retention credit for employers that close due to the coronavirus impact. Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.
Eligible employers are entitled to a tax credit against applicable employment taxes (generally the employer’s portion of Social Security taxes) with respect to 50 percent of qualified wages paid during 2020.
An “eligible employer” includes and entity conducting business whose operations were fully or partially suspended due to governmental orders limiting commerce, travel, or group meetings due to COVID-19. The other eligibility is where gross receipts during a calendar quarter declined by more than 50 percent when compared to the same quarter in the previous year.
10. Payroll Tax Delay
The bill delays payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
11. Employer Payroll Tax Payments
Employers and self-employed individuals may defer payment of the employer share of Social Security taxes incurred between the date the CARES Act is enacted and December 31, 2020. Such amounts are to be paid over the following two years, with half due on December 31, 2021, and the other half due on December 31, 2022.
12. Net operating Losses
The feature temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five-year carryback is permitted.
13. Business Interest Modification
The limitation on business interest deductions enacted as part of the 2017 Tax Cuts and Jobs Act has been increased from 30% to 50% of taxable income for 2019 and 2020.
For those wanting more information on seeking a small business emergency loans and resources; referenced below are some useful websites.
The biggest takeaway is that the government has taken steps to mitigate major losses that have occurred do to the outbreak. Financially speaking, businesses are receiving a majority of support with this law, with individuals receiving unemployment and tax benefits, among others. The important thing is they acted quickly and relief should be forthcoming to those in need.
These procedures outlined can be highly complex given your circumstances. It is always advisable to consult your employer, financial planner, tax attorney, and/or accountant for your specific situation or reach out to us for support. Please note, the information outlined is not inclusive to all features of the CARE Act and it’s subsides provided.