By now you have heard about the $2 Trillion dollar stimulus bill passed called the Coronavirus Aid, Relief and Economic Security (CARES) Act. There are many facets to this plan, great articles and summaries online about the CARES Act. Rather than re-summarizing the CARES Act, we have decided to point out the main and most critical areas that may impact you in the short term and try to give our best practical advice behind the mechanics of these areas.
Recovery Rebate Checks:
The CARES Act provides for recovery rebate check payments of up to $1,200 for individuals and $2,400 for joint taxpayers. In addition, taxpayers with children will receive an additional $500 for each child under 17 years of age. The recovery rebate checks begin to phase-out at income thresholds of $75,000 of adjusted gross income (AGI) for single tax payers and $150,000 of AGI for joint taxpayers. The rebates decline $5 for every $100 of income above the annual $75,000 / $150,000 AGI limitation and are completely phased out at $99,000 of AGI for individual filers and $198,000 for joint filers.
· For filers with children, the income limits above will be increased.
· The IRS will base the calculation of the recovery rebate check amounts on your 2019 Federal income tax return, or if you have not filed, they will utilize your 2018 filing.
· Individuals with little or no income and retirees are eligible to receive the recovery rebate provided that they are not claimed as a dependent of another taxpayer.
· You can estimate your stimulus payment by clicking here >> CALCULATE REBATE CHECK
What do you need to do in order to receive your rebate check?
· In most cases no action is required to receive your rebate. The IRS will use direct deposit information from your previously filed returns or your mailing address.
· If you did not file a tax return in 2018 or 2019, the best way to ensure you receive a rebate check is to file your 2019 return as soon as possible
Planning tips > The IRS is going to use the last year you filed your taxes (2018 or 2019) to calculate your stimulus check. If you had less income in 2019 then 2018 and / or had any children in 2019 it may make sense to get your 2019 tax return filed as quickly as possible in order to get a larger stimulus check for you and your family. Remember though, with your 2020 taxes, if you missed out on any stimulus money you may be able to get the additional amount with the filing of your 2020 taxes (assuming your income is not over the limits).
The CARES Act allows for an additional 13 weeks to the normal state 26-week unemployment benefit payment period (for a total of 39 weeks) and up to an additional $600 per week in benefits to be added onto any state unemployment benefits paid. Click the link below to download our summary of how to navigate the unemployment process for W2 and Self-Employed Individuals.
Special Rules for Qualified Retirement Plans
The CARES Act adds new exceptions for coronavirus-related distributions from qualified retirement plans:
· Waiving the 10% Penalty on retirement fund distributions in 2020 up to $100,000 if under 59.5 years of age. The distribution is still subject to income tax, but the taxpayer may elect to spread the income over a 3-year period beginning in 2020, or avoid income recognition by repaying the distribution within 3 years.
· Ability to take a tax-free loan of up to the lesser of 100% or $100,000 from your retirement accounts (up from 50% and $50,000) for a period of 180 days from the enactment of the CARES Act.
Note: To qualify for these exceptions you must be either 1) diagnosed with COVID-19; 2) have a spouse or dependent with COVID-19; or 3) experience adverse financial consequence as a result of being quarantined, furloughed or laid off or be unable to work due to lack of child care.
Required Minimum Distributions (RMD’s) are not required for tax year 2020.
Planning tip > 2020 may be a good tax year to realize capital gains (assuming the market bounces back) to possibly be in the 0% capital gain tax bracket and to consider doing a Roth conversion for a certain amount if you can keep that money taxed in a lower tax bracket than you are normally when taking your RMDs. If you already took your 2020 RMDs, you can roll them back to your retirement accounts within 60 days (and it appears they may allow an exception to extend the 60-day rollover period). Discuss these options with your financial advisor as it may be more detrimental in the long run if you take out any retirement funds from the current market.
The CARES Act allows for an additional 13 weeks to the normal state 26-week unemployment benefit payment period (for a total of 39 weeks) and up to an additional $600 per week in benefits to be added onto any state unemployment benefits paid. The CARE Act allows Self-Employed individuals to participate in state and federal unemployment benefits if they are impacted by COVID-19. Click the link below to download our summary of how to navigate the unemployment process for W2 and Self-Employed Individuals.
Planning tip > It may be more beneficial to start with the PPP Loan noted below and then if your business does not recover after an 8-week period, you can then claim unemployment if you are eligible.
Paycheck Protection Program (PPP) Loan:
The CARES Act includes relief to small businesses by making available up to approximately $350 billion in loans to be administered by the Small Business Administration (SBA) and its approved lending institutions, referred to as Paycheck Protection Loans. Program highlights include:
· Applications must go through an approved SBA lender (i.e. start with your current banking relationships)
· The funding is intended to help retain workers, maintain payroll, and cover rent, mortgage, and utility expenses
· The loan can be forgiven and essentially turn into a non-taxable grant
Click the link below to download our detailed summary of the PPP loan and how to navigate the process of applying.
Please contact us if you would like our assistance in applying for the Paycheck Protection Program.
Emergency Government Disaster Loan and Grant:
The SBA has approved low-interest federal disaster loans for small businesses suffering substantial economic injury as a result of COVID-19. Included in this is a $10,000 advance that can be treated as a grant if the funds are used for eligible costs (i.e. payroll, mortgages).
Click the link below to download the guidelines of how this loan works and how to apply.
Please contact us if you would like our assistance in applying for the SBA Disaster Loan.
Deferred payment of Employer Payroll Tax and Self-Employment Tax
This provision allows employers and self-employed individuals to defer payment of the employer’s share of the Social Security Tax that they would otherwise be responsible for paying to the federal government through January 1, 2021. Generally this tax is 6.2% of employee wages and is remitted on a periodic basis via payroll tax filing deposits. The deferred employment tax would be paid over the following two years with half being due by 12/31/21 and the other half due by 12/31/22.
Refundable Employee Retention Credit
· The CARES Act provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis.
· The credit is available to eligible employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
· The credit is based on qualified wages paid to the employee from March 13, 2020 through December 31, 2020. The credit is provided based on the first $10,000 of compensation, including health benefits, paid to an eligible employee.
A. For originally eligible employers with an average of more than 100 full-time employees in 2019, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
B. For originally eligible employers with an average of 100 or fewer full-time employees in 2019, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
Net Operating Loss Rule Changes
With the 2017 ‘Tax Cuts and Jobs Act’, net operating losses (NOLs) arising in tax years after December 31, 2017, could not be carried back to prior tax years and were only allowed to be carried forward. With the CARES Act, losses from 2018, 2019 and 2020 tax years will be permitted to be carried back 5 years.
The CARES Act also eliminates the 80% limit on deduction for NOL’s arising in tax years 2018-2020.
Planning Tip > Assess if you had NOLs arising in 2018 and 2019 and determine if amending those returns makes sense in order to offset prior year taxable income which could provide for refunds of prior year tax liabilities.
State Loan Programs >> PA COVID-19 Working Capital Access
PA has a program in place called COVID-19 Working Capital Access (CWCA) that is administered thru your respective County’s Economic Development Organization. The loan available is up to $100,000 for working capital (basically operating expenses) and the terms are a 0% interest with a 12-year amortization payment period. No payments due the first 12 months with the loan due to be paid back in full in three years.
An eligible small business enterprise is a for-profit corporation, limited liability company, partnership, proprietorship or other legal business entity located in the Commonwealth of Pennsylvania and having 100 or fewer full-time employees worldwide at the time of submission of the application.
Here is a link to the PA COVID-19 site for these loans >> PA CWCA Loan Details
Here is a link to the County Economic Development Organizations List>> CEDO List
Planning tip > these funds appear to be limited. Montgomery County has noted on their website they are noting taking in any new applications as of March 27th, 2020 but to check back for a status update in the future.
Small Business – Some recommendations how to handle COVID-19 for your business
Click the link below to download a PDF for a list of action steps a small business can take to best handle COVID-19.
Additional Reading on the CARES Act
Best summary article we found on the CARES Act >> CARES ACT SUMMARY