On March 27, 2020, President Trump signed into law the latest COVID-19 relief bill: Coronavirus Aid, Relief, and Economic Security (CARES) Act. The bill brings with it several elements of relief for businesses, employees, and families in an effort to maintain livelihoods throughout the crisis and after. The expected cost of the bill is nearly $2 trillion and includes nearly $500 billion in economic distress relief for companies.
For funding dedicated to taxpayers and businesses, the bill currently includes provisions related to taxes, unemployment, small business loans, and a large business lending program. Below is a summary of what we know so far about the bill. The bill is voluminous, so please watch for additional details from DHJJ.
Provided with direct payments of an advance 2020 tax credit that will be issued in the amount:
- Up to $1,200 per adult,
- $2,400 for married filing jointly,
- and $500 per child under the age of 17
Higher-earning taxpayers with Adjusted Gross Income (AGI) above $75,000 filing single or $150,000 filing married jointly will receive reduced amounts. The credit is reduced by 5% of the taxpayer’s AGI in excess of $75,000 for single filers and $150,000 for filing married filing jointly. Payments are based on 2019 returns, if filed, or 2018 returns, and a provision exists for those who don’t earn enough to file a return to still be able to claim the credit. The amount of credit available on a taxpayer’s 2020 return will be reduced by the amount of the advance refund payment they receive. It is the US Treasury Department’s goal to get these payments started as soon as possible.
The 10% tax for early distributions on retirement plans is waived for up to $100,000 in coronavirus-related distributions. Qualifying events include a coronavirus diagnosis, or adverse financial consequences as a result of the virus such as quarantine, furlough, lay off, reduced hours, or unable to work due to lack of childcare. Distributions can be taken up to December 31, 2020. In addition, the taxpayer can recontribute those funds within the three-year period without regard to the annual contribution cap.
Current retirement plan loan limits have doubled to the lesser of $100,000 or 100% of the participants’ vested account balance in the plan. In addition, individuals with a loan outstanding from their plan with repayment due from March 27, 2020, through December 31, 2020, can delay their loan repayment for up to one year.
Taxpayers can keep their retirement capital invested instead of taking required minimum distributions (RMD) for 2020 on IRAs and defined contribution plans.
Small employers (business with 500 or fewer employees), self-employed, and gig economy workers are eligible for the Paycheck Protection Program, which provides eight weeks of cash-flow assistance through 100% federally guaranteed loans for small businesses who maintain payroll. The portion of loans used for payroll, mortgage interest, rent, and utilities could be forgiven for small businesses that maintain payroll. Retroactive to February 15, 2020, this allows employers to bring back workers who have already been laid off.
The CARES Act provides enhanced charitable deduction opportunities in the form of a $300 above-the-line-charitable deduction. The 60 percent of adjusted gross income limitation is suspended for cash contributions to qualifying organizations made by individuals in 2020, excluding donor-advised funds.
Student loan payments are suspended by the Department of Education on federally backed student-loans without penalty through September 30.
Coverage for high deductible health care plans with HSAs can be used pre-deductible for telehealth services.
The bill provides $600 per week in addition to state unemployment benefits and includes an additional four months of benefits. It also ensures state and local governments and nonprofits can provide employees with unemployment.
Self-employed individuals, independent contractors, and partially-employed individuals with limited work history who are unable to work as a direct result of a public health emergency will also qualify for unemployment benefits.
Federally backed mortgage loans are eligible for forbearance for up to 180 days with the opportunity for an additional 180 days if either the initial or extended forbearance period is shortened. Fees, penalties, and additional interest cannot be charged from delayed payments. For those with federally backed loans with tenants, eviction is not allowed for tenants who fail to pay rent for a 120-day period, and fees and penalties may not be charged.
We’re here to help businesses navigate this uncertain time. DHJJ is continuously monitoring developments and will continue to provide the latest updates. Have more questions? Contact us now.