CARES Act (Coronavirus Aid, Relief, and Economic Security Act)

Posted by on Mar 31, 2020 in General

  • Provided below is a summary of the CARES Act that was recently signed into law
  • Act is intended to provide relief to individuals and businesses impacted by the COVID-19 virus
  • Effective date is March 27, 2020

Recovery Rebates

  • Payments will be made to people who qualify based upon income level
    • Individuals = $1,200
    • Married couples = $2,400
    • Additional $500 per child under the age of 17
  • Income is “Adjusted Gross Income” (AGI)
    • AGI is line 8b on 2019 1040 tax return
    • AGI is line 7 on 2018 1040 tax return
  • Income levels to qualify for payments are the following:
    • $150,000 for Married Filing Jointly; payment phases out at $198,000
    • $112,500 for Head of Household; payment phases out at $136,500
    • $75,000 for all other filers including Single; payment phases out at $99,000
    • The phase out of payment represents a reduction of $5 per $100 of additional income over each threshold
  • The 2018 tax return will be used to determine payment unless the 2019 tax return has been file. In essence, the latest tax return available to the IRS as of some date in early April will be used to determine payment amount.
    • Accelerate tax filing if 2019 income was lower (more favorable) than 2018
  • IRS will be making payments “as soon as possible.”
    • Expect payment timing to be in 2 to 3 weeks but timing will depend on how payment is made (potentially not until May)
    • Social Security recipients will receive payment to where they get their SS checks
    • If person received a refund via direct deposit for 2018/2019, payment will be direct deposited to bank account
    • All other payments will be sent to last known address on file with IRS
    • IRS is supposed to mail a letter to recipients of payments telling/confirming that payment was made to them.

Unemployment Compensation Benefits Enhanced

  • Regular state unemployment benefit is increased by a $600/wk
  • $600 payment is added to state benefit; it is paid by the state but funded to the states by Federal government
  • $600 payment is made for up to 4 months
  • Unemployment benefits are extended for 13 extra weeks
  • Federal government will cover first week of unemployment eliminating waiting period

Student Loan Relief

  • Federal student loan payment deferred until September 30, 2020
  • MUST be FEDERAL loan – does not apply to private loans
  • No interest accrues during the 6-month period
  • Payment deferral does not jeopardize a loan forgiveness program (PSLF) that a person may have in place
  • Voluntary payments are not prohibited
  • MUST BE PROACTIVE TO STOP PAYMENTS – CONTACT LOAN SERVICER TO REQUEST DEFERRAL OF PAYMENTS

Health Care Related Rules

  • Definition of medical expenses expanded for H.S.As and F.S.As
  • Eligible expenses now include Over-the-Counter (OTC) medication
  • Medicare beneficiaries to receive COVID-19 vaccine when available at no cost
  • Part D recipients can request up-to-90-day supply of medication
  • Telehealth services temporarily covered by H.S.A-eligible High-Deductible Health Plans

Other Provisions in CARES Act

  • Distributions from retirement accounts
    • If person has been “impacted” by the virus, distribution can be taken from retirement plans to support financial situation
    • Distributions up to $100k can be taken; must be taken in 2020
    • Distribution is exempt from 10% early withdrawal penalty
    • Eligible to be repaid over 3 years
    • Distribution is taxable but income may be spread over 3 years, or could claim 100% in 2020 if income is low
  • Loans from Employer Retirement Plans
    • Maximum loan amount increased from $50k to $100k
    • Payments on plan loan otherwise owed may be delayed 1 year
  • RMDs can be suspended for 2020
    • Applies to IRA and employer plans
    • First timers get to suspend 2020 RMD and their delayed 2019 RMD, if applicable
    • Stretch IRA RMDs are suspended
    • 2020 ignored as a year for the 5-year rule
  • Above-the-Line Charitable Deduction
    • “Qualified Charitable Contribution”
    • Up to $300 donation made in cash to a 501(c)(3) charity
    • Only available if taxpayer does not itemize, i.e. amount becomes additional tax deductions (small benefit)

Small Business Programs

  • Paycheck Protection Program
    • Loan to business fully guaranteed by Small Business Administration (SBA)
      • Loans issued by SBA approved lenders – best to reach out to your banking contact to discuss program and application process
      • Loan must be applied for by June 30, 2020
      • Duration of loan is up to 10 years
    • Eligibility
      • Less than 500 employees or employee size per NAICS standard
      • Good-faith certification that loan is necessary due to uncertainty of economic conditions caused by COVID-19
    • Maximum loan is less of
      • $10 million
      • Or 2.5 times average monthly payroll costs of previous year (employee compensation over $100k is excluded, i.e. compensation is capped at $100k per employee)
    • Loan may be used for the following:
      • Payroll costs
      • Group health insurance premiums and other healthcare costs
      • Salaries and/or commissions
      • Rent or mortgage interest
      • Utilities
      • Other business items incurred prior to February 15, 2020
    • Loans can be forgiven
      • 100% of loan amount used to pay the following items during the initial 8-week period after the issuance of the loan can be forgiven
      1. Payroll costs, excluding prorated amounts for individual compensation over $100k
      2. Rent for lease in place before February 15, 2020
      3. Electricity, gas, water, transportation, telephone, or internet access expenses for services which began prior to February 15, 2020
      4. Group health insurance premiums and other healthcare costs
      • BUT must have same number of employees from February 15, 2020 through June 30, 2020 as either during the same period in 2019 or from January 1, 2020 until February 15, 2020. AND no employees paid under $100k have pay reductions of > 25% compared to the most recent quarter.
    • If loan is forgiven, debt amount discharged is not taxable
    • Maximum interest rate is 4%
    • Initial payments on loan repayment will be deferred for 6 to 12 months
  • Employee Retention Credit
    • New credit against payroll taxes on 50% of wages paid to each employee up to maximum of $10k per employee
    • Must qualify – either operations were partially/fully suspended due to government-required suspension of operations or have a quarter with < 505 of revenue from same quarter 2019
    • Will qualify to receive until the earlier of a) end of 2020 or b) when suspended operations resume for the quarter or when revenue > 80% of same calendar quarter of 2019
  • Deferral of Payment of Payroll Taxes
    • Employers will be permitted to defer 2020 payroll taxes
      • 50% will be due on 12/31 of 2021
      • Remaining 50% will be due on 12/31 of 2022
      • Applies to “employer portion” of tax for self-employed individuals 
  • Net Operating Loss rules loosened for businesses