Coronavirus Aid, Relief, and Economic Security Act
Last Friday, March 27th, President Trump signed the “Coronavirus Aid, Relief, and Economic Security Act” known as the CARES Act into law. We’ve reviewed and analyzed the 880-page bill providing over $2 trillion of relief to individuals and businesses negatively impacted by the coronavirus outbreak.
We want to continue supporting you and your business by providing you with as many resources as we can. We have communicated with many of you already, and despite tax deadlines we will dedicate time to help you take advantage of provisions in the bill providing our individual and small business clients much needed relief.
INDIVIDUALS
2020 Recovery Rebate for Individuals (aka ‘the stimulus checks’)
An eligible individual is allowed an income tax credit for 2020 equal to the sum of $1,200 ($2,400 married filing joint) plus $500 for each qualifying child of the taxpayer. The amount of the credit is reduced (or phased out) by 5% of the taxpayer's adjusted gross income (AGI) in excess of: $150,000 (Married Filing Joint), $112,500 (Head of Household), and $75,000 (Individual).
Recognize that the ‘stimulus’ check will ultimately be figured according to your 2020 income (not 2019 or 2018). The payments taxpayers will receive in the near term will be an ‘advance’ determined on your 2018 or 2019 tax return. In the event a taxpayer does not qualify in 2018 or 2019 but will qualify in 2020, you will receive this benefit in 2021 after filing your 2020 tax return. In the event a taxpayer does not qualify in 2020, but receives the advance based upon their 2018 or 2019 return, the taxpayer will pay back the advance upon filing their 2020 return.
We found a simple, yet effective, calculation tool online for figuring your recovery rebate you could receive in the near term. Click HERE.
Retirement Distributions
A coronavirus-related distribution (CVD) is any distribution (subject to dollar limits discussed below), made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan made to a qualified individual.
A qualified individual is an individual:
diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approve by the Centers for Disease Control Prevention (CDC)
whose spouse or dependent (as defined in Code Sec. 152) is diagnosed with such virus or disease by such a test, or
who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of The Treasury.
*The administrator of an early retirement plan may rely on an employee’s certification that the employee satisfies one of the conditions above in determining whether any distribution is a coronavirus-related distribution.
Provisions which directly affect your retirement account:
Required Minimum Distributions (RMDs) for 2020 are not required.
CVD Distributions prior to age 59 of up to $100K are not subject to the 10% penalty.
CVD Distributions of up to $100,000 this year can be reported as income over 3 years and/or repaid. If distributions are recontributed (paid back) the entire transaction is treated as a tax-free rollover.
Charitable Contributions
$300 above-the-line deduction from gross income
Taxpayers will be able to claim up to $300 in 2020 cash contributions made to a non-profit charitable organization against their gross income. The above-the-line charitable income tax deduction will help taxpayers who would not get the benefit if unable to itemize their deductions.
No Limitations on Charitable Deductions for Individuals
Typically, an individual’s charitable deduction is limited to, at most, 60% of their adjusted gross income (AGI). The CARES Act eliminates any limitation on charitable contributions for individuals that itemize their deductions.
SMALL BUSINESS
Employee Retention Credit for Employers
Provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.
Eligible Employers – credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
The credit is NOT available to employers receiving Small Business Interruption Loans.
Employers (Average Full Time Employees) in 2019 (100 or fewer): all employer wages are eligible.
Employers (Average Full Time Employees) in 2019 (over 100): only wages of EEs who are furloughed or face reduced hours as a result of their employers closure or reduced gross receipts are eligible for the credit.
Wages – includes healthcare benefits, capped at the first $10K in wages paid by the employer to an eligible employee.
Contact your Payroll Provider.
Delay of Payment of Employer Payroll Taxes
Employers are subject to Self-Employment Taxes (Social Security / Medicare / Unemployment).
Allows taxpayers to defer paying the employer portion of payroll taxes through the end of 2020. The payment for ‘applicable employment taxes’ for the ‘payroll deferral period’ won’t be due before the ‘applicable date’.
Deferral period, through 1/1/21. (50% 12/31/21, 50% 12/31/22)
Contact your Payroll Provider.
Compliance Programs
Existing Installment Agreements
Taxpayers with an existing installment agreement, the IRS is suspending installment agreement payments during the suspension period; however, interest will continue to accrue on any unpaid balances. The IRS will not default any installment agreements during the suspension period. Suspension period (April 1st through (at least) July 15th).
Delinquent Return Filings
The IRS will not default on OIC for those taxpayers who are delinquent in filing their tax return for the year 2018. However taxpayers should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020.
Unemployment
Total weekly unemployment checks will vary by State. The CARES act includes a $600 supplement known as Federal Pandemic Unemployment Compensation. Note that the federal supplement is in addition to state-paid unemployment compensation for employees that qualify. We’ve included links to several state unemployment agencies below.
Note that the CARES Act extends to self-employed workers, for which they generally do not qualify.
State of South Carolina: https://dew.sc.gov/
State of Arizona: https://des.az.gov/services/employment/unemployment-individual
State of California: https://www.edd.ca.gov/unemployment/
State of Louisiana: http://www.laworks.net/UnemploymentInsurance/UI_Claimants.asp
State of New York: https://labor.ny.gov/unemploymentassistance.shtm
State of North Carolina: https://des.nc.gov/
State of Ohio: https://unemployment.ohio.gov/
LOANS (Including Grants and Forgiveness)
Payroll Protection Program (PPP)
also being referred to as Payback Protection Loans (PPL)
SBA 7(a) CARES Act Covered Loan - $349 billion allocation.
Eligibility: Small businesses with less than 500 employees (flexibility on the number of employees in the hospitality and restaurant industries)
Covered Period: February 15th – June 30th, 2020
Loan Amounts: Lesser of $10 million or 2.5 times the Average Monthly Payroll based on the prior 12 months.
Loan Term: Max 10 Years
Loan Rate: Interest rate not to exceed 4%.
Loan Forgiveness: Allows smalls business that maintain payroll continuity from February 15, 2020 through June 30, 2020 to request forgiveness. Allowable costs, or uses, include payroll costs, payment of interest on covered debt obligations, rent on covered rent obligations, and covered utility payments (electric, gas, water, etc.). We will provide more details on ‘covered’ costs as we learn more. The primary intent of the program is to cover payroll.
Eight-Week Period: The loan will be forgiven (or partially forgiven) to the extent businesses use the loan for certain allowable costs over an eight-week period. The eight-week period begins with the date the loan is issued.
Amount forgiven with respect to payroll reduced proportionally by any reduction in the employees retained by the business compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation.
*Payroll costs include wages, commissions, salary, or similar compensation to an employee or independent contractor, payment of a cash tip or equivalent, payment for vacation, parental, family, medical or sick leave, allowance for dismissal or separation, payment for group health care benefits, including premiums, and payment of any retirement benefits.
The SBA will be issuing regulations regarding the PPP by April 10th. Note that businesses that qualify for a PPP loan are ineligible for the payroll tax credit and deferral programs discussed above.
The intent behind this program is for employers to feel confident either retaining their employees throughout this crisis and/or employing them again upon securing the PPP loan or by June 30th.
Separate Bank Account: We recommend that once clients receive their loan proceeds from the PPP loan that they establish a separate bank account used exclusively for the allowable costs, see above.
How can I apply / obtain a PPP Loan?
Contact your bank now! Get in line!
Contact an SBA approved lender. Our banker/lender contacts have shared with us that, given the demand for these loans, they are currently only assisting their existing clients. We have also learned of some online SBA approved lenders. We fully expect more and more lenders enter this space to assist small business owners. We will be happy to continue to share information as we obtain it.
Small Business Administration (SBA) Disaster Loans and Loan Advance
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.
Apply for a COVID-19 Economic Injury Disaster Loan
https://covid19relief.sba.gov/#/
Emergency Government Disaster Loan and Grant
CARES Act also expands access to Economic Injury Disaster Loans Sec. 7(b)(2) of the Small Business Act (Businesses
No personal guarantee below $200K.
Taken out between 1/31/20 and the date on which a paycheck protection loan is available for reasons (other than paying payroll costs).
Any loan taken out for payroll purposes will be confined to the paycheck protection loans described above.
Emergency Grant – allows a business that has applied for a disaster loan to get an immediate advance of up to $10K. The advance can be used to maintain payroll, and is not required to be repaid, even if the borrower’s request for a 7(b) loan is denied.
*Note that it is our understanding that the $10K emergency grant will reduce any loan forgiveness under the Payroll Protection Program (PPP).
We do recommend (as long as there is a need) that clients apply for both Payroll Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs. Note that not all businesses will be eligible for the loans. Recognize that the EIDL allows for a grant of up to $10K while the loan forgiveness under the PPP could be much greater. Further, not that if the EIDL loan is obtained prior to a PPP loan that businesses owners may have to refinance the EIDL loan into the PPP loan. Upon receiving the PPP loan a client will likely be ineligible for the EIDL.
We’ve helped clients apply for several loans and are pleased that the SBA recently updated their website!
Student Loans
Student Loans Paid by Employers: The CARES act provides an exclusion of income to qualified employees up to $5,250 for payments made by the employer for an employee’s education loans. Employer payments for qualified employee student loans can be paid directly to the employee or to the lender. Qualified payments are not subject to employer or employee payroll taxes and must occur prior to January 1, 2021.
Thank you
We hope that this information has been helpful. We want to continue to support you and your business and provide you with as many resources as we can. We look forward to future conversations.
Let’s not forget about those tax deadlines!....
We are still working diligently to file as many of our clients tax returns by the former April 15th deadline! Remember that the tax filing (and payment) deadline has been extended until *July 15th. We appreciate your understanding as while this has been an unusual time for all of us, this has certainly been an unusual tax filing season for us. (*Federal/IRS and most States including SC).
We will continue to communicate with all of you. We welcome your feedback and any information that you can share.
Please stay safe and let us know how we can help. Together, we got this!