In response to rapidly changing circumstances caused by the COVID-19 pandemic, the U.S. government has passed significant legislation in the past two weeks, culminating with the CARES Act this week.
Our Roundtable™ team of specialists has summarized the main points below and will continue to dissect all this legislation and provide continued analysis on our blog,
Coronavirus Aid, Relief, and Economic Security Act
The 880-page CARES Act (Coronavirus Aid, Relief, and Economic Security Act, HR 748) was passed by Congress and was signed by President Trump on March 27, 2020. The CARES Act is designed to combat our current health and economic/employment crisis by providing significant relief to individuals and businesses via a series of governmental initiatives including loan programs, tax incentives, credits, and deductions. At about $2 trillion, the CARES Act is the largest legislative stimulus program ever passed in the history of the world. Take a look at an overview of the provisions for individuals and businesses below.
Key Individual Provisions
2020 Recovery Rebates
In the coming weeks, eligible households will receive advance cash payments of a new tax credit: $1,200 for single filers, and $2,400 for joint filers plus an additional $500 for each child (no cap). All individuals, regardless of age, are eligible for the credit (businesses, trusts, and estates are not). Single and joint filers are eligible for the full credit as long as their 2020 AGI remains below $75,000 (or $150,000 for joint filers) and the credit decreases as income exceeds those thresholds. The payment amount is determined based on the AGI from your most recently filed tax return (2018 or 2019). If you are incorrectly paid the rebate, you are not required to pay it back.
Waived RMDs for 2020
RMDs from regular and inherited IRAs and defined contribution plans (401(k), 403(b), etc.) are suspended for 2020. If you do not need your RMD to fund your lifestyle expenses, you are encouraged to not take the RMD, which may mean stopping future monthly distributions or automatic annual processing of your RMD.
Enhanced Accessibility to Retirement Accounts
For individuals affected by the coronavirus, Congress provided penalty relief, deferred taxability, and the ability to repay distributions from qualified plans and IRAs. Up to $100,000 of coronavirus-related distributions from IRAs/employer plans is 1) exempt for the 10% pre-59.5 years old early withdrawal penalty, 2) taxable over a three year period, and 3) eligible to be repaid back into the account within three years of the distribution. For employer plan loans, the employer may increase the potential loan limit to $100,000 for loans established within 180 days of the CARES enactment date. Additionally, any existing loan repayments normally due between the enactment date and December 31, 2020 are suspended for one year.
Expanded Charitable Contributions Rules
To incentivize continued support for non-profit organizations, charitable rules were modified for 2020 to 1) create a new $300 “before AGI” charitable deduction as well as 2) the temporary elimination of the normal 60% of AGI limitation for cash donations. Cash donations to private foundations and donor advised funds are exempt for the expanded limitation.
Expanded Unemployment Benefits
To offset the expected spike in unemployment due to social distancing, the CARES Act provides four significant enhancements to unemployment benefits:
- Faster Eligibility–Unemployment insurance is now available immediately instead of the normal one-week waiting period
- Expanded Eligibility–Self-employed and independent contractors, state/local government and non-profit employees are now eligible for up to 39 weeks of unemployment insurance
- Increased Benefits–Adds $600 per week across-the-board payment increase through the end of July
- Longer Benefits–An additional 13 weeks of benefits beyond what states typically allow
Penalty-Free Deferral of Mortgage Payments
To prevent foreclosures and evictions from homes, borrowers of a federally backed mortgage loan may request forbearance of their mortgage for an initial period of 180 days and an additional 180-day extension.
Deferral of Student Loan Payments
Required payments (principal and interest) on federal student loans are suspended until September 30, 2020. Interest on the debt will no longer accrue during this time period. In most situations, borrowers of federal student loans will benefit from pausing payments.
Key Small Business Provisions
Paycheck Protection Program & Loan Forgiveness
This program provides up to eight weeks of cash flow assistance through 100% federally guaranteed loans to business who maintain their payroll during this emergency. A business may be eligible for up to $10 million in forgivable loans where the loans are used to cover payroll costs, interest on mortgage obligations, rent, and utility expenses.
SBA Debt Relief
There is $17 billion to cover six months of payments for small businesses already using Small Business Administration loans, including 7(a), Community Advantage, 504, and Microloan programs.
Disaster Loan Program
Provides an emergency advance of $10,000 that does not have to be repaid.
Payroll Tax Credit Refunds
Provides for advance refunding of the payroll tax credits enacted in the Families First Coronavirus Response Act. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms and instructions that the IRS will provide.
Payroll Tax Deferral
The CARES Act delays payment of 50% of 2020 employer (not employee) payroll taxes until December 31, 2021; the other 50% will be due December 31, 2022. Individuals with self-employed income are also eligible for the same benefit.
Employee Retention Credit
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 those who were carrying on a trade or business during 2020 and for which the operation of that business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak.
Other Tax Changes
This legislation also includes other tax provisions for individuals, small businesses, and big corporations that could impact you. If you have questions on how the changing landscape impacts your financial plan, reach out to your advisor and we’ll be happy to help.
CFP®, CPA, Series 7 Securities Registration,1Series 66 Advisory Registration,† Insurance License Brian diligently advises clients on income, gift, trust and estate tax issues while leveraging the expertise of the Roundtable to deliver comprehensive, customized strategies. For more than 10 years he has helped numerous clients develop and implement sophisticated financial, tax and estate strategies that are in alignment with their goals and values. Brian is a...Read More