The CARES Act: Coronavirus Aid, Relief, and Economic Security Act (“CARES”)
Washington has been busy. Medical and unemployment Information is changing rapidly, adding to a highly dynamic situation. On March 27, 2020 The CARES Act was passed. It totals $2.2 trillion making it the largest relief package in history. The bill is massive and contains a wide range of sweeping provisions.
We’ve effectively shut down large parts of our economy with the hopes of turning it back on after the Coronavirus (“COVID-19”) curve flattens. In the immediate aftermath of the shutdown, nearly 17 million American workers were furloughed or fired and millions of small businesses are currently threatened with bankruptcy. These have been the largest one-week spikes in initial unemployment claims ever. Estimates indicate 10-13% of the American workforce is now unemployed, a level worse than the Great Financial Crisis.
The package was approved unanimously in only 10 days!
It could not have come soon enough.
Fortunately, there is a little bit for almost everyone impacted by the virus. The key points and sections are noted below, but many of the points are specific to your individual circumstances, so not everything is applicable or practical for everyone. Please call or contact us if you would to discuss one-on-one.
The CARES Act
What Does “Impacted” mean?
- Diagnosed with COVID-19 or has a spouse or dependent that was diagnosed with COVID-19.
- Have experienced adverse financial consequences as a result of COVID-19.
- Unable to work because of lack of childcare due to COVID-19.
- Own or operate a business that has closed or reduced hours because of COVID-19.
- Individuals with adjusted gross incomes up to $75,000 are expected to receive $1,200.
- Married, joint filers with adjusted gross incomes up to $150,000 are expected to receive $2,400.
- An additional $500 for each qualifying child.
- The max rebate available is $3,900.
- Payments are reduced by $50 for every $1,000 adjusted gross income over the limit. Rebates will be phased out at $100,000 for single fliers with no qualifying children and $200,000 for married joint fliers with no qualifying children.
- If a 2019 return has not been filed, rebates will be based on 2018 filings.
- Rebates are expected to be mailed as checks or deposited into the account used for 2018/2019 direct deposit.
- More here: https://crsreports.congress.gov/product/pdf/IN/IN11282
Unemployment Compensation (“UC”):
- Regular UC benefits increased by $600 per week for up to 4 months.
- UC benefit period will be extended by 13 weeks.
- UC benefits waive the first waiting week and are now immediately available.
- Some unemployed workers will now make more with UC benefits than they did while working.
- These are state specific changes; please check with your state for details.
- For PA, more here: https://www.uc.pa.gov/Pages/covid19.aspx
For Tax Filers:
- Federal tax filing deadlines extended to July 15 with no interest or penalty.
- It applies to 2019 tax due and 2020 estimated tax payments due April 15, 2020.
- Deadlines for 2019 IRA contributions extended to July 15.
- It is state specific, but many states have extended deadlines too.
- Second quarter estimated payments are still due June 15.
- The 10% early withdrawal penalty is eliminated for amounts up to $100,000.
- Withdrawals are eligible to be repaid over 3-years.
- Withdrawals can be used for income over a 3- year period.
- Maximum loans for employer-sponsored programs increased to $100,000.
- Taxes are still due if the amount is not repaid, but can be paid over three years.
Required Minimum Distributions (“RMD”):
- Waived for 2020 for all IRA types as well as 401(k), 403(b) and 457 plans.
- RMDs for Defined Benefit Plans are still required.
- Anyone whose first RMD was on 04/1/2020 does not need to take it. That means some individuals will be able to escape two RMDs in 2020.
- Voluntary distributions are allowed.
- If you have already taken your RMD, it can be replaced within 60 days of distribution, with some exceptions.
Qualified Charitable Contributions (“QCD”):
- This is still a little murky and we are waiting for more definitive guidance.
- Must be made in cash.
- A limit of $300 for above the line deductions in 2020, for those using an IRA to contribute.
- For 2020, limit for charitable cash contributions able to be deducted is set to 100% of adjust gross income. It is usually 60%.
Student Loan Relief:
- Federal student loan payments are suspended through September 2020 with no interest accrual.
- Voluntary payments are allowed.
- Borrower needs to call lender to pause payments.
- Period of suspension still counts toward Public Service Loan Forgiveness (PSLF).
Payroll Protection Program:
- Intended for small businesses with under 500 employees.
- Can also be used by self-employed individuals and independent contractors.
- Applications can be submitted from 4/3 through 6/30 and must be through an approved SBA lender.
- Loans will be for the lesser of $10,000,000, or 2.5 times monthly payroll for the past 12 months, for most businesses, subject to certain limitations.
- Eligibility for forgiveness if loans were used over 8 weeks to pay for payroll and wage expense. Employee and compensation levels must be maintained, or not reduced by more than 25%.
- Loans are first come, first served.
- Repayment is generally due in 2 years.
- Will carry a maximum interest rate of 1.00% for loans not forgiven.
- More here: https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
Please Note: Each of the above categories has its own unique set of regulations and guidelines. Please be aware that the descriptions of available assistance may be subject to additional modification by applicable regulatory authority.
Tax planning with the CARES Act
Many of the CARES Act provisions include tax planning. Wright Associates is not an accounting firm and does not provide qualified tax advice. Please consult your tax adviser for specific instructions. This is intended only as a summary. We will try to give you more specifics as they become available. Please contact us for individual consultation or to see if there is any published information on additional guidance. Due to the rapidly changing information, we are certain that there will be updates on key developments. The information contained herein is believed to be accurate as of April 9, 2020.