Outline of the Key Provisions from the CARES Act
Impact on Individuals
1. Recovery Rebates
Individuals with adjusted gross income (AGI) up to $75,000, heads of household with AGI up to $112,500, and married couples filing jointly with AGI up to $150,000 are eligible to receive recovery rebates of $1,200 individual/$2,400 married. Qualifying children under 17 increase that amount received by $500 each. There is a $50 reduction in the rebate for every $1,000 of adjusted gross income above these caps. The income is based on 2019 tax returns (if filed), otherwise it is based on 2018 tax returns. Qualifying individuals will receive a direct deposit into the same banking account reflected on their 2018 or 2019 return filed. The coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.
2. Tax Return Filing and Payment Due Date Extension to July 15, 2020
The due date for 2019 federal tax return filings and payments has been extended to July 15, 2020. Many, but not all, states have extended their due dates as well. Please refer to your state’s Department of Revenue website for accurate filing and payment due dates.
If you make quarterly estimate tax payments, the 2020 first quarter Federal tax payment deadline has been extended to July 15, 2020, but the 2020 second quarter deadline is still June 15, 2020.
3. 2019 IRA Contribution Deadline Extension to July 15, 2020
The IRS also extended the deadline for 2019 IRA contributions to July 15, 2020. If you have not yet made your IRA contribution for 2019, you have until July 15, 2020 to do so.
4. Retirement Plan Changes
Up to $100,000 can be withdrawn from IRAs and retirement plans without early withdrawal penalties. By default, the tax on the withdrawal will be split evenly over tax years 2020, 2021 and 2022. Although, you could elect to have it all count as 2020 income. You can also repay the distribution back into the retirement account over the three-year period and claim a refund of any taxes paid on the distribution by filing an amended return. To be eligible, you have to meet one of several coronavirus related conditions. Required minimum distributions from retirement accounts have been waived for 2020. This includes inherited IRAs as well. Qualified Charitable Distributions from your retirement accounts for those over 70 ½ can still be made this year. Additionally, now the maximum loan from 401(k) has been increased to the lesser of $100,000 or 100% of account balance and all loan payments have been suspended for a year.
5. Student Loan Payments Suspension
Payments of FFEL (Federal Family and Education Loans) and Direct Loans have been suspended until September 30, 2020. Interest will not accrue while the loan payments are suspended. Additionally, up to $5,250 in employer-paid educational assistance in 2020 will be tax-free to the employer.
6. Additional Unemployment Compensation Benefits
Employees laid off due to COVID-19 will be able to receive an additional $600 per week for up to four months, on top of their state unemployment benefit. Employees who are ineligible for state unemployment benefits or who have already exhausted their state benefit will also be able to receive this assistance. Employees who have reduced hours in lieu of a layoff can also apply for short term compensation.
Impact on Business Owners
7. Small Business Administration (SBA) Forgivable Loans for Payroll and Overhead
Small businesses with a maximum of 500 employees that have been significantly and negatively impacted by the Coronavirus may apply for a loan to assist with employee payroll and overhead for an eight-week coverage period. The business may apply for an amount up to the lesser of 1) $10 million or 2) 2.5 times the average total monthly payments for payroll, business mortgage, and overhead for the trailing twelve months. This loan may be used for payroll (up to $100,000 annual salary per employee) and qualified costs such as utilities, rent or business mortgage, and business debt obligations.
At the end of the eight-week period, the business would be eligible for loan forgiveness, if the business keeps all employees, doesn’t reduce wages by more than 25%, and spends the loan for allowable uses.
8. Payroll Tax Credits for Retained Employees
Certain employers affected by the pandemic who retain their employees will receive a credit against payroll taxes for 50% of eligible employee wages paid or incurred from March 13 to December 31, 2020. This employee retention credit would be provided for as much as $10,000 of qualifying wages, including health benefits. Eligible employers may defer remitting employer payroll tax payments that remain due for 2020 (after the credits are deducted), with half being due by December 31, 2021, and the balance due by December 31, 2022. The credit can’t be claimed on wages paid by an SBA loan.
9. Economic Injury Disaster Loan Program
This program is not part of the CARES Act and was already up and running. Small business owners and individuals with 1099 income could potentially receive a $10,000 grant from the SBA. Businesses with existing SBA loans can apply for a six-month forbearance without interest, principal or fees.
10. Loan program for larger companies
CARES Act set aside loans aimed for larger companies to maintain their payrolls. This program includes restrictions on dividends, stock buybacks and executive compensation.
