President Trump signed The Coronavirus Relief Bill (The CARES Act) the largest economic relief plan in American history on March 27, 2020. This bipartisan $2 trillion dollar plan is intended to help the millions of US households impacted by the Coronavirus pandemic. Included in this plan are stimulus payments to individual taxpayers, increased unemployment assistance, retirement account rule changes, business provisions and many other efforts designed to aid American families and businesses that are being impacted by the pandemic.
Stimulus Payments to Individual Taxpayers
Single adult taxpayers who had an Adjusted Gross Income (AGI) of $75,000 or less in 2019 can expect a single payment of $1,200. Married couples without children will receive $2,400. Taxpayers filing as head of household will get the full $1,200 if they earned $112,500 or less. For every qualifying child under the age of 16 an additional $500 will be paid.
Above these income thresholds the payment decreases based on income level, completely phasing out at $99,000 for single taxpayers and $198,000 for married couples without children. If anyone claims you as a dependent you will not be eligible for a payment.
Additionally, the bill suspends most efforts to garnish tax refunds to repay debts, including debts to the IRS.
The payments are slated to be made within three weeks according to Treasury Secretary Steven Mnuchin.
Increased Unemployment Assistance
The average worker earns about $1,000/week. Traditional unemployment benefits generally replace 40-45% of those earnings. The expansion detailed in the plan will pay for the difference. The actual amount will vary by state, but the plan calls for eligible workers to get $600/week in addition to those benefits already offered at the state level.
The plan makes the $600/week aid available to self-employed workers and part-time workers, also.
Individuals eligible for assistance are those who are otherwise able and available to work, but whose opportunity to work has been impacted due to the COVID-19 health emergency. Examples include the individual’s place of work being closed or their hours reduced, they or a member of their household being diagnosed with COVID-19, are symptomatic , or a caregiver to someone who has been diagnosed. Eligibility is also extended to caregivers whose children or other person in the household is unable to attend school or other facility as a result of COVID-19.
The act does NOT extend benefits to individuals who have the ability to telework with pay, or who are receiving other paid leave benefits.
The bill will extend whatever is offered in your state by an additional 13 weeks of payments. The total amount of weeks cannot exceed 39 weeks.
Retirement Account Changes
For the 2020 calendar year no one will have to take a required minimum distribution from any individual or workplace retirement saving plans such as a 401(k). This will allow funds that may have decreased in value to remain intact within the account, hopefully giving them an opportunity to recover their value.
Up to $100,000 can be withdrawn from your IRA or other retirement plan for help dealing with monetary loss as a result of the pandemic without the normal 10% penalty.
Any income tax you owe from the withdraw can be spread out over a 3 year period from the date you took the distribution. Before the three years is up, you can also choose to replace the funds, even though such a sizable contribution is generally not allowed.
Business Provisions
The bill also has several provisions for businesses that have been impacted by the pandemic, such as:
Paycheck Protection Provision makes loan funds available through the SBA for businesses and nonprofits who are substantially impacted by COVID-19. Maximum loan is 2.5 x average monthly payroll costs of the prior year, with some limitations. No collateral or guarantees are required, and the loans may be forgiven if the proceeds are used to fund payroll and fixed overhead expenses in the 8 weeks after received.
A Refundable Payroll Tax Credit is available for businesses who fully or partially suspended operations by order of governmental authority, or who experience a 50% decrease in revenue compared to the same quarter in the previous year. The credit equals 50% of qualified wages paid, up to $10,000 per employee, for wages paid between March 13 and December 31, 2020.
Deferred payment of 2020 employer payroll taxes is available for Employers and self-employed taxpayers, with repayment of 50% due by December 31, 2021 and the remaining 50% due by December 31, 2022.
Net operating losses (NOLs) from tax years ending after December 31, 2017 and before January 1, 2021 can be carried back 5 years (previously disallowed). NOLs carried forward can also be utilized 100% in tax years beginning before January 1, 2021 (previously limited to 80%)
Quick refunds are available to corporations that believe they have overpaid their estimated taxes based on the current environment.
Qualified Improvement Property is retroactively allowed bonus and 15-year depreciation (correction to 2017 TCJA)
The plan is extensive and covers a wide array of situations impacted by the pandemic, many not covered here. If you have any questions about how this may impact your personal tax situation, please contact your Faw Casson advisor.