by Kevin Rigg, Director of Financial Life Planning, Lead Advisor, CFP®, CPA
On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. This $2 trillion emergency relief package is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Major relief provisions are summarized here.
Recovery Rebates
Most individuals will receive a direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed (or 2018 returns if a 2019 return hasn't been filed) and sent automatically via check or direct deposit.
The amount of the recovery rebate is $1,200 ($2,400 if married filing a joint return) plus $500 for each qualifying child under age 17. Recovery rebates start phasing out for those with adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing joint, $112,500 for head of household).
More information on the recovery rebates can be found directly from the IRS.
Retirement Plan Provisions
Required minimum distributions (RMDs) from employer-sponsored retirement plans and IRAs will not apply for the 2020 calendar year
The 10% early-distribution penalty tax is waived for retirement plan distributions of up to $100,000 relating to the coronavirus and any taxes due can be paid over three years
Limits on loans from employer-sponsored retirement plans are increased to $100,000 and any payments due in 2020 can be suspended for one year
Student Loans
The legislation provides a six-month automatic payment suspension for any student loan held by the federal government; this six-month period ends on September 30, 2020.
Under already existing rules, up to $5,250 in payments made by an employer under an education assistance program could be excluded from an employee's taxable income; this exclusion is expanded to include eligible student loan repayments an employer makes on an employee's behalf before January 1, 2021.
Unemployment Provisions
The legislation provides for:
An additional $600/wk benefit to those collecting unemployment benefits through July 31, 2020
An additional 13 weeks of federally funded unemployment benefits, through the end of 2020, for individuals who exhaust their state unemployment benefits
Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits
Unemployment benefits through 2020 for many who would not otherwise qualify, including independent contractors and part-time workers
Business Relief
An employee retention tax credit is now available to employers significantly impacted by the crisis and is applied to offset Social Security payroll taxes; the credit is equal to 50% of qualified wages up to a certain maximum.
Employers may defer paying the employer portion of Social Security payroll taxes through the end of 2020 and may pay the deferred taxes over a two-year period of time; self-employed individuals are able to do the same.
Provisions relating to specified Small Business Administration (SBA) loans increase the federal government guarantee to 100% and allow small businesses to borrow up to $10 million and defer payments for six months to one year; self-employed individuals, independent contractors, and sole proprietors may qualify for loans. There are two primary new loan programs and more information on each of them can be found on the SBA web site:
Additional Tax Relief
(not CARES Act related)
Due date for individual, trust, and gift tax returns is moved to July 15th. (Estate tax returns remain due on April 15th). This is automatic, and you do not need to be sick, quarantined, or have experienced any other impact.
Tax payments may also be postponed from 4/15 to 7/15 interest and penalty-free.
Second quarter estimated payments remain due on 6/15
The deadline for 2019 IRA contributions is moved to 7/15
Charitable contribution deduction percentage-of-AGI limitations are eliminated for 2020 for cash gifts (not gifts of appreciated assets). Gifts to a donor-advised fund are NOT included.
Those that do not itemize deductions can still receive a deduction for up to $300 in cash charitable gifts
There is likely to be a steady stream of guidance forthcoming with details relating to many of these provisions, so stay tuned for more information. We're here to help and to answer any questions you may have.