On Friday, March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) came into effect. This new legislation provides approximately 2 trillion dollars to provide economic relief to those individuals and businesses who have been negatively impacted by the recent COVID-19 pandemic.
Coronavirus Aid, Relief and Economic Security Act
Here are a few of the highlights that may impact you:
Anyone in the United States who pays taxes will receive a direct payment of $1,200. Married couples who file jointly will receive $2,400. In addition, these amounts are increased an additional $500 for every child under the age of 17.
These direct payments are available to those individuals who make up to $75,000 per year and married couples who make up to $150,000. These amounts are based upon 2019 adjusted gross income or 2018 adjusted gross income if you have not yet filed your 2019 tax return. After these thresholds, the payments will begin to decline until they phase out completely for those individuals who make $99,000 or more or married couples who make $198,000 or more.
Expanding Unemployment Benefits:
The CARES Act provides $250 billion for an extended unemployment insurance program. Unemployment compensation will now be extended up to 13 weeks after state and federal benefits lapse. Further, an additional $600 per week is provided to recipients through July 31, 2020. This Act expands eligibility to those who are part-time, self-employed, work-sharing, and other workers, such as Uber drivers.
The CARES Act waives the 10% tax on early withdrawals up to $100,000 from a qualified retirement plan and IRA for anyone currently experiencing hardships directly attributable to the COVID-19 pandemic, including those who were diagnosed with COVID-19; have a spouse or child who was diagnosed; and/or is an individual who was furloughed or laid off due to COVID-19. This income can be spread out as ordinary income over 3 years. The amount can also be repaid, tax free, into the plan over the next 3 years, which would be treated as rollover contributions and not subject to contribution limits.
Retirement plan loans are now doubled over the next 180 days to the lesser of $100,000 or 100% of a participants vested account balance in the plan. Those who have outstanding plan loans with repayment due at any time before December 31, 2020 can now delay their repayments for up to 1 year.
The CARES Act also waives required minimum distributions for the year 2020 for all defined contribution plans such as 401(k), 403(b) and IRAs.
Small Business Relief:
Eligible small businesses may apply for a new Paycheck Protection Loan, which is a program that provides 8 weeks of cash-flow assistance through 100% federally guaranteed loans to small employers who maintain their payroll during the COVID-19 crisis. Eligible small businesses include those who have less than 500 employers. Physician practices are also eligible, regardless of how they are structured. If employers maintain their payroll during this time, then a portion of the loans (up to 8 weeks) used to cover payroll costs and some other expenses including rent, interest on mortgage, and utilities would be forgiven. The maximum amount that a business can borrow is the lesser of $10 million or 2.5x the average monthly payroll based on last year’s payroll.
Employers may also be eligible for an employee retention tax credit for keeping workers employed during this crisis. This is a refundable credit of up to 50% of qualified wages up to $10,000 per employee against applicable employment taxes.
In addition, the CARES Act provides employers with the ability to delay payroll taxes until 2021 and 2022.
Like you, the attorneys at Feinberg Sharma, P.C. are working their way through the many questions raised by the CARES Act and how it impacts all of us. Your CPA and banker will be most helpful in your many inquiries. www.fsfamlaw.com