Highlights from the CARES ACT (Coronavirus Aid, Relief and Economic Security Act)
There is a lot of information (and misinformation) circulating about the CARES Act. We know how uncertain these times are and want you to have the most up to date and relevant information concerning your finances in this unprecedented time. We compiled a list of highlights regarding the CARES Act.
Recovery Rebates for Individuals
Pandemic Unemployment Insurance
Net Operating Loss Changes
Employee Retention Credit
Payroll Tax Payments
Increased Incentives for Charitable Contributions
Small Business Loans (Paycheck Protection)
- Recovery Rebates for Individuals – CARES provides checks of up to $1,200 for each qualified adult ($2,400 for married couples) and $500 per child. The full rebate amount is available if you have income at or below $75,000 ($150,000 for married couples), phases out as income increases and is capped with income above $99,000 ($198,000 for married couples). See how much you qualify for by clicking here. If you have additional questions, check out our Q&A blog.
- Pandemic Unemployment Insurance – The CARES Act expands the existing state-level unemployment insurance benefits for those collecting unemployment due to the COVID-19 shutdown. It will add $600 per week to existing state-level benefits through the end of July. It will also extend benefits (to those who need it) for an additional 13 weeks beyond what states usually permit. This Pandemic Unemployment Assistance will even cover many who would normally be excluded from a state’s program like independent contractors, free lancers, self-employed individuals, “gig” workers (i.e. Lyft or Uber drivers) and even those laid off from religious institutions. It will not be available to those who are compensated for working remotely or are receiving paid leave.
- Retirement Plans – If you plan on withdrawing from your retirement, the CARES Act waives the normally imposed 10% penalty for premature withdrawals from retirement accounts up to $100,000 and permits 3 years for repayment. If not repaid, income is spread over 3 years. The limit of $50,000 for loans from qualified loans is increased to $100,000. Required Minimum Distributions are suspended for 2020.
- Student Loans – The CARES Act includes relief for student loan borrowers. Under the new law, no payments are required on federal student loans owned by the U.S. Department of Education between March 13, 2020 and September 30, 2020. Employer payments on employee student loans is a tax-free fringe benefit for 2020 (not to exceed $5,250 decreased by other educational assistance programs).
- Net Operating Loss Changes – Under the CARES Act, taxpayers with 2018, 2019, and 2020 net operating losses (“NOLs”) may now be able to obtain tax relief by filing amended returns to claim tax refunds by offsetting taxable income from prior years. The tax act passed at the end of 2017 eliminated a taxpayer’s ability to carry back an NOL, only to be carried forward (indefinitely) and, even then, limited to 80% of income. For tax years beginning before 1/1/2021, the CARES Act will now allow net operating losses to be carried BACK to offset 100% of income for the prior 5 years (i.e. 2013 thru 2017). The Act also allows NOLs stemming from tax years beginning after 12/31/2020 to offset 100% of income going forward rather than 80% limitation.
- Employee Retention Credit – The CARES Act helps employers whose businesses were disrupted due to COVID-19 by giving a credit to help continue employee payment. Any size employer may be eligible for a 50% refundable tax credit of up to $10,000 of wages plus health insurance paid per eligible employee. Qualified employers will access the funds via a payroll tax credit. The business must have a loss of 50% of revenue from the same quarter of the prior year due to the COVID-19 crisis. The retention credit ends when revenue increases to at least 80% of what the business earned in a comparable quarter of the prior year. NOTE… employers are NOT eligible for the credit if they receive a Small Business Interruption Loan under the Paycheck Protection Program.
- Payroll Tax Payments – The CARES Act allow employers (of any size, even sole proprietors) to delay payment of their 2020 payroll taxes until 2021 and 2022. 50% of the 2020 payments will be due in 2021, and the balance will be due in 2022. FICA taxes are imposed on both employers and employees’ wages at a rate of 6.2% for the Social Security tax and 1.45% for the Medicare Tax. Self-employed individuals pay a corresponding self-employment tax effectively twice that amount. The CARES Act allows an employer to defer the employer portion of the social security tax and, to answer one question we envision, 50% of the self-employer’s social security component.
- Increased Incentives for Charitable Contributions – The CARES Act attempts to get funds to charitable organizations quickly by allowing both individuals and businesses to claim increased deductions for all cash contributions. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The Act permits an “above the line” deduction of up to $300 during 2020. Limitations for 2020 are relaxed so that individuals can take an itemized deduction for cash contributions of up to 100% of their gross income while corporations can deduct up to 25% of its taxable income. Donor advised funds or private foundations do not qualify for these limitations for 2020.
- Small Business Loans (Paycheck Protection) – The CARES Act enables employers (including self-employed individuals) with less than 500 employees to participate in an 8-week loan program for up to 250% of the monthly payroll brought about by the economic uncertainty as long as they maintain their payroll during this COVID-19 emergency. Check out our easy to follow chart by clicking here. No personal guaranties or collateral is required. There is forgiveness available for the portion of the loans used for covered payroll costs, interest (not principal) on mortgage loans, rent, utilities and interest on any other debt obligations incurred before the covered period as long as the employer maintains payroll. The maximum payroll cost is limited to $100,000 annualized per employee, including salary, wage, vacation, parental, medical, family or sick leave. Payroll costs also includes retirement benefits, health care benefits, and employer portion of state/local taxes accessed on wages. Seasonal businesses have an option to use a 12-week period starting Feb. 15, 2019 or March 1, 2019, and ending June 30, 2019. Employers must maintain the number of employees and pay by June 30, 2020. In order for the loan to be forgiven, employers must meet certain guidelines. Check out our blog here for more details on the SBA Loans.
Some important things to keep in mind:
- These laws are changing daily. We will try our best to update our blogs as the information evolves. Please go directly to the source for the most current information.
- Do not trust all resources you are reading, ESPECIALLY social media. Go to the source. Treasury.gov, SBA.gov, IRS.gov, Congress.gov
- Watch out for scams. Be careful of phishing emails related to “cures”, uninitiated contact related to the stimulus check, solicitation by fake charities, and any other cyber attacks.
If you have any questions, please don’t hesitate to reach out to us. We’re happy to help!