CARES ACT HIGHLIGHTS MAILING 4/1/2020
On March 27th, 2020 the CARES Act (Coronavirus Aid, Relief, and Economic Security) was signed into law. This is the largest economic stimulus package in history, amounting to approximately $2 trillion of aid.
This 883-page act contains several provisions designed to provide Americans some relief during these challenging times. Here is a summary of some of the key provisions.
Relief for Individuals and Families
Recovery Rebates for Individuals:
To provide some short-term cash flow relief, many Americans that filed a 2018 or 2019 tax return can expect to receive a rebate from the Federal Government.
Individuals (married couples) with an Adjusted Gross Income (AGI) less than $75,000 ($150,000) will receive $1,200 ($2,400). Additionally, each child in a qualifying household under the age of 17 entitles the family to an additional $500 per child. If your AGI is higher than these limits, the rebate will be reduced then phased out entirely for AGIs above $100,000 ($200,000).
Temporary waiver of Required Minimum Distribution rules: Individuals that were expecting to take required minimum distributions (RMDs) from their retirement accounts this year were afforded some relief. RMDs from IRAs and defined contribution plans have been waived for 2020. For those that have already taken a portion or all of their 2020 RMD, you may be able to “un-do” this if completed in a timely manner.
Tax-favored withdrawals from retirement plans: If you have been impacted by COVID-19, you may be able to withdraw up to $100,000 from your retirement accounts penalty-free with the possibility of repayment of distribution over a three-year period.
Regarding qualified plan loans: If you need to take a loan from your employer-sponsored retirement account, you may be able to withdraw the lesser of $100,000 or 100% of your vested account balance from your employer plan.
Expanded Unemployment & Reduced Work Benefits:
The federal definition of unemployment was expanded to increase the number of individuals eligible for these benefits, including self-employed workers. In addition to state benefits, unemployed individuals will receive Federal support in the amount of $600 each week for up to four months.
Unemployment benefits in many states (including California) are typically limited to 26 weeks. The CARES Act provides for 13 extra weeks of unemployment, meaning unemployment benefits can cover 39 weeks (26 regular + 13 extra).
Incentives to Create Short-Time Compensation Programs:
If your work hours have been materially reduced due to COVID-19, the Federal government program may help fill the gap by paying a pro rata portion of the unemployment compensation you would have received if you were unemployed.
For individuals that do NOT itemize deductions (file Schedule A), you’re allowed to deduct up to $300 of any charitable contributions you make this year. If you DO itemize deductions, the current year charitable tax-deduction limit for cash contributions has been increased to 100% of your 2020 adjusted gross income (AGI).
Definition of Medical Expenses Expanded:
Individuals that have HSAs, MSAs, & FSAs will now be able to include over-the-counter (OTC) medications as eligible medical expenses. Additionally, Telehealth services will be temporarily covered by HSA-eligible High Deductible Health Plans (HDHP).
A small, but notable change for individuals who have Medicare Part D plans: you can now request up to 90-day supply of medication.
Federal Student loan payments have been deferred through September 30th, 2020. Additionally, no interest will accrue during this time.
Relief for Businesses
The CARES Act includes a number of packages designed to alleviate the hardships that businesses are facing. Some of the more notable provisions are:
These loans may be equal to the lesser of 2.5 months of payroll or $10 million for a period of up to 10 years. To be eligible for forgiveness, businesses must use these proceeds on specified expenses, such as payroll, rents, utilities, and healthcare. Additionally, businesses must maintain the same number of employees from 2/15/2020 through 6/30/2020 that matches the same number they had during a predefined period.
2020 Payroll tax deferral Option:
50% will be due on 12/31/2021, with the remaining 50% coming due on 12/31/2022.
Other Notable Provisions for Businesses:
- Employee Retention Credit: The bill grants to certain employers a refundable credit against the employer portion of Social Security taxes.
- Expansion and revisions for corporations to deduct Net Operating Losses (NOL’s)
- Acceleration of recovery of AMT tax credits
- Relaxation of limits on business interest deductions
There are a number of additional provisions, but ultimately the goal is to help small businesses keep their workers employed.
These are unprecedented times we’re facing, individually and as a nation. While much uncertainty remains, we’ll get through this together. Please know you can reach out if we can be of service to you in any way.
The information presented herein is a very high-level summary of the CARES Act, a very lengthy and detailed piece of legislation. We are sharing it for educational purposes only; nothing herein should be interpreted as tax advice. Please consult your CPA or tax preparer before making any decisions regarding your tax situation.