The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law this past Friday (March 27, 2020), giving individuals and businesses much-needed financial reprieve in coming weeks and months. This relief takes shape in multiple forms, from tax credits to loan payment deferrals to rebates.
We have included highlights from the CARES Act below for your reference. Please note there are many other provisions in the CARES Act that may benefit you, especially if you are a business owner.
Tax Return Filing and Payment Due Date Extension to July 15, 2020
The due date for 2019 federal tax return filings and payments has been extended to July 15, 2020. Many, but not all, states have extended their due dates as well. Please refer to your state’s Department of Revenue website for accurate filing and payment due dates.
If you make quarterly estimate tax payments, the 2020 first quarter Federal tax payment deadline has been extended to July 15, 2020, but the 2020 second quarter deadline is still June 15, 2020.
2019 IRA Contribution Deadline Extension to July 15, 2020
The IRS also extended the deadline for 2019 IRA contributions to July 15, 2020. If you have not yet made your IRA contribution for 2019, you have until July 15, 2020 to do so.
2020 Required Minimum Distributions (RMDs) Waiver
Required Minimum Distributions (RMDs) from retirement accounts are waived for 2020. This allows account owners to skip both their 2019 RMD if it was their first year taking RMDs and had not yet made an RMD by April 1, 2020, and their 2020 RMD. In the event a client has taken distributions from their IRA in the last 60 days, they are able to put the amount of the distribution back into the IRA (as an “indirect rollover”) to avoid the tax consequences.
Charitable Contributions Incentive
The CARES Act provides an above-the-line deduction for “qualified charitable contributions” up to $300 for individuals who do not itemize deductions. The CARES Act also increases the income limitations on charitable deductions by suspending the 60% adjusted gross income (AGI) limitation for 2020. Thus, individuals may deduct qualified contributions in 2020 up to 100% of their AGI. Any excess qualified contributions are carried forward to future years in the same manner as other charitable contribution carryovers.
This provision is useful to taxpayers who elect to itemize their deductions in 2020 and make cash contributions to certain public charities. As with the above-the-line deduction, contributions to non-operating private foundations or donor advised funds are not eligible.
Recovery Rebates
Individuals with adjusted gross income (AGI) up to $75,000, heads of household with AGI up to $112,500, and married couples filing jointly with AGI up to $150,000 are eligible to receive recovery rebates of $1,200 individual/$2,400 married. Qualifying children under 17 increase that amount received by $500 each. There is a $50 reduction in the rebate for every $1,000 of adjusted gross income above these caps. The income is based on 2019 tax returns (if filed), otherwise it is based on 2018 tax returns.
Student Loan Payments Suspension
Payments of FFEL (Federal Family and Education Loans) and Direct Loans have been suspended until September 30, 2020. Interest will not accrue while the loan payments are suspended. Additionally, up to $5,250 in employer-paid educational assistance in 2020 will be tax-free to the employer.
Penalty-free Early Retirement Account Distributions
If the owner of an IRA wishes to make a 2020 distribution but has not yet reached 59 ½, they may distribute up to $100,000 from their IRA without being subject to the 10% penalty. Such a distribution may be reported as income over three years beginning in 2020. If the distribution has been repaid into the IRA within the three years, it will not be subject to federal income taxation; in the case that income tax has already been paid on the distribution, the IRA owner can receive a refund for the taxes paid.
Participant Retirement Plan Loans
From March 27, 2020, to December 31, 2020, qualified retirement plan participants may take a loan up to the lesser of 1) $100,000 (normally $50,000) or 2) 100% of their vested balance, and the repayment due date is delayed for one year.
Small Business Administration (SBA) Forgivable Loans for Payroll and Overhead
Small businesses with a maximum of 500 employees that have been significantly and negatively impacted by the Coronavirus may apply for a loan to assist with employee payroll and overhead for an eight-week coverage period. The business may apply for an amount up to the lesser of 1) $10 million or 2) 2.5 times the average total monthly payments for payroll, business mortgage, and overhead for the trailing twelve months. This loan may be used for payroll (up to $100,000 annual salary per employee) and qualified costs such as utilities, rent or business mortgage, and business debt obligations.
At the end of the eight-week period, the business would be eligible for loan forgiveness that is reduced by a 25% or higher employee wage reduction or employee layoffs. Essentially, if, in that eight weeks, the business keeps all employees, doesn’t reduce wages by more than 25%, and spends the loan for allowable uses, the entire loan is forgiven at the end of the eight weeks.
Payroll Tax Credits for Retained Employees
Certain employers affected by the pandemic who retain their employees will receive a credit against payroll taxes for 50% of eligible employee wages paid or incurred from March 13 to December 31, 2020. This employee retention credit would be provided for as much as $10,000 of qualifying wages, including health benefits. Eligible employers may defer remitting employer payroll tax payments that remain due for 2020 (after the credits are deducted), with half being due by December 31, 2021, and the balance due by December 31, 2022.
Additional Unemployment Compensation Benefits
Employees laid off due to COVID-19 will be able to receive an additional $600 per week for up to four months, on top of their state unemployment benefit. Employees who are ineligible for state unemployment benefits or who have already exhausted their state benefit will also be able to receive this assistance. Employees who have reduced hours in lieu of a layoff can also apply for short term compensation.
For more comprehensive information about the CARES Act, we encourage you to read analysis performed by KPMG which can be found here: https://assets.kpmg/content/dam/kpmg/us/pdf/2020/03/tnf-cares-act-mar27-2020.pdf
Securities offered through Sanctuary Securities, Member FINRA and SIPC. Advisory services offered through Sanctuary Advisors, LLC., an SEC registered investment advisor.
