==== Important Disclosure. Please read ====
The team members at Albion Financial Group are neither attorneys nor accountants. This brief summary is shared to make you aware of some of the provisions that might impact you in the massive $2 trillion CARES ACT that was signed into law on March 27, 2020. We offer this summary only as a useful starting point. Interested readers are strongly encouraged to contact their accountant or tax attorney for more information on any of the items below. An excellent summary of many of the provisions of this act can be found at the National Law Review at: https://www.natlawreview.com/article/president-trump-signs-law-coronavirus-aid-relief-and-economic-security-cares-act
Approximately 90% of American families will see a one-time payment to help with the fallout from the coronavirus. In general, the payments will be $1,200 for individuals and $2,400 married couples; plus $500 per child under 17 years old. There are income phaseouts that begin at $75,000 for individuals filing singly, $112,500 for head-of-household filers, and $150,000 for married couples (filing jointly). The phaseout means you lose $5 for every $100 above your threshold amount. It is believed these checks will arrive in mid-May. You do not need to apply to get these checks. Eligibility for rebate checks will be based on your most recently filed federal income return (either 2018 or 2019). If your 2019 income was substantially higher than 2018 you may benefit by delaying your 2019 filing (2019 filing deadline is now July 15, 2020) in order to have your recovery rebate calculated on your 2018 income.
Enhanced Unemployment Benefits
Prior to this outbreak, the average unemployment benefit was $380 per week and recipients had to wait one week before benefits began. Under the provisions of the Pandemic Unemployment Insurance Plan, the one week waiting period is waived and recipients will receive a bonus check (in addition to their normal benefits) of up to $600 per week for up to 4 months. The bonus checks will make a difference in the lives of millions of Americans unemployed through no fault of their own. Interesting fact: Readers will note that $600 per week is equivalent to earning a wage of $15 per hour for a 40 hour work week. A worthwhile site to find out how to apply for unemployment in any state is https://www.careeronestop.org/LocalHelp/UnemploymentBenefits/Find-Unemployment-Benefits.aspx
Small Business Loan (Paycheck Protection Program)
The CARES ACT includes government guaranteed loans designed to provide a direct incentive for small businesses to keep their workers on the payroll. They are available through SBA lenders and some or all of the loan may be forgivable if certain provisions are met. Importantly, the monies for these loans are limited so it is important to apply early. Contact your SBA lender for information on when their application process opens. For instance, one lender – Silicon Valley Bank – has indicated that loan applications are now available online and can be submitted as early as Monday, April 6. The final deadline for applications is June 30, 2020. For more information, see https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp#section-header-0
Employee Retention Credit (ERC)
The ERC is designed to encourage eligible employers to keep employees on their payroll despite experiencing economic hardship related to COVID-19. The ERC gives a refundable credit against payroll taxes owed of up to 50% of the wages paid to eligible employees after March 12, 2020 and before January 1, 2021. The maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. Importantly, not every business will qualify for the ERC. In general, the business will have had their operations fully or partially suspended due to a government mandate or have suffered revenue losses of more than 50% versus the same quarter in 2019. For more information, please see https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
Deferral of Payroll Taxes
Employers, both businesses and non-profits, may be able defer payments for the employer portion of payroll taxes incurred between the date the CARES Act was enacted (March 27, 2020) through December 31, 2020. If deferred, the employer would instead pay 50% of this amount by December 31, 2021, and the remaining 50% by December 31, 2022. The eligible payroll taxes are the employer’s portion of Social Security taxes—6.2% of an employee’s wages. Self-employed taxpayers can also defer the employer’s portion of Social Security taxes in the self-employment tax. Per Senator Schatz’s website below, employers are eligible to defer their payroll taxes, unless they receive a loan under the SBA Paycheck Protection Program (see description above). More information at https://www.irs.gov/coronavirus and https://www.schatz.senate.gov/coronavirus/payroll-tax-deferral
Other Important Provisions You Should Know About
Below are several other important aspects of the Act that either you or those you love might benefit from knowing. We share these in bullet point format and encourage you to call your Senior Wealth Advisor at Albion for more information if you feel you might want to explore them further:
- Early Withdrawals from Retirement Accounts – Up to $100,000 distribution, in total, from IRAs and employer plans without the normal 10% federal penalty for those under 59.5 years old. Caution: state penalties may still apply. The distribution must be coronavirus related (fairly broad). Withdrawals are still taxable, but tax payments may be spread over 3 years. Taxpayers may recontribute the funds to an eligible retirement plan within 3 years without regard to that year’s cap on contributions.
- Loans from employer retirement accounts (401k, 403b, etc.). Normal loan limit is raised from $50,000 to $100,000 (or 100% of current value, whichever is less). Note: Employers will need to amend their plan documents to take advantage of this provision.
- Required Minimum Distributions are suspended for 2020. Might be able to “undo” 2020 disbursement already taken if within 60 days of distribution.
- Deferral of Payments for Federal Student Loans – May suspend payments until September 30, 2020 and no interest accrues during the interim. Borrowers may have to proactively contact the lender if they wish to suspend payments. (Important note: these CARES Act provisions exclude borrowers with Perkins loans, FFEL loans, and private student loans).
- Above the line charitable donation of $300 is now available for donations to 501(3)(c) charities. Donation must be made in cash and can NOT be made to a donor advised fund or to a 509(a)(3) supporting organization. An eligible individual is any individual taxpayer who does not elect to itemize deductions.
- AGI limit for charitable donations temporarily repealed. Effectively raises AGI limit from 60% to 100%-of-AGI. Again, cash contributions only and must go to 501(3)(c) NOT to a donor advised fund or 509(a)(3) supporting organization.