The CARES Act does the following:
• Many U.S. residents will receive $1,200 (or $2,400 for joint filers) plus $500 per child under age 17. This benefit will be reduced as taxable income exceeds $75,000 for singles and $150,000 for marrieds filing jointly. Singles who have taxable incomes above $99,000 and marrieds filing jointly who have taxable incomes above $198,000 will not receive anything. Importantly, you must have filed a 2018 OR 2019 tax return to qualify. If you have, there is nothing for you to do at this time.
• If you have lost your job, or if you are self-employed with no employees, you will most likely qualify for unemployment benefits. To apply for immediate unemployment benefits in Florida, please go to https://connect.myflorida.com/Claimant/Core/Login.ASPX. If you are located in another state, please check your state’s unemployment website.
• Payroll Protection Program. Generally, any business with less than 501 employees (including self-employed individuals, independent contractors, sole proprietors, and non-profits) are eligible for a low-interest loan. The covered period is from February 15, 2020, to June 30, 2020. The maximum is 2.5 times certain monthly payroll costs, health insurance costs, mortgage payments, rent, interest on some debt payments, and utilities. If done properly, there is no recourse against the borrower, no personal guarantees, and no required collateral. There is also an element of forgiveness based upon a formula. Please visit https://covid19relief.sba.gov/#/
• Retirement Plan Distributions. Up to $100,000 can be distributed from a qualified retirement plan for those with vested account balances equal to this amount. There is no 10% premature distribution penalty for distributions before age 59½, and tax on the distribution can be spread over 3 years. There is no tax withholding and distributed amounts can be repaid over 3 years.
• Up to the lesser of $100,000 or 100% of a participant’s vested account balance can be borrowed from a qualified retirement plan. There is even a deferral period before repayment commences.
• There is no Required Minimum Distribution (the “RMD”) in 2020. Taxpayers, usually age 72 or older, will not be required to distribute the RMD from qualified defined contribution plans this year. This will prevent a participant from having to sell securities at a low price to fund an otherwise required distribution in 2020.
• The percentage limitations on gifts of cash to a public charity have been increased from 60% to 100% of the taxpayer’s contribution base (approximately Adjusted Gross Income). Corporations go from 10% to 25%.
• An employer can delay the payment of its half of Social Security Tax (but not the employee portion). This also includes Self Employment Taxes. 50% of the deferral will be due on December 31, 2021, and the remainder on December 31, 2022. This increases cash flow.
• Net Operating Losses (“NOLs”) have been liberalized so that NOLs can be carried back for five years from 2018, 2019, and 2020. This will result in tax refunds for businesses that paid Income Tax in earlier years but now are suffering losses.
• The Act provides a refundable payroll tax credit of 50% of employer wages (not to exceed $10,000 per employee) for businesses that were prohibited from operating during the pandemic. Thus, the maximum is $5,000 per employee.
• Limits corporate stock buybacks and executive pay for airlines that receive grants or loans from the federal government to stay afloat. It would also fix the so-called retail glitch by allowing retailers to immediately write off expenses related to physical improvements instead of depreciating them over 39 years.
• Sets aside $150 billion for states and localities whose tax revenues would be affected by moving the federal tax filing date from April 15 to July 15. The legislation also includes $130 billion to help hospitals, nursing homes, and other health care facilities.
• Provides for the appointment of an inspector general and a congressional oversight board to scrutinize grants and loans made by the U.S. Department of the Treasury to businesses to help address the impact of COVID-19.
As further details of the Cares Act unfold, we will be on top of it and share it with you. Hopefully, you or someone you know will be able to benefit from one or more of these provisions, to help us all get through this challenging time.