Over the coming days, more & more information will be coming available about the massive stimulus package passed by the US government last week. In the interim, The National Directory of Registered Tax ReturnPreparers & Professionals has provided a bullet point summary of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). You care parse through all of the bullet points HERE.
Below you will find the areas I believe to be most applicable:
Highlights - What the tax changes mean for Individuals and their clients and businesses:
- Individuals and their families and their clients, as well as most Americans, with incomes below the thresholds will receive cash payments from the federal government in the amount of $1,200 per adult plus $500 for each child under the age of 17. These payments should be sent out starting in April.
- Credits are reduced by 5% of the excess of adjusted gross income (AGI) over these thresholds:
- $75,000 for a single return;
- $150,000 for a joint return; and
- $112,500 for a head of household return:
- Thus, the credits would be fully phased out for income higher than the following amounts:
- $99,000 for a single person with no qualifying child;
- $198,000 for a couple filing a joint return with no qualifying children;
- $218,000 for a couple filing a joint return with two qualifying children;
- $146,500 for a single parent with one qualifying child:
- (in all cases, the level of income before the phaseout is complete increases by $10,000 per child).
- For limitation purposes, AGI is based on the 2019 tax return, if filed. If not, then AGI on the 2018 return would be the limit.
- (in all cases, the level of income before the phaseout is complete increases by $10,000 per child).
- The credits are not available to anyone who can be claimed as a dependent on another's return.
- Credits are reduced by 5% of the excess of adjusted gross income (AGI) over these thresholds:
- Individuals with retirement accounts, including IRAs, can take early withdrawals of up to $100,000 from those accounts without having to pay the 10% early-withdrawal penalty. Those who withdraw such funds can recontribute them to the plan over three years or can keep the money and pay the tax on the withdrawals over a three-year period.
- Individuals aged 70 1/2 or older do not have to worry about taking required minimum distributions from retirement plans in 2020, or to pay the taxes on those distributions.
- Individuals who make donations of up to $300 in charitable contributions in 2020 can deduct them whether they itemize or not.
- If your business has 100 or fewer employees, you can claim a refundable employee retention tax credit against payroll taxes of up to $5,000 per employee under certain circumstances. Larger employers also can claim the credit, but with more restrictions.
- Employers and self-employed individuals can delay the payment of the employer-portion of the FICA (Social Security) payroll taxes or one-half the SECA (self-employment taxes) until after 2020 - one half is due in 2021 and the other half in 2022.
- Businesses with losses can carry back net operating losses (NOLs) to prior taxable years and get refunds of earlier taxes paid.
Unemployment Benefits for Self-Employed
- Self-employed individuals, independent contractors, and other individuals who are unable to work as a direct result of COVID-19 public health emergency, and would not qualify for regular unemployment benefits under state law may be eligible to receive "Pandemic Unemployment Assistance".
- This excludes individuals who have an ability to telework with pay or individuals who are receiving sick leave or other paid leave benefits.
- The unemployment assistance is available to individuals who are unemployed, partially unemployed, or unable to work for the weeks impacted as a result of COVID-19 between Jan. 27 - December 31, 2020.
- These benefits will be administered by the states, in accordance with this new Federal law.
- There is a maximum of 39 weeks of assistance, where the amount is equal to what is authorized under the state unemployment compensation law, plus an additional $600 per week for up to four months.
Student Loans
- Suspends all payment due on federal student loans for 6 months.
- Interest shall not accrue on these during this forbearance.
- For the purpose of loan forgiveness, loans will be deemed paid during the forbearance.
- Prohibits negative credit reporting or involuntary debt collection during forbearance period.
Emergency Economic Injury Disaster Loan (EIDL) Grants (Section 1110)
- Businesses with 500 employees or fewer, including sole proprietors, independent contractors, and cooperatives are eligible for Economic Injury Disaster Loans (EIDL) during the covered period of January 31st to December 31, 2020 in response to COVID-19.
- The business must show hardship due to the Coronavirus.
- The Economic Injury Disaster Loans are available for up to $2 million dollars for businesses.
- During the covered period, SBA can determine loan eligibility based solely on the applicant's credit score or use of an alternative appropriate method for determining an applicant's ability to repay.
- The SBA must waive any personal guarantee on loan advances or loans under $200,000.
- Legislation provides $10 billion in funding to provide an emergency advance of up to
- $10,000, which is forgivable debt, to small businesses within 3 days of the business applying for the Economic Injury Disaster Loan (EIDL).
- Economic Injury Disaster Loans may be used for the following:
- Paid sick leave to employees impacted by COVID-19
- Payroll
- Rent/Mortgage Payments
- Debt obligations due to loss revenues
- Increased costs for due to chain supply disruptions and materials.
SBA 7(a) Payroll Protection Program (Section. 1102 & 1106)
- Businesses with 500 employees or fewer, including sole proprietors and independent contractors, are eligible for SBA 7(a) loans in response to COVID-19 covering expenses for the period of February 15, 2020 through June 30, 2020. The CARES Act appropriates $349 billion to cover these loans.
- The loan amount will be 250% of the average salary expenditures/month for the year prior to the loan, up to $10 million. For businesses not open yet in that period, the SBA will look at earlier receipts from 2020.
- 7(a) loans can be used for:
- Payroll, including for independent contractors and employees who work on commission;
- Rent/Mortgage interest;
- Utilities.
- All or a portion of these loans will be forgivable for businesses that maintain at least 75% of the average payroll levels as in the previous year; forgivable amounts phase out as employers payroll levels drop below that.
- The bill also increases the SBA "Express Loan" limit from $350 thousand to $1 million.
For a comprehensive review of your personal situation, always consult your legal advisor. Neither First Allied Securities nor any of its representatives may give tax or legal advice.