COVID-19 Aid, Relief, and Economic Security (CARES) Act
- Employers, Employees and Unemployment
- Stimulus Checks
- New Tax provisions included in the act
1. Employers, Employees and Unemployment
In addition to the provisions previously outlined in our last update relating to Sick Pay credits, Family Leave Credits and SBA emergency loans, the new CARES act provides many more opportunities for employers and employees.
The most significant new piece of legislation for most employers is the Paycheck Protection Loan. This is a loan that can be obtained through any SBA lender (your local bank would be a good place to start), with a cap of 2.5 times average monthly payroll (employees with salaries above 100k are capped at 100k for purposes of this calculation). The rate is very reasonable at 3.75%. But, much better than that, this loan can actually be forgiven! As long as the funds are used for eligible expenses between the date of the loan and June 30th and the company maintains its payroll through the same time period, the company can apply for forgiveness from the lender by completing certain forms (these forms do not exist yet as this is a new law).Eligible expenses include payroll, rent, mortgage interest and utilities. This is a great way to get a lot of free money if your business is still operating. We are available to assist with these applications and will help you through the process.
Due to the tremendous demand for Paycheck Protection Program Loans, many banks are only accepting applications from customers with whom they already have established relationships. As a result, many of you may find it difficult to find a lender to work worth. We have made an arrangement with Meir Kessner of Eastern Union whose office is willing to accommodate new clients for this purpose. Meir’s office can be reached at 732-737-1912 or by email at firstname.lastname@example.org
Additionally, for businesses that are not operating there is a tax credit called the Employee Retention Credit. This allows for a certain amount of payroll tax credit for businesses that were forced to close at least temporarily. This credit is only available to businesses that are not using the Paycheck Protection loan, the sick pay credit or the family leave credit.
Deferral of employer payroll tax. The Act allows an employer to push off paying their current payroll tax (employer portion only). This deferral allows the employer to pay the taxes in 2021 and 2022 instead. This is basically an interest free loan, but should be used carefully as failure to repay this type of loan has serious consequences.
Unemployment. In addition to the regular state level unemployment, the federal government has promised to add $600 a week to the regular benefits for up to four months. Additionally, there is a new type of unemployment called Pandemic Unemployment Assistance. This should allow self-employed individuals to get some type of benefits as well. Details on how this will be managed are still unclear.
2. Stimulus Checks
Under the act, every adult in the country is eligible for a stimulus check. The checks will be sent based on previously filed 2018 or 2019 tax returns and do NOT require any action on the part of the recipient. The checks are calculated as follows:
The check is $1,200 per person ($2,400 for a married couple) plus an additional $500 per child (under 17).
Who is eligible? If you are single the Adjusted Gross Income Limit is $75,000. The limits for Married Filing Joint taxpayers are $150,000 and Heads of Household are subject to a limit of $112,500. Anyone earning under those amounts will receive the full credit. If your income is over those amounts, the check will be reduced by $5 for every $100 of income (essentially 5%) until it is $0.
To illustrate, a married couple with 4 children whose income is $100,000 will receive a check of $4,400 ($2,400 + 4*$500). If their income was $160,000, the $4,400 check would be reduced by $500 (5% of the $10,000 in excess of $150,000) and they would still receive a check of $3,900.
For those who used direct deposit for their tax refunds within the past 2 years, the IRS will deposit the credit to the account they have on file for you. Otherwise, they will send a check to your last known address. The IRS will send notification to your last known address within 15 days of sending the check informing you of the delivery method. There will be a phone number to call in the event you did not receive it.
The IRS will determine how much of an advance check to send you based on your 2019 tax filing. In the event you did not file your 2019 taxes yet, they will base it off your 2018 tax filing. If you didn’t file for 2018 either, they will use other information such as 1099s from Social Security to determine your eligibility. In the event, they are unable to make a determination the credit will be available upon filing your 2020 tax return.
3. New Tax provisions included in the act
There are lots of new tax provisions also included in the act. Here is a quick partial list of items that may be relevant to you:
- The NOL has been reinstated as a carryback and without an 80% limitation. This means that if a company loses money in 2020, they can carryback the loss to a prior tax year and get some money back in their pocket
- The Excess Business Loss rule has been eliminated for 2018-2020. This affects people with significant losses.
- The 163j interest limitation has been increased from 30% to 50% temporarily.
- The charitable deduction limitation has been increased from 60% to 100% of AGI temporarily. Also, even non-itemizers will be able to write off $300 as an above the line deduction.
- The RMD is waived for 2020 if someone does not want to take it. There are also exemptions for early withdrawal for people who have emergencies related to COVID-19.