My Thoughts on the CARES Act –
Late last week Congress passed and President Trump signed, the largest economic bill in U.S. history. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) became law. The cost of the bill is anticipated to be over $2 trillion and could be up to $6 trillion when you count small business loans, etc. This was an 883-page bill so summarizing it briefly is nearly impossible. However, we wanted to highlight the provisions of the CARES Act that directly affect most of you.
Recovery Rebates / Cash payments: Most individuals earning less than $75,000 can expect a one-time cash payment of $1,200. Married couples would each receive a check and families would get $500 per child. That means a family of four earning less than $150,000 can expect $3,400. The checks start to phase down after that and disappear completely for individuals making more than $99,000 and couples making more than $198,000. The cash payments are based on either your 2018 or 2019 tax filings. People who receive Social Security benefits but don't file tax returns are still eligible, too. They don't need to file taxes; their checks will be based on information provided by the Social Security Administration.
Coronavirus Related Distributions: The bill allows distributions of up to $100,000 made from IRA’s, employer-sponsored retirement plans, or a combination of both, which are made in 2020 by an individual who has been impacted by the Coronavirus. These distributions are exempt from the 10% penalty, not subject to mandatory withholding requirements, are eligible to be repaid over 3 years, and the income and therefore tax may be spread over 3 years.
Required Minimums Distributions (RMDs): Distributions are waived in 2020, and taxpayers who have already taken their RMD’s for 2020 have the option of returning them, if they so choose. We will be doing our best to review all of our clients who receive RMDs and will discuss changes to your distribution plan for this year if appropriate.
Extra unemployment payments: The bill makes major changes to unemployment assistance, increasing the benefits and broadening who is eligible. States will still continue to pay unemployment to people who qualify. That amount varies state by state, as does the amount of time people are allowed to claim it. This bill adds $600 per week from the federal government on top of whatever base amount a worker receives from the state. That boosted payment will last for four months. For example, if an out-of-work person is receiving the national average of about $340 per week, under the new federal program their take-home pay will be $940.The legislation also allows for 13 weeks of unemployment insurance. People nearing the maximum number of weeks allowed by their state would get an extension. New filers would also be allowed to collect the benefits for the longer period. Typically, self-employed people, freelancers and contractors can't apply for unemployment. This bill creates a new, temporary Pandemic Unemployment Assistance program through the end of this year to help people who lose work as a direct result of the Coronavirus.
Extended Tax Filing Deadline: Most of you are aware that the deadline to file your federal income taxes has been extended to July 15th. It is important to note that not all states have adopted the same changes for state income taxes. North Carolina adopted the July 15th due date for 2019 tax returns but the state will charge interest on any April 15th balance due at a rate of 5%. If you are a client living in another state, please reach out to us and we can let you know how your state is handling this.
Student loans: All loan and interest payments would be deferred through Sept. 30 without penalty to the borrower for all federally owned student loans. Employers can provide up to $5,250 in tax-free student loan repayment benefits. That means an employer could contribute to loan payments and workers wouldn't have to include that money as income.
Insurance coverage: The bill requires all private insurance plans to cover COVID-19 treatments and makes all Coronavirus tests free.
Small Business Relief: The main features for small businesses are emergency grants and a forgivable loan program for companies with 500 or fewer employees. There are also changes to rules for expenses and deductions meant to make it easier for companies to keep employees on the payroll and stay open in the near-term. There is $350 billion allocated for the Small Business Administration to provide loans of up to $10 million per business. Any portion of that loan used to maintain payroll, keep workers on the books or pay for rent, mortgage and existing debt could be forgiven, provided workers stay employed through the end of June.
Big Businesses: The bill sets aside roughly $500 billion in loans and other money for big corporations. These companies will have to pay the government back and will be subject to public disclosures and other requirements. About $58 billion is allocated to help airlines stay open. The bill also includes a stock buyback ban. Any company receiving a loan under the program is barred from making stock buybacks for the term of the loan plus one year. All loans, their terms and any investments or other assistance provided by the government must be publicly disclosed. The bill establishes a fully refundable tax credit for businesses of all size that are closed or distressed to help them keep workers on the payroll. The goal is to get those employees hired back or put on paid furlough to make sure they have jobs to return to.
Public Health / Other: The bill also provided approximately 540 billion in support for Public Health, Hospitals, Drug Access, State & Local Governments & Social Safety Nets like child nutrition, food stamps and food banks.
This bill is not perfect, none of them ever are. Winston Churchill said “perfection is the enemy of progress.” We feel that the CARES Act makes progress in the economic fight against this virus. The Federal Reserve has taken dramatic steps with monetary policy and now Congress has complemented their effort with major fiscal stimulus by passing the largest economic stimulus package in our country’s history.
Bottom Line: Please feel free to reach out to us if you would like to discuss how the CARES Act (and/or the Coronavirus) could impact you and/or your business’ financial situation.
Please feel free to email us with any questions.