Back in April in response to the economic harm that the COVID19 virus caused, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020. The Act provided an estimated $2 trillion in assistance, including almost $500 billion in individual rebate checks, another $650 billion (in two phases) to support businesses and industries that had their operations affected, $400 billion in tax credits to businesses for wages and payroll tax relief, $300 billion to support various state and local governments and $150 billion to support the health care system. Now, due to the continued effects of the Coronavirus, additional stimulus plans are being considered.
There are five major Congressional stimulus proposals (remember, not signed into law yet) that would provide additional financial support. A sixth, The HEROES Act, would provide another one-time stimulus check.
1) The Emergency Money For The People Act would provide a $2,000 monthly stimulus check for up to one year.
2) The Automatic Boost to Communities (ABC) Act would provide a monthly stimulus check for $2,000 for at least 12 months during the payment period, with an additional $1,000 monthly payment for the following 12 months.
3) The Monthly Economic Crisis Support Act would provide a $2,000 monthly stimulus check for at least six months.
4) The Rent and Mortgage Cancellation Act would cancel rent and mortgage payments for up to one year.
5) The Getting American Back to Work Act would provide a payroll tax rebate that covers 80 percent of payroll expenses, enabling businesses to hire and retain employees.
Will any of these stimulus proposals be passed? There is a great financial need and it is likely we will see additional stimulus bills passed before yearend. However, at the time of this Newsletter, the form of what the stimulus bill will ultimately look like is yet to be determined.
The Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020
Important Tax Provisions for 2020
Passage of the CARES Act provides taxpayers with a variety of tax related provisions in addition to the Recovery Stimulus checks that were released beginning in April. Some of the major individual provision are:
Elimination of 10% Additional Tax for Coronavirus-Related Retirement Plan Distributions
An exception to the 10% distribution penalty is provided by the CARES Act for “coronavirus-related” distributions of up to $100,000 made to a qualified individual for pre-59 ½ distributions from retirement accounts but would still be subject to regular income taxes.
These distributions may be repaid over three years by redepositing any or all of the distribution back into their retirement account. The funds can be returned as a single contribution or a series of contributions made over the three-year time frame starting the day after the distribution is taken.
A taxpayer can elect to have all the income reported in 2020 or may split it evenly between the 2020, 2021 and 2022 tax years, those are the only choices.
Loans from Employer-Sponsored Retirement Plans
Employer-sponsored plans, such as 401(k)s and 403(b)s, may contain loan provisions. If you participate in a plan that includes a loan provision, the CARES Act expanded the availability of these types of loans to the lesser of 100% of the account balance or $100,000.
Loan repayment can be delayed for up to one years on loans made through December 31, 2020.
Required Minimum Distributions (RMDs) Waived in 2020
RMDS on all retirement plans are suspended for 2020. This includes Traditional, SEP, and SIMPLE IRAs, and employer plans such as 401(k)s, 403(b)s, governmental 457(b)s and inherited IRAs.
If you already took your RMD for 2020 and wish to return those funds to the account to avoid paying tax, there are two options. If the initial distribution was taken with the last 60 days, you may return the funds to the account as a 60-day rollover. Before and after 2020 you are only allowed one rollover per 365-day period but under the CARES Act, the 60-day rollover has been extended to August 31, 2020 regardless if you took more than one distribution in 2020.
If you are already outside of the extended 60-day window and you are able to meet the definition for a coronavirus-related distribution, as described earlier, you would have three years to return the amount you initially distributed as an RMD. While the definition of this distribution type is overly broad, it is not unlimited and not everyone will be able to qualify for it, such as non-spouse inherited IRAs.
Enhance Tax Benefits for Charitable Contributions
The CARES Act allows a charitable cash contributions deduction from Adjusted Gross Income (AGI) of up to $300 for taxpayers that do not itemize but gave to a qualified charity, with the proper documentation.
Student Loan Relief
Student loan payments are deferred until September 30, 2020 under the CARES Act and no interest will accrue during that time.
Unemployment Compensation Benefits Expanded
Under Pandemic Unemployment Assistance, self-employed individuals including Gig workers and others who are typically ineligible for unemployment or have run out of such insurance will be eligible for up to 39 weeks of benefits due to this provision.
The Federal Government has offered to pay states to provide unemployment compensation immediately, foregoing the one-week waiting period.
Regular unemployment compensation is increased by $600 per week. States can increase the unemployment benefits they pay by up to $600 per week for up to four months using Federally provided dollars.
Unemployment compensation is extended by 13 weeks.
Myth Vs. Truth
Associated Coronavirus Stimulus Payments (CARES Act)
The CARES Act provided $300 billion set aside for direct stimulus payments to eligible taxpayers. These payouts, officially known as Economic Impact Payments, began hitting bank accounts via direct deposit during the week that ended April 17, and will continue to do so in paper check form or debit cards through September.
Generally, the Recovery Rebates are payments made directly to individuals and families below certain income thresholds. The rebate is an advanced refund of a newly created 2020 tax credit. The rebated amounts of $1,200 for an individual; $2,400 for a married couple and $500 for qualifying children under the age of 17 were made available to singled filers whose adjusted gross income (AGI) is less than $75,000, to joint filers with AGI less than $150,000 and for head of household filers with AGI less than $115,500.
Myth: I must pay taxes on my stimulus check.
Truth: Since Economic Impact Payments are a 2020 tax credit, they do not count as income. Therefore, you are not going to be taxed on your payment.
Myth: Taxpayers will receive a $500 stimulus check for each dependent.
Truth: No, qualifying children aged 16 and under equate to the additional $500 payout. However, this does not mean that all dependents net a taxpayer the extra $500. Dependents aged 17 and up (e.g. high school seniors and college students), and senior citizens who are dependents, do not qualify.
Myth: I will have to repay my stimulus if my income rises in 2020 and exceeds the stimulus income limits.
Truth: If you earn more in 2020 than you made in either the 2018 or 2019 tax year that was used to determine your eligibility, you will not have to pay back some or all of your stimulus money. However, if your 2020 earnings are lower than 2019,to the point where your 2020 AGI would have entitled you to a larger stimulus check, you will get the difference next year when I file your tax return for the 2020 calendar year.
Myth: My stimulus check money will offset my federal tax refund for 2020.
Truth: Although the Economic Impact Payment is a tax credit for the 2020 tax year, it has absolutely no bearing on what you will potentially be refunded by the IRS when I prepare your taxes next year.
Important Update for Small Business Owners!
Paycheck Protection Program and Forgivable Loans
The Paycheck Protection Program (PPP) is a loan program that allows lenders to issue Small Business Administration (SBA) 7(a) small business loans up to a maximum of $10 million or 2.5 times the average monthly payroll costs over the previous year to businesses that have fewer than 500 employees.
These “businesses” include sole proprietorships and food service business that employer fewer than 500 people per physical location.
The loan proceeds may be used for payroll costs, group health insurance premiums or other healthcare costs, salaries and/or commissions, rent, mortgage interest and utilities.
Borrowers are required to make a good-faith self-certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.
The initial rounds of funding of $350 billion was exhausted in 2 weeks. Congress approved an additional $310 billion in funding on April 23.
Updated Loan Forgiveness Provisions
The amount of the loan eligible to be forgiven is the amount spent during the first 24 weeks (previously 8 weeks) after the loan is made with at least 60% (previously 75%) of the total from payroll. The following are eligible items:
payroll costs, excluding amounts for individuals with compensation greater than $100,000; rent due to a lease in force prior to February 15, 2020; electricity, gas, water, transportation, phone and/or internet access for services which began before February 15, 2020 and group health insurance premiums and other healthcare costs.
To be eligible for forgiveness, the business must keep the same number of employees from February 15, 2020 through June 30, 2020 that is had from January 1, 2020 through February 14, 2020.
Any debt forgiven is not included in taxable income.
Tax Tips For You.. Now!
- American Opportunity Tax Credit