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COVID-19 CARES ACT

CARES ACT

This bill was signed into law on March 27th, 2020. Below is a brief synopsis of some of the significant changes that are in the bill. We will be researching this information closer in the coming days to better understand the new law and help our clients navigate through these trying times. This is for informational purposes only  and not fully verified yet. Please consult with us prior to making any decisions based on this information. We will post updates as they become available.

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CORONAVIRUS RELATED DISTRIBUTIONS FROM RETIREMENT ACCOUNTS

Up to $100,000 from and combination of IRAs or employer plans

Must be made in 2020

Must be because:

  • Have been diagnosed with COVID-19
  • Have spouse/dependent diagnosed with COVID-19
  • Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease, or
  • Are unable to work because they lack childcare as a result of the disease, or
  • Own a business that closed or operated under reduced hours b/c of the disease or
  • Meet some other reason that the IRS decides to say is ok.

Exempt from 10% early withdrawal penalty

Not subject to mandatory w/h from employer plan

Eligible to be repaid over 3 years

  • Effectively a roll back into the account

Still taxable but income may be spread over 3 years (default option)

  • Unless 2020 is a low-income year and client doesn’t want to spread it out

ENHANCEMENT TO LOANS FROM EMPLOYER PLANS

  • Maximum loan is usually limited to $50,000 (or half your vested balance) and is now $100,000 and now up to 100% of the vested balance may be used.
  • Any payment on the plan loan otherwise owed may be delayed 1 year.

RMDS WAIVED in 2020

RMDs are suspended for 2020

  • Includes those who delayed their RMD from 2019 (the year turned 70 ½)
  • Includes IRAs and also employer retirement plans

Also suspends RMDs that may have otherwise needed to be taken

  • Stretch IRA RMDs
  • 2020 ignored as a year for the 5 year rule
  • Inherited IRAs

What if RMDs were already taken in 2020

o   It depends: If you already took it

  • 60 day rollover back into account, watch out for 1 rollover per year rule
  •  Rollover as a Coronavirus-Related Distribution – if eligible
  • No option to roll back for beneficiary RMDs from Inherited accounts.

ABOVE THE LINE CHARITABLE DEDUCTIONS

“Qualified Charitable Contribution”

Available for those who do not itemize

o   But only available for those who do not itemize and claim the standard deduction

o   Limited to $300, must be made in cash

o   Must go direct to a 501(c)(3) charity

  • Not to a donor-advised fund
  • Not to a 509(a)(3) supporting organization

UNEMPLOYMENT COMPENSATION

Pandemic Unemployment Insurance

  • Unemployment compensation for those who don’t qualify for anything else – like self employed

Elimination of Waiting Period (typically a week)

  • Federal gov’t will cover first week of unemployment

Bonus Check

  • Regular state unemployment benefit bumped by $600/week
  •  Up to 4 months

Extension of Benefits

  • 13 extra weeks of unemployment insurance

Incentive to create Short time Compensation Programs

  • Federal gov’t to pay 50%

SMALL BUSINESS PROVISIONS

Paycheck protection program:

Loan that is fully guaranteed by the Small Business Administration

  • Issued by SBA approved lender and others specially designated
  • Must be applied for by June 30th of 2020
  • Maximum duration of 10 years

Eligibility (in general)

  • Less than 500 employees, or employee size standard under NAICS Code if larger
  • Good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID -19. Includes cost of qualified health care expenses allocable to wages
  • Maximum loan equals the lesser of $10million or 2.5x average monthly payroll cost of previous year (excluding employee comp> $100,000)

Proceeds may be used for

  • Payroll costs
  • Group Health Insurance Premiums and other healthcare costs
  • Salaries and/or commissions
  • Rent or Mortgage interest (excluding amounts pre-paid)
  • Utilities
  • Other business interest incurred prior to February 15,2020

Forgivable portion of the loan equals 100% of amounts spent on the following items during the 8 week period following the issuance of the loan

  • Payroll costs, excluding prorated amounts for individuals with compensation greater than, $100,000
  • Rent pursuant to a lease in force before February 15, 2020
  • Electricity, gas, water, transportation, telephone, or internet access expenses for series which began before February 15, 2020
  • Group health insurance premiums and other healthcare costs.

But only if…

  • Same # of employees from February 15, 2020 through June 30, 2020
  • Or you restore to full by June 30, 2020.

 During either the same period in 2019

January 1, 2020 until February 15, 2020

  • No employees with compensation under $100,000 have reductions of >25% compared to the most recent quarter

If you already laid off EE, if you hire them back quickly, this can be rectified.

PAYCHECK PROTECTION PROGRAM

Other benefits include

  • Discharged debt nontaxable
  • Maximum interest rate is 4%
  • Initial Payments will be deferred for 6 to 12 months

EMPLOYEE RETENTION CREDIT

New credit against payroll taxes

  • 50% of wages paid to each employee up to a max of $10,000 of wages per person

Must qualify by either:

  • Having operations partially/fully suspended due to government-required suspension of operations
  • Have a quarter with <50% of revenues (not profit) from samequarter 2019

Will qualify to receive until earlier of

  • End of 2020
  • When suspended operations resume for the quarter, or when revenue >80% of same calendar quarter of 2019

DEFERRAL OF PAYMENT OF PAYROLL TAXES

Employers will be permitted to defer 2020 payroll taxes

  • 50% will be due on 12/31 of 2021
  • Remaining 50% will be due on 12/31 of 2022

Applies to self-employed individuals as well (only ‘employer’ portion)

NET OPERATING LOSS (NOL) RULES LOOSENED

Previously, NOLs could only be carried back 2 years and forward up to 20 years (no indefinitely)

CARES Act allows NOLs to be carried back up to 5 years

  • Applies for 2018, 2019, 2020 NOLs
  • Accelerates a tax refund for current/immediate use
  • NOLs will now be able to offset 100% of taxable income (up from 80%)

RELIEF FOR STUDENT BORROWERS

Federal student loan payments deferred

  • No payments required until September 30th of 2020
  • No interest will accrue during the interim
  • Will still count towards loan forgiveness programs
  • Required payments are suspended, but voluntary payments are not prohibited
  • Involuntary debt collections on Federal student loans also suspended.
  • YOU MUST STOP the payment themselves if they want to. It’s not automatic

Employers can exclude student loan repayments from compensation

  • Employers have through the end of the year to pay up to $5250 for student debt purposes
  • Payments are excluded from employee income
  • Must still be coordinated with regular $5250 limit for tax free education reimbursements

Pell Grant & Subsidized Federal Loan Relief for Students Leaving School

  • Periods of enrollment will not include a semester not complete due to a qualifying emergency

HEALTH CARE RELATED RULES

Definition of Medical Expenses expanded

  • Specifically for HSAs, Archer MSAs and FSAs
  • Eligible medical expenses will now include over the counter medication
  • Also expanded to include menstrual care products

Other Notable changes

  • Medicare beneficiaries to receive no cot COVID-19 vaccine (when available)
  • Part D recipients can request up to 90 day supply of medication
  • Telehealth services temporarily covered by HSA Eligible HDHP
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© J. Maiers, CPA, LLC 2021