A highly anticipated coronavirus aid package was signed into law by President Trump at the close of last week on Friday, March 27th. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) serves as the most extensive COVID-19 related relief effort to date, following numerous other legislative actions taken by the federal government and the IRS to ease the economic effects of COVID-19. The stimulus package provides relief to several groups impacted by the pandemic and touches many different sectors of the American economy. As such, the bill contains a wealth of highly detailed information. In an effort to provide clarity, we’re offering up our biggest takeaways from the 880 page document.
Here is some helpful information about what you can expect in the next coming weeks:
American taxpayers will receive a one-time cash payment via direct deposit or check for the amount of:
- $1,200 for individuals whose adjusted gross income is less than $75,000
- $2,400 for married couples whose adjusted gross income is less than $150,000
- An additional $500 for each child under age 17 (using the qualification rules under the Child Tax Credit)
The rebates for individuals and families with incomes above these thresholds will be reduced by $50 for every $1,000 over, ultimately diminishing completely for individuals making more than $99,000 and married couples making more than $198,000. In order to qualify, individuals must have a work-eligible social security number. Those who do not qualify include nonresident aliens, estates, trusts, or individuals who themselves could be claimed as dependents. Most taxpayers will receive the rebate automatically and will not have to take any direct action in order to receive funds as the IRS will automatically compute the rebate based on a taxpayer’s 2019 tax filings (or 2018 tax filings if the 2019 tax returns have not been filed yet).
In an effort to prevent layoffs and keep businesses open while workers follow stay-at-home orders during the duration of this pandemic, the federal government has launched the Paycheck Protection Program. All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply to receive up to 8 weeks of cash-flow assistance in the form of emergency grants or a forgivable loan program. In order to qualify, the employer must maintain payroll and keep workers employed through the end of June. The grants can reach up to $10,000 per business, while the forgivable loans can reach up to $10 million per business.
Small business owners can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Please visit www.sba.gov for a list of SBA lenders. The application for the Paycheck Protection Program was released on Friday, April 3rd and can be found here. To locate a lender specific to your area, you can visit the SBA eligible lender page here.
The usual 10% early withdrawal penalty for distributions from IRA’s and other contribution plans has been waived for distributions of up to $100,000 for coronavirus-related purposes. Meaning, withdrawals can made without penalties by a person who (or whose family) is infected with the coronavirus, or who has experienced financial adversity on account of the coronavirus. The waiver only applies to distributions made between January 1st, 2020 and December 31st, 2020. Income taxes on the distributions can now be paid out over a three-year period and the loan limit has increased from $50,000 to $100,000.
Unemployment insurance benefits have been extended by an additional 13 weeks and unemployment eligibility has been expanded to include those who are self-employed, freelancers or independent contractors. The unemployed will also now receive $600 per week from the federal government, in addition to what each state normally pays. To learn more about how to apply for unemployment in Texas, please visit the Texas Workforce Commission website here.
Those with federal student debt will see some relief as all loan and interest payments do not have to be payed until September 30th of this year. In the mean-time, borrowers will not face any penalties or fees. Additionally, employers can provide their employees up to $5,250 in tax-free student loan repayment benefits without the employee having to include that money as gross taxable income, as they normally would.
We hope this simplified recap of the #CARES Act has proven helpful. The bill can be viewed in its entirety here. Should you wish to discuss these matters at further length, please feel free to reach out to our tax advisors at Maddox Thomson. We are happy to provide guidance and support.