CWG Insight Series: Key CARES Act Provisions For All
The House approved the CARES Act and the president signed it into law. This is the largest emergency relief program ever released by the government at whopping $2 trillion. There are a vast array of provisions and not all of them will be applicable to you but it’s important to know what your options are should you face hardship due to the Coronavirus. Below is a quick breakdown of the key points. We’ll keep you posted as more detailed guidance gets released by the IRS and other governing bodies.
Direct Stimulus Payments
- $1,200 for individuals
- $2,400 for married couples
- $500 for each child
- Phase out and reduction of payment amount for individuals reporting a 2018 or 2019 AGI over $75,000 and over $150,000 for married couples
- Claim your payment or check status: https://www.irs.gov/coronavirus/get-my-payment
- If you’ve received a federal tax refund and have direct deposit set up, they will deposit in your checking account, otherwise checks will be mailed
Penalty Free Retirement Account Distributions
- Up to $100,000 from IRAs/401ks in 2020
- No 10% early withdrawal penalty if under 59 ½
- Not subject to mandatory income tax withholdings
- Can be repaid back into the IRA/401k over the next 3 years
- Income from amounts not repaid split evenly over 2020, 2021 and 2022
- Qualifications: diagnosed with COVID-19, spouse or child diagnosed, pay reduce or eliminated, unable to work due to lack of childcare, own a business that closed or cut hours
Increased 401k Loan Provisions
- Max loan amount increased from $50,000 to $100,000
- 100% of vested balance can be used – usually only 50% can be utilized
- Payments can be delayed for up to one year
Required Minimum Distributions (RMDs) Waived for 2020
- If you already made one, you can put it back into your retirement account – if within a 60 day window from your distribution date
- If you turned 70 ½ in 2019 but did not yet take your 2019 RMD you can skip 2019 and 2020
$300 Above The Line Charitable Contribution Deduction and Increase of Deduction Limits
- If you Itemize Deductions, you’re already deduction your charitable contributions but it’s usually limited to 60% of your AGI. The limit is now increased to 100% of your AGI and any unused deduction can be carried over for 5 years
- If you use the Standard Deduction, you can now also take up to a $300 deduction for cash contributions to qualified charitable organizations
Relief For Student Loan Borrowers
- Student loan payments can be deferred until September 30, 2020
- This applies to Federal loans only, not private loans
- Borrower must contact their loan servicer to stop the payments now and restart in October 2020
- No interest will accrue during the deferral period
Qualified HSA and FSA Expenses Expanded
- Can now use those accounts to pay for over the counter medicine and menstrual care products
Expanded Unemployment Benefits
- Unemployment benefits can now begin week 1 vs. the normal week 2 provision
- Regular unemployment increased by $600 a wee for up to 16 weeks (note, the average unemployment pay is $400 a week so this would be a 150% increase)
- Benefits can be extended an additional 13 weeks if needed
- Self-employed individuals not normally eligible for unemployment benefits are now eligible for up to 39 weeks
Employee Retention Credit
- Eligible if your small business has had to close as a result of government authority OR if your 2020 revenue is down 50% vs. the same quarter in 2019
- Cannot also be utilizing a Paycheck Protection Program Loan
- Qualified period is through the end of 2020 OR when your business fully reopens for a full quarter OR your revenue exceeds 80% from the same calendar quarter in 2019
- In the simplest terms, the credit is equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee
- Businesses with 100 or fewer employees, all wages (up to the $10,000 maximum limit per employee) are eligible to count towards the credit
- For employers with more than 100 employees, only wages paid to individuals (up to the $10,000 maximum limit per employee) who are not providing services (not working) during a government shutdown, or because business revenues have declined as outlined above, are eligible to count towards the credit
- In both cases, wages include qualified health care expenses allocable to those wage
Deferral of Payroll Tax Payments
- With the exception of employers who have debt forgiven by the CARES Act for certain loans provided by the Small Business Administration, employers are eligible to defer payroll taxes from now through the end of 2020, until the end of 2021 and 2022
- 50% of the payroll taxes that would otherwise be due during this period may be deferred until December 31, 2021. The remaining 50% is due on December 31, 2022.
- This applies to self-employed individuals as well, at least with respect to the ‘employer equivalent’ portion of their self-employment taxes. 50% of an individual’s self-employment taxes, from the date of enactment through the end of 2020, may be deferred, with 50% of that amount (so 25% of 2020 self-employment taxes) due December 31, 2021, and the remaining deferred amount due on December 31, 2022.
Paycheck Protection Program Loans for Small Businesses
- On Friday April 3rd, the Small Business Administration launched their Paycheck Protection Program Loans for small businesses with a total of $349 billion available on a first come first served basis. Existing SBA approved banks are automatically qualified to make these loans and many others are being approved to handle the magnitude of loan requests that will be made.
Any small business (500 employees or less) that is at risk of reduced revenue and/or having to let employees go, should apply for this loan as a way to ensure you have the funds needed to keep operations going and keep people employed. There are no personal guarantees required by the owners and there are no loan payments required for 12 months from the loan issue date. The maximum loan amount is $10 million.
You can apply for 2.5 times your average monthly payroll for 2019. Payroll includes gross wages, unemployment insurance, health insurance paid by the company and retirement contributions paid by the company. This does not include payroll taxes. The gross wages are capped at $100,000 per person, so if you have anyone making more than that for the year, yourself included, we’ll need to adjust their pay down to $100,000 or $8,333 monthly.
If you receive a loan, over the proceeding 8 weeks, you can spend at least 75% on payroll and up to 25% on rent, mortgage payments and utilities. If you spend the full loan amount on eligible expenses over the 8 week period, the loan can be forgiven and the forgiven amount does not get taxed as income. The other requirement is the number of full-time equivalent employees that you had on February 15, 2020 is the number you need to have by June 30th.
You would need to apply through your current bank as most are not accepting new clients until they process loans for all current clients. You need to be extremely well organized and have everything ready to go if you want a chance at some of the total SBA loan budget. Below is a list of what you’ll need to put together and I can provide the application and spreadsheet to anyone that needs it.
- SBA PPP Application Form 2483
- PPP Loan Calculator (spreadsheet w/ monthly calculations)
- Articles of Incorporation and By-laws/Operating Agreement
- 2019 Year-end Profit & Loss Statement
- 2019 W-3 Summary
- 2019 Payroll Summary Report showing all employees’ compensation, by employee. Your payroll provider should be able to furnish this information, or you should be able to print a report from your own accounting software (i.e. QuickBooks, ADP)
- IRS Filed Form 941 for each quarter of 2019
- 2020 Payroll Summary Report for Jan 1, 2020 through March 31, 2020. Your payroll provider should be able to furnish this information, or you should be able to print a report from your own accounting software (i.e. QuickBooks, ADP)
- Documentation reflecting health insurance premiums paid by the company in 2019
- Documentation of all retirement plan funding paid by the company in 2019