The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law by President Trump on March 27, 2020. The CARES Act is the largest economic stimulus package in U.S. history. In light of its overwhelming size and scope, the following are a few highlights that may apply to you, individually, or to your business, with links to additional helpful information:
- Stimulus Checks
Individual taxpayers will receive up to $1,200, for filing statuses of single or head of household, or $2,400 for married filing jointly, with an additional $500 for each child under 17.
The income limitation for the full credit is adjusted gross income of $75,000 (single), $112,500 (head of household), and $150,000 (married filing jointly). Reduced checks will be issued to individuals with adjusted gross income up to $99,000, heads of household with adjusted gross income up to $136,500, and married couples with adjusted gross incomes up to $198,000. Go here to calculate how much you will be receiving.
The IRS will mail checks or use existing direct deposit information from the taxpayer’s 2019 or 2018 tax return, with a start-date goal of Friday, April 17. Checks will be sent to those individuals receiving Social Security benefits, even if they do not file a return. All other taxpayers must have filed a 2018 or 2019 tax return or they will not receive the credit until they file their 2020 tax return.
Taxpayers with delinquent federal debt will receive stimulus checks without any amount being offset. The only instance of a stimulus check being offset will be for overdue child support payments that have been reported to the federal government.
Stimulus checks are not taxable. They are a credit against 2020 income taxes. In other words, they are, essentially, an advance on 2020 income tax refunds. When 2020 income tax returns are prepared, the tax credit will be reduced by the stimulus check amount. If the stimulus check amount is less than the credit, the difference will be part of the taxpayer’s income tax refund. Importantly, if a taxpayer has been overpaid by receiving the stimulus check, they will not be required to pay back the excess amount.
- Retirement Plans
Taxpayers can withdraw up to $100,000 from their eligible retirement accounts, for corona virus–related purposes, without the usual 10% early withdrawal penalty. These withdrawals are still taxed, however, the tax can be spread over three years. Alternatively, the distributions may be re-contributed within the three-year period and treated as a rollover. This applies to withdrawals through the end of 2020.
- Charitable Contributions
On 2020 tax returns, cash contributions up to $300 will be able to be taken as an above-the-line deduction from income, even for taxpayers that do not itemize.
The CARE Act provides $250 billion for an extended unemployment insurance program, expands eligibility, and offers workers an additional $600 per week for four months, on top of what state programs pay.
- Small Business Relief
$350 billion is being dedicated to preventing layoffs and business closures while workers are required to stay home. Companies with 500 employees or fewer that maintain their payroll during the coronavirus outbreak can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven. Additional information regarding these Small Business Administration (SBA) loans can be found here.
- Payroll Taxes
The Employee Retention Credit is designed to help businesses keep employees on payroll. It gives employers a credit of 50% of each employee’s wages up to $10,000. Recipients of SBA loans and grants are not eligible for these credits. More information on the Employee Retention Credit can be found here.
Payroll tax deferrals for employers’ share of the Social Security tax are also available for businesses not using any of the SBA programs. The deferral is 50% through the end of 2021 and 50% through the end of 2022.
- Net Operating Losses
The Tax Cuts and Jobs Act’s net operating loss rules are modified. The 80% rule is lifted, allowing a net operating loss to offset up to 100% of taxable income in prior tax years. And losses can now be carried back five years.
- Interest Expense Limitation
The deductible amount of business interest expenses is increased to 50% from 30% for tax 2019 and 2020. Taxpayers can also elect to calculate the interest limitation for 2020 using their 2019 adjusted taxable income as the relevant base, which often will be significantly higher.
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