The CARES Act
To our Clients and Friends,
As you most certainly have heard, on Friday afternoon, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act – most commonly known as the CARES Act. The CARES Act seeks to:
- a) Stimulate the economy during the COVID 19 crisis through various financial programs available to both individuals and businesses of all sizes – small, large and not-for-profits, and
- b) Provide support to health care professionals on the front lines of the fight to prevent the spread of the virus and care for those stricken by it.
The CARES Act is quite extensive. Much has already been much written about the CARES Act over the weekend. You can find summaries with various degrees of depth written about any of the provisions throughout the web. Our communication here is to simply summarize the key points that we believe are most relevant to clients of Kimble, Certified Public Accountants. If you find something of interest to you, we welcome you to contact Kim VanHuss, Bill Berry or any Kimble associate who can discuss the specific implications as they relate to you.
NOTE: There are many other provisions of the CARES Act which are not summarized below. These provisions primarily relate to stimulus programs provided to large businesses and those in particularly impacted sectors of the economy. We can provide additional information, if requested, but chose to limit this communication to those matters affecting individuals and small businesses (those with less than 500 employees).
CARES Act Provisions Relating to Individual Taxpayers
- Recovery Rebates– Provides $1,200 payments to individuals earning less than $75,000 and heads of households earning less than $115,500 ($2,400 to married couples earning less than $150,000 combined). Additional $500 payments will also be provided for each dependent. Payments are based on AGI from the last filed (2018 or 2019) income tax return and will be paid to taxpayers without further action (by direct deposit, if US Treasury has this information from your past tax return, or check). Initial reports indicate that payments will be made in the second half of April 2020.
- Unemployment Insurance– Provides for extended benefit payments (13 weeks past state benefit payment periods), increases available unemployment benefits by adding $600 per week to state benefits and expands eligibility to the self-employed and those working in the “gig” economy.
- IRA Withdrawals– Allows for early withdrawal of IRA funds up to $100,000 without 10% penalty (although income tax will apply). Use of this provision requires that you have been a) diagnosed with COVID 19 or b) lost compensation due to COVID 19 including need to care for dependent. Funds withdrawn may be redeposited over the next three years without regard to existing cap on contributions.
- Required Minimum Distributions from Retirement Accounts– Not required for 2020. Amounts already taken for 2020 may be rolled into a retirement plan and therefore, not taxed.
- Charitable Contributions– Generally suspends limitations on amount you may contribute during the crisis. An above the line deduction for up to $300 allowed for a charity contribution is allowed even if you don’t itemize.
- Student Loans – Generally suspends requirement to pay federal student loans through September 30, 2020.
CARES Act Provisions Relating to Businesses
- SBA Paycheck Protection Loan Program– the US Government will fund loans of up to 2.5 times monthly payroll (up to $10 million) to encourage businesses to maintain payroll throughout the crisis. Part or all of the loans may be forgiven by continuing to pay employees, rent, interest on debt and utilities. Initial reports indicate that funding will be available in the first two weeks of April 2020. Businesses should contact their banking partners for additional information on the requirements for this program.
- SBA Disaster Loan Program – The existing Disaster Loan Program has been deemed eligible under COVID 19 crisis. This program has similar benefits to the Paycheck Protection Loan Program but also allows for “Emergency Advances” of up to $10,000, payable within three days of application. You cannot receive loans under both the Paycheck Protection and Disaster Loan programs. Most businesses will find the Paycheck Protection Loan Program to be more responsive and beneficial.
- Employee Retention Credit – Provides relief for a portion of employer’ssocial security tax (6.2%). Credit is available to businesses who have had their business suspended by official government order or had in excess of a 50% decline in revenue (when compared to 2019 on a quarter-by-quarter basis).
- Deferral of Employer Payroll Taxes – Employers may elect to defer the employerportion of payroll taxes. The amount deferred becomes due in two equal amounts on December 31, 2021 and 2022.
- Net Operating Losses – Allows businesses to carryback net operating losses from 2018, 2019 and 2020 to taxable income reported on prior five year tax returns.
- Leasehold Improvements and Other Qualified Property – Provides a technical correction to restore 15 year life for such property.
- Student Loan Assistance – Encourages employer payment of up to $5,250/employee for student loan debt. Although such payments are tax deductible to the employer, these payments will be non-taxable to the employee.
The details for most of these programs are still under development. Look for additional communication from us as we know more.
Thank you for your continued confidence in us during these uncertain times. Be safe and stay well.