With the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, CCM's integrated team is diligently working to apply its benefits to our clients' financial plans. Below are some of the highlights we're finding most relevant to our clients, their families, and in some cases, their businesses. CCM advisors will be reviewing the key aspects of the Act in order to recommend the strategies that are best aligned to your goals.
Individual taxpayers who had an Adjusted Gross Income (AGI) of up to $75,000 will receive a one-time payment of $1,200, while married couples with AGI of up to $150,000 will receive $2,400. The amount of the rebate will be decreased by $50 for every $1,000 of AGI in excess of the limits noted. In addition, taxpayers will receive a payment of $500 for each qualifying child (age 17 or younger).
The direct payments will be based on the AGI reported on a 2019 tax return. If a 2019 tax return has not been filed yet, the payment will be based on a 2018 tax return. Social Security recipients who are not required to file a tax return will receive the direct payments.
The rebates will ultimately be reconciled as part of the 2020 tax filing process based on reported AGI in 2020. If you are entitled to a larger rebate, you will be able to claim it on your 2020 tax return. If you received a larger rebate than you were entitled to, you will not have to pay it back. It is also important to note that the rebates will not be taxable income.
Rebates will be sent by direct deposit to the account where prior years' refunds or Social Security payments have been made. A check will be mailed to the last known address for all others.
Coronavirus-related Retirement Account Distributions
Penalty-free distributions of up to $100,000 will be allowed from IRA and employer retirement accounts if you were impacted medically and/or financially by coronavirus. The taxable income may be spread and reported over three tax years. The distribution may also be repaid within the three-year period, in which case it would be treated as a direct rollover to avoid the tax entirely.
The employer retirement plan loan limits will also be increased from $50,000 to $100,000 under the act, up to 100% of the vested account balance with loan repayments delayed up to a year.
Required Minimum Distributions Waived for 2020
All required minimum distributions (RMDs) will be waived in 2020 for account owners and beneficiaries. Options to return RMDs already completed exist if desired under the existing 60-day rollover rules or the new coronavirus-related distribution rules.
Student Loan Provisions
Student loan payments will be suspended until September 30, 2020 with no interest accruing during that time period. In addition, employers may reimburse student loan payments of up to $5,250 in 2020 with the payment being excluded from the income of the employee.
Charitable Contribution Provisions
A $300 above-the-line-deduction will be allowed for cash charitable contributions for taxpayers that do not itemize deductions. Charitable contribution AGI limitations will also be temporarily repealed for taxpayers who do itemize deductions.
Unemployment Compensation Benefits
Standard unemployment benefits are enhanced by $600 per week, extended for an additional 13 weeks, and available to those that are self-employed. In addition, the normal one-week waiting period is waived.
Small Business Payroll Protection Program
Businesses with up to 500 employees are eligible for loans administered through the SBA (Small Business Administration) of up to 2.5 times monthly payroll costs, up to a maximum of $10 million. The loans carry a maximum interest rate of 4% and are eligible for full- or partial-forgiveness based on the utilization of the loan proceeds to cover payroll costs, rent, utilities, and group health insurance premiums.
Deferral of Employer Payroll Taxes
Employers are eligible to defer the employer portion of payroll taxes through the end of 2020. One-half of the deferred taxes will be due at the end of 2021 and the other half will be due at the end of 2022 without interest or penalty. A self-employed individual is also be able to defer one-half of their self-employment tax under this provision.
Employee Retention Credits
Businesses that suffer a revenue decrease to 50% or less of the revenue earned in the same quarter in 2019 are eligible for an employee retention credit. The credit is up to 50% of wages paid to an employee on up to $10,000 of wages per employee.
Payroll Tax Credit for Mandated Sick and Family Leave Pay Under Families First Act
The Families First Act was recently passed by Congress and signed into law in response to the coronavirus pandemic. The act requires certain employers to provide sick and family leave pay. Businesses that pay sick leave required under the Families First Act are eligible for a credit against payroll taxes of up to 100% of compensation paid, subject to certain dollar limitations per employee.
Recommendations for Your Situation
Again, please know that CCM is working to make the best recommendation for your situation. In the meantime, if you have any questions regarding the CARES Act, please reach out to us to schedule a conversation.
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.