CARES Act

• “Coronavirus Aid, Relief, and Economic Security Act
• $2 trillion stimulus bill
• Meant to provide relief to individuals and businesses

INDIVIDUALSI. Stimulus Checks

• Most taxpayers will receive a $1200 stimulus check, plus an additional $500 per qualifying child(16 and under)
• For anyone earning over $75,000 annually, the check will be reduced by 5% of their adjusted gross income
  • This also applies to joint filers earning over $150,000 annually
  • And heads of household filers earning over $112,500 annually
• The most recently filed tax return will determine what your annual income is in regards to this threshold
  • If you’ve already filed your 2019 return, that will be used by the IRS
  • If you haven’t filed your 2019 return, they will use 2018
  • If you haven’t filed yet, and anticipate your 2019 income BEING HIGHER than your 2018 income, we advise DELAYING FILING until the extended due date of July 15, 2020
  • If you haven’t filed, and expect your 2019 income to be LOWER than your 2018 income, we advise filing VERY SOON
  • Seniors those who collect social security benefits and don’t file tax returns, there is no urgent need to file a return. You will automatically receive your stimulus check, per the U.S. Treasury
• This payment is an advance payment/credit against 2020 taxes, but does not need to be repaid
• Even if you didn’t receive a check, there is still an opportunity to recieve the credit on their 2020 return
• To calculate what your estimated tax in 2020 might be, you can go to IRS.gov
• The Treasury has recently announced that they will be setting up a web-based portal through which taxpayers can provide their banking information to the IRS so that they can receive their stimulus payments immediately

NB: The IRS, Social Security Administration, or any other federal or state governmental agency will not contact individuals by phone or e-mail. Those who do call or e-mail individuals purporting to represent the aforementioned agencies are SCAMMERS. Do not provide them with any personal information! The IRS will send out a letter to the last known address 2-3 weeks after the check is sent, or funds are deposited to verify the payment was received. II. Retirement

• It is now possible to withdraw up to $100,000 penalty-free from IRAs or other retirement plans. In order to do so, you must be:
  • A furloughed employee
  • Someone who has expenses related to treatment of the coronavirus

OR:

• Someone who has experienced adverse financial consequences due to the coronavirus
  • This is an extremely vague definition, most likely to allow for a broader, more encompassing plurality to whom this relief policy applies
• These withdrawals can be spread out over 3 years from the date of the withdrawal (and by virtue, the tax)
• If the payment is repaid to the IRA or retirement plan at any time in that three-year period, it will then be classified as a rollover, and so becomes untaxable
• RMD requirements are waived for the 2020 year
• For the next 6 months, the cap on employee loans drawn from retirement plans increases to $100,000.
  • If a preexisting loan matures between the date of the CARES Act’s passing into law, and 12/31/20, repayment is extended by 1 year.

III. Unemployment

• Massachusetts does not offer unemployment insurance for self-employed persons, HOWEVER, the federal government has mandated that a portion of the allotted state stimulus funds be allocated for paying out unemployment benefits to self-employed persons and independent contractors
• These benefits are paid with federal money funneled through the state unemployment office
  • Self-employed persons filing for unemployment benefits will have their benefits capped at $600/week
• Because the federal government is providing this payment through the state, the Department of Unemployment Insurance is still updating its system to accommodate the self-employed
• Per Governor Baker’s advice, if you are self-employed, wait until next week, or when the state announces, to apply for benefits

NB: While this advice applies primarily to Massachusetts residents, it is applicable to all of our clients in other states as well. Most states do not offer unemployment benefits to self-employed persons or independent contractors, and are advising those who want to apply for benefits to wait for their agencies to modify the disbursement infrastructure.

• Unemployed individuals (both exempt and non-exempt employees) are entitled to an increase of an additional $600/week to their
  • This increase is extended ONLY through 7/31/20

IV. Odds and Ends

• The IRS will provide an above-the-line deduction for charitable donations of up to $300 for 2020
• There is an additional income exclusion of up to $5,250 for employer payment of student loans

Small BusinessesI. The SBA Paycheck Protection Program(PPP)

• This program provides 0% interest loans of up to $10,000,000.
• Applicants must be, among several other stipulations, either:
  • A business that doesn’t have more than 500 employees
  • An individual who operates under sole proprietorship, with or without employees, or as an independent contractor
• Businesses that receive loans through the PPP are prohibited from paying dividends or repurchasing stock while the loan is outstanding, and for 12 months after the loan is repaid
• Loans are available to cover:
  • Payroll and payroll taxes
  • Health benefits
  • Rent or mortgage interest
  • Utilities
• Up to 8 weeks of these costs can be forgiven on the original loan
• Loans are forgiven once costs are verified
• Loan forgiveness amounts decrease if:
  • Interest on any business loan incurred pre 2/15/20
  • Full-time employee headcount is decreased
  • Salaries and wages are decreased by more than 25% for any employee that made less than $100,000 annualized in 2019
• June 30, 2020 is the cut-off date to restore full-time employment and salary levels for any changes made between February 15, 2020-April 26, 2020
• Any remaining principal is subject to a 4% interest rate over a 10 year period
• Payroll costs are capped at $100.000, annualized for each employee
• Loan payments will be deferred for six months
• Under the CARES Act, amounts forgiven by the PPP are not treated as “cancellation of debt” income, but are altogether excluded from gross income for U.S. federal tax returns, and possibly from the state as well
• Application for the PPP loan must be processed through an SBA-approved lender
  • The start date for business entities is 4/3/20
  • For self-employed persons, the start date is 4/10/20
• Loans will be processed and approved until funds run out, so apply early

NB: Loans will not be forgiven if any of the loan money is spent on anything other than payroll costs, mortgage interest expenses, rent, and utilities payments over the 8 weeks after receiving the loan. You will owe money. II. The SBA Economic Injury Disaster Loans(EIDL)

• These loans do not offer 0% interest rates or loan forgiveness
• Instead, they offer 3.75% interest rate
• If taken, borrowers CAN apply for PPP forgiveness stipulations
• Also available to small businesses, independent contractors, and the self-employed
• Requires a basic credit score, or some alternative means to other alternatives that gauge their ability to repay the borrowed amounts
• Offers also a $10,000 advance within 24 hours of applying for the loan, whether it is approved or not
• The advance does not need to be repaid if the loan is declined
  • It remains unclear how the $10,000 advance will be treated tax-wise
• If the loan is approved, $10,000 advance is treated as part of the loan
• Borrowers can still apply for PPP if they have applied for and received an EIDL, but the amount they have received from the EIDL will decrease the PPP’s available loan amount
• Applications for the EIDL are currently ongoing, and can be processed directly through the SBA website

III. Employment Retention Credit

• Available to employers in two circumstances:
  • If employers have continued paying employees during such periods that their ordinary place of business is inoperable (i.e. during a statewide shutdown)
  • If the gross receipts earned in a quarter have declined by more than 50% comparative to the same quarter of the prior year
• The credit is calculated on a maximum $10,000 of salary, including health benefits
• Good for the period 3/13/20 through 12/31/20
• Cannot be used in conjunction with the PPP loan(considered double-dipping)

IV. Employer Payroll Tax Delay

• A section of the CARES Act allows for employers and self-employed individuals to defer payment of their portion of social security tax on employees’ wages.
• Can be broken into two installments, with 50% due on 12/31/21, and the other 50% due on 12/31/22
• Employers utilizing the SBA payroll loans are excluded from electing this deferral