The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed and enacted on March 27, 2020. Created in direct response to the coronavirus and COVID-19 pandemic sweeping across the nation, it’s a $2 trillion package. This massive relief package includes new tax credits for individuals, small business loans, and new rules surrounding retirement accounts, student loans, and unemployment benefits. Let’s dive in and learn more about this unprecedented piece of legislation aimed at helping people and businesses stay afloat during this global crisis.
CARES Act and Individuals
Payments will go directly to individuals as a result of the CARES Act. Each tax filer will be eligible for a one-time $1,200 payment ($2,400 for married filing jointly). In addition, for tax filers with children under the age of 17, they will receive $500. They will be issuing this benefit as a refundable tax credit. Typically, you claim tax credits when you file your tax return and reduce your tax liability. This particular credit is being paid now, sort of like an advance on your 2020 tax return.
How do I receive my benefit?
You do need to have a Social Security number to receive this benefit. Also, there is a phaseout threshold. For single tax filers, when adjusted gross income (AGI) exceeds $75,000, the $1,200 credit will be reduced by $50 for each $1,000 over $75,000. For married filing joint, the phaseout begins at $150,000 of AGI.
When will I receive my benefit?
While the CARES Act does not specify when those payments will start, NBC News reports that it will be mid-April 2020 when they begin. If you have used direct deposit to receive a previous tax refund from the IRS, your payment may be issued sooner. If not, it may be several weeks before you receive a check in your mailbox.
CARES Act and Retirement Accounts
Additionally, the CARES Act changed certain withdrawals from retirement accounts. For the year 2020, the federal government has suspended required minimum distributions (RMD’s) from retirement accounts such as 401(k) ‘s, IRA’s, and others. If you have already taken your RMD in 2020 and have now decided that this was an unwanted withdrawal, you may return the funds to your retirement account within a 60-day window. If you fall outside of the 60-day window and can show that you have been negatively impacted by COVID-19 (as per the coronavirus-related distribution guidelines), you may be able to return the funds to your retirement account without penalty or taxation.
Were you directly impacted by COVID-19?
Furthermore, if you can prove COVID-19 has impacted you, you may be eligible to take a penalty-free distribution from your retirement account of up to $100,000. The withdrawal will still generally be taxable, and the now-taxable income will be spread over your 2020, 2021, and 2022 tax filing years (unless you choose to tax the tax hit in 2020). You can also choose to return the funds to your retirement account during the 3-year window. Also, if you participate in an employer-sponsored retirement plan that allows you to take a loan, the loan provisions have been expanded by the CARES Act to allow up to a $100,000 loan.
CARES Act, Businesses, and Employees
The Paycheck Protection Program (PPP) is a new program under the US Small Business Administration aimed at providing relief to business owners impacted by the coronavirus. An allocation of up to $349 billion is ready to help small businesses with 500 or fewer employees cover expenses such as payroll costs, rent, and utilities. Companies that can make a case for being impacted by the current economic slowdown are allowed to apply beginning April 3, 2020. Self-employed individuals and independent contractors may apply starting on April 10, 2020.
The size of the loan is up to 2.5 times the average monthly payroll expense (after excluding employees earning $100,000 or more) over the past year, up to $10 million. The interest rate on the PPP loan is 1% and will have a 2-year maturity period. The full amount of the loan may be eligible for complete forgiveness. These loans are available on a first-come, first-serve basis. For more information visit the Treasury website here.
As additional guidance comes out from the federal government and its agencies, we will post updates to this post. Do you have questions about the CARES Act and how this might impact you? Get in touch with us by scheduling a complimentary consultation below or call us at 913-393-1000. Our relationship manager will reach out to you to discuss the next steps.
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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.