Congress Approves Economic Relief Plan for Individuals and Businesses
The Coronavirus Aid, Relief, and Economic Security Act (CARES) is a financial stimulus package designed to help. The CARES Act is now law, but there are still many questions on timing and administration. Read on below for more information on the CARES Act, or click here to go to the Wallace, Savage, & Davis, P.C. home page
Key components for Business Relief:
Small Business Loans with eight weeks of covered costs forgiven
A key piece of the largest relief bill in recent memory is the more than $370 billion in funding for small businesses. Businesses with fewer than 500 employees are eligible for up to $10 million in loans, which can be used for payroll and other expenses, such as insurance premiums, mortgage interest, rent or utilities.
The loans, available at financial institutions currently extending SBA loans and other non-traditional lenders, would be completely forgiven if the employer continues to keep the employees or hires back those who already have been laid off, and uses the funds for covered expenses.
Recipients of a loan made under the Paycheck Protection Program will be eligible for loan forgiveness in an amount equal to the sum of the following costs incurred and payments made during an eight-week period beginning on the date of the loan origination:
Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest.
Credits for retaining employees
Another bright spot for qualified business owners would be an employee retention credit, giving eligible employers a tax credit for keeping American workers employed during the COVID-19 crisis. Employers may be eligible for a refundable credit of up to 50% of qualified wages up to $10,000 per employee against applicable employment taxes.
Delayed employer payroll taxes
Would allow employers to defer payment of the employer share of the Social Security tax (6.2%) paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021 and the other half by Dec. 31, 2022; employers would still be responsible for FICA tax on employee wages.
Please note: The CARES Act employer credits cannot be combined with Small Business Administration (SBA) loans. The details on all of this can be complex.
Key components for Individual Relief:
Expanded Unemployment Insurance (UI)
For workers, this could include a $600 per week increase in benefits for up to four months and federal funding of UI benefits provided to those not usually eligible for UI, such as the self-employed, independent contractors, and those with limited work history. The federal government is incentivizing states to repeal any “waiting week” provisions that prevent unemployed workers from getting benefits as soon as they are laid off by fully funding the first week of UI for states that suspend such waiting periods. Additionally, the federal government will fund an additional 13 weeks of unemployment benefits through December 31, 2020 after workers have run out of state unemployment benefits.
Recovery Rebate for individual taxpayers
The bill would provide a $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers). Additionally, taxpayers with children will receive a flat $500 for each child. The rebates would not be counted as taxable income for recipients, as the rebate is a credit against tax liability and is refundable for taxpayers with no tax liability to offset. The rebate phases out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers with no children and $198,000 for joint taxpayers with no children (see Chart 1). 2019 or 2018 tax returns will be used to calculate the rebate advanced to taxpayers, but taxpayers eligible for a larger rebate based on 2020 income will receive it in the 2020 tax season. Taxpayers with higher incomes in 2020 will see the overpayment associated with their rebate forgiven. For example, a single taxpayer with $100,000 in 2019 income would not receive an advance rebate but would receive the $1,200 credit on their 2020 return if their income for the year fell below the phaseout. On the other hand, a single taxpayer with $35,000 in income receives a $1,200 advance rebate but would not have to pay the rebate back on the 2020 return if they make $100,000 this year. This is structurally similar to the 2008 rebate design.
Relief for retirement plan participants impacted by COVID-19
This includes enhanced loan availability and relief for outstanding loan repayments; allows COVID-related distributions and waived early withdrawal penalty and waived Required Minimum Distribution (RMD) for 2020 calendar year. Finally, the CARES Act increases the maximum 401(k) loan that may be taken from a 401(k) account to $100,000 (formerly $50,000) as a short-term opportunity to gain access to cash.
Next for the CARES Act:
Now that it’s been signed into law, our government and regulatory bodies will need time to issue further guidance to let companies know how to interpret the law.
The process and timing associated with getting access to the funds associated with the CARES Act is one of many unanswered questions that require further discussion with our contacts at the Small Business Administration and the IRS.
Please be assured that all of us at Wallace, Savage & Davis are here to help. Do not hesitate to reach out with questions and concerns. Most importantly, be safe!