SBK News Alert: CARES Act
Coronavirus Aid, Relief and Economic Security (CARES) Act
By Stephanie Stumpf
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 Trillion emergency fiscal stimulus package, designed to help the economy as it suffers from the effects of the coronavirus pandemic. This phase three stimulus package is the most expansive to-date and follows an earlier $8 billion bill (phase one) focused on vaccine development and prevention efforts and a $100 billion package (phase two) expanding paid sick leave, enhancing unemployment insurance and providing free coronavirus testing.
The CARES Act aims to limit the economic damage from the coronavirus by delivering individual rebates, small business loans, unemployment benefits and a wide variety of tax breaks. The tax-related provisions most relevant to individuals are summarized below. Facts and circumstances vary by client and further analysis may be required. Please contact your SBK Advisor with questions and before taking any action based on this summary.
Individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child under age 17 (with no limit on the number of qualifying children). The credit is reduced by $5 for every $100 a taxpayer’s income exceeds the adjusted gross income (AGI) threshold. The credit begins to phase out for taxpayers with AGI above $150,000 for joint filers, $112,500 for heads of households and $75,000 for individuals.
Stimulus rebates are being treated as advance refunds of a 2020 tax credit. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund they receive. If the advance refund, based on either the taxpayers’ 2018 or 2019 AGI is GREATER than the credit they are owed based on their 2020 tax return, the CARES Act does not appear to require taxpayers to repay the excess advance refund. (A very good answer for taxpayers!)
The credit is not available to individuals who can be claimed as a dependent by another taxpayer, estates or trusts.
The rebates will be paid out in the form of checks or direct deposits. The amount will be determined based on the taxpayer’s AGI as reported on an already filed 2019 tax return, the 2018 AGI if the 2019 tax return has not yet been filed, or information from the Form SSA-1099 if a 2019 or 2018 individual tax return has not been filed.
Planning opportunity: Consider delaying your 2019 tax filing if your 2018 income was lower and thus, more favorable in calculating the recovery rebate.
Required Minimum Distributions (RMDs) – The CARES Act temporarily suspends the required minimum distribution (RMD) rules for 2020.
Tax-Favored Withdrawals from Retirement Plans (including IRAs) – Taxpayers can take up to $100,000 in coronavirus-related distributions in 2020 from certain retirement plans without being subject to the 10% early distribution penalty. Distributions may be included in gross income ratably over three years beginning in 2020. Distributions may be repaid at any time within three years of the distribution. Any repaid amount is treated as a rollover and is not included in income.
Loans from Qualified Plans – Individuals may take a loan from qualified plans during the 180-day period beginning on the date of the enactment of the CARES Act. The dollar limit on loans increases from $50,000 to $100,000 and the percentage limit of the employee’s vested accrued benefit increases from 50% to 100%. Repayment of new qualified loans and existing loans may be suspended for up to one year. Non-governmental plans have until the end of 2022 plan year to adopt necessary plan amendments. Governmental plans have an additional two years (end of 2024) for amendments.
Planning opportunity: Consider skipping your 2020 RMD if you do not need the cash flow. Already-taken RMDs may be eligible to roll back into the account.
For taxpayers who do not itemize deductions, the CARES Act provides for a new “above-the-line” charitable deduction up to $300. The Act also suspends the AGI limitation for 2020 for qualifying cash contributions made to public charities, thus allowing taxpayers who itemize deductions to deduct up to 100 percent of their AGI.
Note: Contributions to private foundations, supporting organizations and donor-advised funds do not qualify.
HEALTH CARE RELATED RULES
The CARES Act temporarily allows high-deductible health plans (HDHPs) to pay for expenses for tele-health and remote services without regard to the deductible amount for the plan (for plan years beginning before 2021).
For amounts paid from Health Savings Accounts and Archer Medical Savings Accounts after December 31, 2019, eligible medical expenses will now include Over-the-Counter (OTC) medication and menstrual care products. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursements Arrangements.
Medicare beneficiaries will receive at no cost the COVID-19 vaccine when available. Medicare Part D recipients can request up to a 90-day supply of medication.
Federal student loan payments may be deferred until September 30, 2020 and no interest will accrue during the interim. Required payments are suspended, but voluntary payments are not prohibited. (Note: You must be pro-active to STOP payments, if desired.)
An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.
KEY BUSINESS PROVISIONS
There are a host of business provisions in the CARES Act. If you own a small business, please contact your SBK Advisor to discuss the tax benefits and other resources available to you.
|· Payroll Protection Program
· Employee Retention Credit
· Delayed payment of employer payroll taxes
· Net operating loss liberalizations
· Deferral of non-corporate taxpayer loss limits
· Acceleration of corporate AMT liability credit
· Relaxation of business interest deduction limit
· Technical correction to restore faster write-offs for interior building improvements
· Pension funding delay
· Suspension of certain alcohol excise taxes
· Suspension of certain aviation taxes
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