The novel coronavirus (aka COVID-19) is sending shockwaves through the U.S. economy in unprecedented ways. Non-essential businesses have been forced to shut down with no known timeline for a restart in sight. As a result, jobless claims have skyrocketed to astronomical levels and continue to grow at a troubling pace. To alleviate some of the economic fallout of the virus, congress passed three pieces of legislation in the past month aimed primarily at providing support to individual Americans, small businesses, and the most impacted sectors of the economy.
The most recent bill to be signed into law is the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) – at $2 trillion, it’s the largest stimulus package in the history of the United States. Earlier in March, the Families First Coronavirus Response Act and the Coronavirus Preparedness and Response Supplemental Appropriations Act were also signed into law.
There are several financial relief provisions in these recently passed pieces of legislation. Here’s a breakdown of the most important things you should know about the coronavirus stimulus plans, and how they might impact you.
1. Unemployment Provisions
The CARES Act included provisions that increase unemployment payments and extend benefits for individuals that typically would not qualify such as gig economy workers, furloughed employees, self-employed, and contract workers. To be eligible to receive unemployment benefits under these provisions, the reason for the claim must be due to COVID-19 related reasons.
Eligible individuals will receive an additional $600 in federal benefits per week for up to four months. Also, for those who have exhausted benefits under regular unemployment compensation or other programs. They can receive up to 13 weeks of additional benefits.
2. Direct Payments
Most Americans can expect to get a direct payment from the government that will not require any action in order to receive a check. Rebates are $1,200 for individuals and $2,400 for married couples, plus an additional $500 per child. Income limits start at $75,000 ($150,000 for married couples) and are based on your most recently filed tax return. The rebates are completely phased-out when income exceeds $99,000 (single), $146,500 (head of household with child) and $198,000 (joint with no children.)
3. Provisions Related to Retirement Plans
The CARES Act included several ways to offer some relief to retirement savers. Required Minimum Distributions are suspended for 2020, allowing individuals to defer taking distributions from retirement accounts if desired. For those who’ve already taken Required Minimum Distributions in 2020, they may actually be able to return those funds to their IRA and push any further distributions into 2021.
There are also relaxed rules around early distributions and flexibility for loans from certain retirement plans. Individuals who would normally incur the IRS’ 10% penalty on early distributions are exempted for ‘coronavirus-related distributions’ of up to $100,000 of distributions in 2020. While the 10% penalty is waived, distributions may still be considered as ordinary income. This ordinary income can be spread over 3 tax years, lowering the tax impact. Individuals also have 3 years from the date of the distribution to repay all or a portion of the distribution taken if they so choose. Additionally, loan repayments from workplace retirement plans may be delayed for one year (in effect through the end of 2020).
4. Student Loans
For those with outstanding student loans, there are several ways that recently passed legislation might impact you.
Students who need to leave their higher education institution because of the coronavirus may also have the amount of their loan covering the period of time they are withdrawn canceled.
In addition, the president announced in March that interest on all federal student loans would be waived. The CARES Act also stipulates that payments (and interest) on federal student loans may be suspended for 6 months.
Lastly, employers can now provide a student loan repayment benefit (or other educational assistance) to employees on a tax-free basis up to $5,250; excluded from employee’s income. This is effective for 2020 post-enactment.
5. Business Provisions
The CARES Act allocates $350 billion to small businesses for relief to help keep workers employed during the downturn from the pandemic. The Paycheck Protection Program provides 100% federally guaranteed loans to small businesses that may be forgiven if borrowers maintain payrolls or restore payrolls after.
Here are some other important provisions that might impact you and your business:
- An employee retention credit for employers subject to closure due to COVID-19 that provides a refundable payroll tax credit for 50% of wages.
- Delay of payment of employer payroll taxes that allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax [must be paid of following two years with at least 50% paid in 2021].
- A Modification of limitation on losses for taxpayers other than corporations (applicable to pass-through businesses and sole proprietors.)
- A temporarily increase in the amount of interest expense businesses can deduct to 50%.
For those wanting more information on seeking a small business emergency loan, here is a guide issued by the U.S. Chamber of Commerce. It covers FAQs around Eligibility, Borrowing details, and loan forgiveness.
6. Deferred Tax Deadlines
The deadline for filing and paying federal income taxes for the 2019 tax year is now extended to July 15th, 2020. The deadline for making IRA and HSA contributions is also now July 15th. Contribution deadlines for workplace retirement accounts (like your 401k) remain the same.
7. Tax Credits for the Self-Employed
The Families First Coronavirus Response Act has some provisions for those who are self-employed. Some of the major items include: a tax credit for sick leave and family leave (up to $200 a day or 67% of average daily pay) and emergency paid sick leave for COVID-19 (up to $500 a day or 100% of average daily pay).
8. $300 Above-the-Line Deduction for Charitable Contributions
With the changes already put in place from prior tax legislation, the number of filers itemizing deductions has drastically decreased. But now more than ever we need our charitable organizations, so the CARES Act dictates that taxpayers who take the standard deduction can claim a $300 “above-the-line” deduction for cash donations to a 501(c)(3) charitable organization for the 2020 tax year. For itemizers, the amount that can be deducted is now 100% of adjusted gross income, up from 60%.