Atlanta Financial Blog

The CARES Act (Recently Passed Stimulus Bill)

The CARES Act (Recently Passed Stimulus Bill)

AFA Marketing
March 30, 2020

As you likely have heard, in response to the unfolding COVID-19 global pandemic, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the President signed it into law on March 27, 2020. It is a $2 trillion emergency fiscal stimulus package designed to help ease the impact of this health crisis on American workers, businesses and the economy. At Atlanta Financial, we have summarized the new law for you and tried to answer some frequently asked questions we hear from individuals as well as business owners.

What does the law include?
The law includes a wide range of provisions for both loans and outright rebate payments or tax credits aimed at helping individuals, businesses, healthcare entities, and state and local governments meet short-term cashflow demands.

FOR INDIVIDUALS
Can I calculate how much stimulus payment I will receive?

To calculate your stimulus payment, here is a resource.  There are also some FAQ’s which you may find helpful here. These resources are based on the provider’s understanding of the Bill and could change as details are released.

How do they determine who gets a payment?
The plan provides direct payments to taxpayers within approximately three weeks, according to Treasury Secretary Steven Mnuchin. Based on how long it has taken to process similar payments in the past, some estimate that payments may not be received until early May. 
Specifically, single individuals who reported up to $75,000 in adjusted gross income on their most recent tax return will receive a one-time payment of $1,200, while married couples with AGI up to $150,000 will get $2,400. Additionally, taxpayers will receive an additional $500 for each qualified child, while individuals and families with income above their respective thresholds will see their relief payments reduced by $5 for every $100 in AGI. Individuals must have a work-eligible Social Security number (and not be claimed as a dependent), however they do not have to have had reportable income and can also be eligible for other income benefit programs as well.

Planning Tip: The payments will be based on the most recent income tax return filed, either 2019 or 2018 (if 2019 has not yet been filed). If your adjusted gross income in 2019 is lower than 2018 and would allow you to qualify for a payment, you may want to file your 2019 return immediately.  You can file your return and still delay payment of any money due until 7/15. On the other hand, if 2018 income would allow you to receive a rebate but 2019 income wouldn’t, we believe you should not file your 2019 return until you receive your rebate check. If you won’t qualify based on the most recent return but will once 2020 is filed, you will still receive a payment, but it will come in the form of a tax credit when you file your 2020 return. Contact your CPA if you think one of these scenarios might apply to you.

The IRS will deliver these payments to: the account where you receive your Social Security payment if receiving SS benefits, or the account where your last tax refund was deposited or as a final resort, to your last known address.  If your account or address has changed, reach out to SS proactively to update that information.  We expect huge delays in response time once checks go out.

Are there provisions for retirement accounts?
The plan allows for so-called “Coronavirus-Related Distributions” withdrawals from IRA’s or retirement plans up to $100,000 and doubles the potential loans that can be taken from 401k’s up to $100,000 or the present value of the account.  It also waives the normal 10% early withdrawal penalty if you are under 59 ½.  While the distributions are taxable income, you can spread the income taxation over three years, and have the option to roll the amounts withdrawn back into an IRA or 401k over the next three years as well.

Planning Tip: Withdrawals from a retirement account should be considered as a last resort. Please contact your advisor to discuss the financial and tax ramifications and determine what other options might be available.

The bill also suspends required minimum distributions (RMDs) in 2020 from IRA’s and inherited IRA’s (for amounts due in 2020 or still needing to be taken by 4/1 for 2019).

Planning Tip: If you have already taken a current year distribution from your IRA, you will have the ability to recontribute that either as a 60-day rollover or potentially as a “recontribution” of a Coronavirus Related Distribution.  Please reach out to your advisor to discuss this option.  Unfortunately, this option isn’t available to owners of inherited IRA’s who have already taken a distribution in 2020.

The bill also extends the due date for contributions to IRA’s until the new tax filing/payment date of 7/15. 

Planning Tip: While there is no way of knowing when the financial markets may bottom, consider making your contribution early if you have sufficient cash, since you could be investing at relative lows.

What happens if I or someone in my family has lost their job or has reduced pay?
The CARES Act has significantly expanded unemployment benefits as follows:

  • Employees not previously covered by state unemployment compensation plans will now be covered (sole proprietors, independent contractors, gig-economy workers, etc.)
  • The federal government will now cover the first week of unemployment (no more one-week waiting period)
  • Unemployeds will receive an extra $600 per week for 4 months
  • Benefits will now last up to 39 weeks instead of 26 weeks
  • Creates a “short-time compensation program” to assist workers who have had hours reduced in lieu of a layoff, with benefits covering the difference between reduced hour payments and the unemployment benefit

Planning Tip: Whether self-employed or not, for any who have lost their jobs, been furloughed or are experiencing an income loss due to reduced work hours, we suggest investigating the benefits you may be entitled to immediately.

I (or my child) has a student loan – how does this law impact them?
No payments will be required until 9/30/2020 and no interest will accrue.

Planning Tip: If cash flow is sufficient, you may want to continue making payments during this deferral period. However, if employed in a field where the loan will eventually be forgiven, we strongly suggest ceasing all payments until once again required to pay.

FOR BUSINESS OWNERS
What about loans for small businesses?

Under the Paycheck Protection Program, small businesses that have been impacted by COVID-19 with up to 500 employees will be eligible for loans provided by SBA-approved lenders (up to $10m depending on payroll costs and other factors). Some of the details are:

  • Qualification requires a “good faith certification” that the loan is necessary due to the uncertainty of current economic events due to COVID-19. 
  • Proceeds must be used to retain workers and maintain payroll and group health benefits or pay rent/mortgage interest, lease and utility payments.
  • Loans have a maximum term of 10 years and maximum interest rate of 4%. 
  • Payments of interest and principal may be deferred from 6 to 12 months.
  • Loans can be forgiven (and the forgiven amount excluded from taxable income) for amounts used for payroll, interest on mortgages, rent and utilities.
  • Loan forgiveness is reduced for any employee cuts or reductions in wages according to a rather complex formula.
  • Loans do not require collateral or a personal guarantee, and have no recourse against shareholders, officers, partners, etc. as long as proceeds are used for authorized purposes.

In addition, the CARES Act makes additional changes to the SBA Disaster Loan Program to:

  • Expand eligibility to sole proprietorship and independent contractors
  • Waiver personal guarantees on loans under $200,000
  • Offer a 6-month deferment of payments
  • Allow proceeds to be used for:
– Maintaining payroll
– Providing sick leave to employees unable to work due to COVID-19
– Increased supply chain costs
– Rent or mortgage payments
– Repaying debts that can’t be covered due to lost revenue


Planning Tip: If you are business owner experiencing financial consequences from COVID-19, we encourage you to contact an approved SBA lender immediately to explore the funding that might be available to assist you during this crisis. Even if you have already laid-off employees, there are provisions to rehire that might still make loan proceeds forgivable. Whether loans are forgivable or not, the loan terms are quite favorable and worthy of consideration. NOTE: Beware of scams related to these programs. Deal only with approved SBA lenders.

What other payroll relief is available?
Refundable Tax Credit
The act also creates a refundable tax credit against payroll tax liability equal to 50% of the first $10,000 in wages per employee. Eligible businesses must have fully or partially suspended operations due to orders from a governmental entity OR experience a year-over-year (comparing calendar quarters) reduction in gross receipts of at least 50% (with the credit continuing until gross receipts exceed 80% year-over-year.

Deferral of Employer Payroll Taxes
The CARES Act postpones due dates for employer payroll taxes (and half of self-employment taxes) for wages paid in 2020. The deferred amount would then be paid 50% on 12/31/2021 and 50% on 12/31/2022.

Planning Tip: Discuss these two payroll tax benefits immediately with your CPA prior to making any further payments.

What tax benefits will I get from operating losses?
The CARES Act allows for Net Operating Losses (NOL) in 2018, 2019 and 2020 to be carried back 5 years and increases the amount of income that can be offset to 100%.

Planning Tip: Consult your CPA if you had operating losses in 2018 or 2019 to discuss whether refiling immediately is warranted. Doing so could create an immediate infusion of much-needed cash flow.

At AFA, we are working diligently to stay abreast of all of these issues, while also continuously monitoring the markets, economy and your portfolios. We will continue to update you as the understanding of the bill’s provisions and how it will be enacted evolve. In the interim, please reach out if we can assist with any questions or concerns you might have regarding The CARES Act, or any other matter.

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