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On March 27, 2020, the U.S. President signed into law the CARES Act. This Act was implemented to protect American workers, businesses and jobs. Below are a few highlights from the Act and resources on how to move forward with financial relief available.
Recovery Rebates (Stimulus Checks) for Individuals
Under Section 2201 of The Act, many Americans will receive a rebate check. The IRS termed these rebates "Economic Impact Payments" and provided answers to common questions via Notice 2020-61. The chart below provides a summarized explanation of the rebate qualifications.
If you are eligible for an Economic Impact Payment but were not required to prepare a 2018 or 2019 tax return, you can enter your information here.
Consumer Protection, Mortgage and Rent Forbearance
The consumer protection provisions listed below were implemented for borrowers who have incurred financial hardship due to Covid-19. Those who experience financial stability during this pandemic are encouraged to pay their bills and mortgages on time.
The Act includes the Fair Credit Reporting Act under Section 4021 that requires lenders to report credit information as "current" for any borrower that requests credit accommodations due to Covid-19. Please note that any delinquent credit established before the pandemic will continue to be reported as delinquent. For information on how to contact your lender for credit payment relief, click here.
The Act also put in place two types of homeowner protection for federally backed mortgages:
Foreclosure moratorium - your lender or loan servicer may not foreclose on you for 60 days after March 18, 2020. Specifically, the CARES Act prohibits lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or finalizing a foreclosure judgment or sale, during this period of time.
Mortgage forbearance - You can request a forbearance for up to 180 days and request one extension for another up to 180 days. To request, you must contact your loan servicer. No additional fees, penalties or additional interest should be added to your account. Mortgages backed by Fannie Mae or Freddie Mac are also subject to the protections listed above. In addition, delayed mortgage payments will not incur late fees, reported credit delinquencies, foreclosures or legal proceedings.
For mortgages not backed by the federal government, the Consumer Financial Protection Bureau has encouraged all service providers to provide relief. To find out who backs your mortgage, contact your service provider. For more detailed information on mortgage relief, visit the Consumer Financial Protection Bureau.
Some states have also implemented mortgage relief options. Visit your state's government website for details.
For renters, Section 4023 of The Act provides that if your landlord has a federally backed mortgage or multi-family mortgage, you cannot be evicted for nonpayment of rent for 120 days beginning on March 27, 2020. After the 120-day period, the landlord cannot require you, the tenant, to vacate until providing you with a thirty-day notice to vacate.
Many states have suspended all evictions and foreclosures due to the pandemic. Check the websites of your state government for more info.
Retirement
Section 2202 of the CARES Act waives the 10 percent early withdrawal penalty for any coronavirus-related distributions from IRAs, individual retirement annuities, 401(k)s, pensions, profit sharing plans, annuity plans, section 457 contracts and annuity contracts up to $100,000. This withdrawal may be taxed over three years instead of 100% in 2020. In addition, this distribution can be paid back at any time within those three years.
Under the SECURE ACT, taxpayers were required to withdraw a certain amount of money from retirement accounts each year once they turned 72 and/or if they owned an inherited IRA. Section 2203 of the CARES Act temporarily waives required minimum distributions (RMDs) for 401(k)s, defined contribution plans, tax sheltered annuity plans, IRAs, SEPs, and SIMPLE IRAs for calendar year 2020.
If you already took a required minimum distribution in 2020, you can re-contribute it back to the account and it will not be considered as 2020 taxable income.
Students
Under Section 3504 of the CARES Act, Colleges and Universities were granted an education provision to waive the need calculation requirement and award emergency financial aid grants to help students with unexpected expenses. Contact your school's financial aid office to learn more about this available aid.
Section 3505 permits College and Universities to make work-study payments (for up to one academic year) to students who cannot work due to Covid-19.
Under Section 2206, employers are allowed to contribute a maximum of $5,250 tax-free annually to assist their employees with student loan payments until January 1, 2021 (option to renew might be available).
The Secretary of Education has suspended federal student loan payments and debt collection from March 13, 2020 through September 30, 2020. This means:
Qualifying Loans - The following federal loans qualify for suspension: Defaulted and nondefaulted Direct Loans, defaulted and nondefaulted Federal Family Education Loan (FFEL) Program loans, and Federal Perkins Loans.
Interest / Fees - All qualifying federal student loan payments are suspended without accrued interest or fees.
Credit - Suspended payments during this time will not affect credit reports.
Student-Loan Forgiveness - Suspended payments during this period will still count towards a federal student-loan forgiveness program, if applicable.
Wage garnishment - Any garnishment of federal student loan amounts from March 13th through September 30th will be refunded.
Cancelled loans - Students can cancel loan obligations related to Covid-19 withdrawal. Students who drop their classes due to Covid-19 can cancel their federal student loans associated with that period.
Non-qualifying loans - Certain student loans do not qualify for suspended payment. Some of these loans include commercially-owned Federal Family Education Loans, Private Perkins Loans, and loans with private entities and schools. Please contact your loan servicer to determine what payment postponement options are available.
Additional information - Form more info, check out the Federal Education's Department's response to Student Questions related to Coronavirus here.Unemployment
Unemployment Insurance (UI) was expanded to include independent contractors, gig workers, freelancers, and other self-employed workers. Unemployed workers could now be entitled to an additional $600 per week in addition to state unemployment benefits for a maximum of 39 weeks. These provisions hold through December 31, 2020.
UI benefits may replace up to 60%-66% of total wages and are often subject to a benefit cap of half of the state's average weekly wage.
Layed-off and furloughed workers are eligible for these benefits.
Unemployment benefits are distributed at the state level. For a list of state unemployment agencies, click here.
Payroll Protection Program (PPP)
The PPP provides loans up to $10 million to small businesses (includes self-employed and independent contractors) who need assistance covering payroll and occupancy costs.
For the U.S. Treasury's response to Payroll Protection Program Frequently Asked Questions, click here.
Amy Northard, CPA provided a great breakdown of this program. I advise you to check out her Step by Step Guide to the Payroll Protection Program.
The PPP application ends June 30, 2020. To apply, click here.
Economic Injury Disaster Loan (EIDL)
The EIDL provides loans up to $2 million to small business (includes self-employed and independent contractors) who need assistance covering payroll, accounts payable, and certain other expenses.
A summary comparison of the PPP and EIDL can be found here.
The EIDL application ends December 31, 2020. To apply, click here.
Small Business Administration (SBA) Microloans, Express Bridge Loans and Debt Relief
The SBA offers microloans to help small businesses and nonprofit expand, express bridge loans for businesses with an SBA relationship, and other debt relief options. For more information, click here.
Retirement Plans
Under Section 2202 of The Act, businesses have until 2022 to amend their retirement plans and annuities to conform to provisions related to the Act. See Retirement under INDIVIDUALS above for other retirement provisions from the CARES Act,
Payroll Tax Delay
Section 2302 of The Act also allows employers to delay payment of Social Security portion of payroll tax without penalties or fees.
The penalty waiver is applicable to Social Security taxes that would have been due between March 27, 2020 and December 31, 2020.
The waiver requires half of the Social Security tax liability to be paid before December 31, 2021 and the other half by December 31, 2022. For the full details, see IRS Notice 2020-22.
Employee Retention Credit
Section 2301 of The Act established the Employee Retention Credit to encourage businesses impacted by COVID-19 to retain employees.
If an employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter, or the employer's gross receipts are below 50% of the comparable quarter in 2019, they might be eligible for the Employer Retention Credit.
The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit.
For full details on who is eligible for the credit and how to obtain the credit, please review the March 31 IRS News Release.
Other Tax Provisions
Net Operating Losses (NOL) - Section 2303 of the CARES Act removes the Tax Cuts and Jobs Act's 80% limitation for NOL carryforwards and carrybacks entirely for taxable years beginning before January 1, 2021. The 80% limitation remains in place for taxable years beginning after December 31, 2020. 2018, 2019, and 2020 losses can be carried back five years.
Section 163(j) Interest Limitation- Section 2306 increases the Section 163(j) interest deduction limitation from 30% to 50% of adjusted taxable income (ATI) for tax years beginning in 2019 or 2020. Partnerships, however, remain subject to the 30% limitation for tax years beginning in 2019.
Qualified Improvement Property (QIP) - Section 2307 allows taxpayers that placed QIP in service in 2018 are able to treat such property as 15-year property eligible for bonus deprecation.
Excess Business Loss Limitation - the limit on excess business loss has been retroactively delayed until 2021.
State, City and Local Grants, Loans and Debt Relief
Many states, city, and local municipalities have developed separate economic relief programs to assist businesses impacted by COVID-19. Please visit your local government's website for more information.
Economic Relief
The economic relief available to small businesses (listed above), including loans, tax provisions and credits is also available to eligible nonprofit organizations.
Nonprofits classified under 501(c)(3) (includes Churches) and veterans organizations are eligible for Paycheck Protection Program.
The Economic Injury Disaster Loans are available to nonprofits classified under subsections 501(c)-(e).
Charitable Contribution Deduction
Section 2204 of The Act institutes an above-the-line charitable contribution deduction for 2020 and thereafter to public charities. The deduction is limited to cash gifts by individuals of no more than $300.
Section 2205 of The CARES Act suspends the 50% adjusted gross income (AGI) limit on deductible gifts by individuals for gifts in 2020 and after. This means individuals can now receive a deduction for charitable contributions up to 100% of their AGI. For corporations, taxable income is now 25%.
The limit on deduction for contributions of food inventory is increased from 15% to 25% of AGI.
Grants
Under the Act, the National Endowment of the Arts will receive $75 million to distribute to arts organizations. Contact your local art grant making agency for information on how to apply for grant funding.
Under the Act, the National Endowment for Humanities will receive $75 million to distribute to the humanities sector. Contact your local humanities grant making agency for information on how to apply for grant funding.
Nonprofit educational institutions might be eligible for funding from the $30.75 million designated to the Education Stabilization Fund. 10% of those funds will be distributed to state governors to provide funding for K-12 schools and higher education. The Secretary of Education will grant the remaining funds to K-12 institutions, colleges, universities, minority-serving institutions, U.S. outlying areas and the Bureau of Indian Education.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.