Updated June 5, 2020
As many of you are aware, there have been sweeping changes to the tax, lending, and labor laws due to the CV-19 pandemic. Much of this information is still developing and future legislation may be enacted that could completely nullify the current guidance. Below are brief summaries of some of the topics of interest contained in the CARES Act and the FFCRA. Keep in mind that this list is NOT all-inclusive and is subject to change with new legislation.
Postponement of Tax Deadlines
IRS postponed the deadline to file federal income tax returns due April 15, 2020 to July 15, 2020. The deadline to pay 2019 tax payments and the first and second quarter 2020 estimated tax payments due on April 15, 2020 has also been postponed to July 15, 2020. The IRS clarified that the deadline to make 2019 contributions to IRAs and HSAs has also been postponed to July 15, 2020. The text of IRS Notice 2020-18 can be viewed here.
The CARES Act provides for stimulus rebates to be made to taxpayers. The maximum amount of these payments is $1,200 ($2,400 for married filing jointly) and an additional $500 per qualifying child claimed on your tax return. These payments begin to phaseout for single taxpayers with adjusted gross income over $75,000 ($150,000 for married filing jointly). The IRS will use the adjusted gross income on your 2019 return (or 2018 return if your 2019 return has not yet been filed) in order to calculate the amount of your stimulus payment. Social security recipients who are not required to file tax returns will also receive stimulus payments. For social security recipients and taxpayers who have had their refunds direct deposited, the IRS will automatically directly deposit stimulus payments in the account on record. Checks will be mailed to taxpayers that do not list bank account information on their tax returns. IRS is currently working on an online tool to help taxpayers receive their stimulus payments. More information can be found here.
Taxpayers should document the amount received in stimulus payments. These payments are technically advance payments of credits allowed based on 2020 AGI. This means that taxpayers can potentially receive additional credits when they file their 2020 return if their 2019 AGI was in the phaseout range ($75-$99K for singles, $150K-$198K for married filing jointly), but their 2020 AGI was less.
Families First Coronavirus Response Act
The FFCRA requires employers with fewer than 500 employees to provide paid leave to individuals affected by CV-19 between April 1, 2020 and December 31, 2020. A refundable payroll tax credit equal to 100% of the wages paid under this act is available to the employer. In essence, the federal government is fully subsidizing these leave payments. There are special exemptions for employers with under 50 employees from this requirement, but guidance on the particulars has not yet been released. The Department of Labor is requiring that employers display posters in their places of work (or emailed to employees working from home). A copy of the DOL suggested poster can be obtained here.
The program currently stealing the spotlight is the Paycheck Protection Program through the SBA created by the CARES Act on March 27, 2020. These loans are available to businesses in existence on February 15, 2020 and who apply by June 30, 2020. The loans must be used for payroll, employee health benefits, mortgage interest, rent, utilities, and interest on pre-existing debt. These loans offer special forgiveness provisions for the amount of the aforementioned expenses spent during the twenty-four week period after funding is received.
Seemingly before the ink dried on the CARES Act, Congress, the Department of the Treasury, and the SBA have rolled out multiple tedious sets of labyrinthine revisions and rules that provide anything but clarity to how this program will be administered. Now, with the passage of the PPP Flexibility Act, we expect additional guidance to be released in the near future. The SBA resouces regarding PPP loans can be found here.
The IRS is allowing deferral of payment of the employer portion of social security taxes incurred beginning March 27, 2020 through December 31, 2020. 50% of any deferred taxes will be due by December 31, 2021 and the remainder will be due by December 31, 2022. The CARES Act also included an Employee Retention Tax Credit eligible for qualified wages paid beginning March 13, 2020 through December 31, 2020. Employers can qualify if their businesses were fully or partially suspended related to governmental intervention in efforts to contain the CV-19 outbreak or if their gross receipts dropped more than 50% as compared to the previous year’s calendar quarter. Employers cease to be eligible once their gross receipts exceed 80% of the previous year’s gross receipts during the respective quarter. A credit equal to 50% of an employee’s wages ($5,000 maximum credit per employee) is a refundable credit claimed on the employer’s employment tax return.
The above employee retention credit is not available for taxpayers who have debt forgiven from a Payroll Protection Program Loan, however deferral of payroll taxes is still available due to the passage of the PPP Flexibility Act.
The CARES Act temporarily waives the requirement to receive a required minimum distribution from your retirement plan for the year 2020. Additionally, it provides that up to $100,000 can be withdrawn from your retirement plan for corona-virus related distributions. These distributions are not subject to the 10% early withdrawal penalty and will not be taxable if the funds are re-contributed to the plan within three years of the distribution date. Administrators of retirement plans can rely on taxpayer certification in determining if a taxpayer qualifies for a coronavirus distribution.