Coronavirus Aid, Relief, and Economic Security (CARES) Act: What you Need To Know
The CARES act is an 800-page document and we are still looking into all the details. So much to cover.
Here are the highlights for small businesses and individuals so far.
Recovery Rebate (Stimulus Checks)
Payments will be made to taxpayers as follows:
- $1,200 per taxpayer, (joint filers get $2,400)
- $500 for each qualifying child.
- The rebate is tax-free.
- The credit is phased out if your income (AGI) exceeds $75,000 single or $150,000 married filing joint (MFJ), $112,500 Head of household (HOH).
- Phase-out is $5 for every $100 over the income limit.
- Once your income equals or exceeds $99,000 Single or $198,000 MFJ, there is no rebate.
- Using 2019 returns to determine the rebate.
- If no 2019 return, they will use 2018 return, or Social Security statements for low income who don’t have to file a return.
- If no 2018 or 2019 return no rebate.
- Rebate will be adjusted up or down when you file your 2020 tax return.
- The money will be delivered first to those the IRS and/or SS have bank account information.
- Those without banking information on file will receive a check after direct deposits are made
Unemployment Insurance Expansion
- Unemployment Benefits for More Americans: Makes sure self-employed and independent contractors can receive unemployment during the public health emergency
- The bill also includes support to state and local governments and nonprofits so they can pay unemployment to their employees.
- Adds a $600/week across-the-board payment increase through the end of July
- In addition, for those who need it, the bill provides an additional 13 weeks of benefits beyond what states typically allow.
- Lending up to 2.5 times the monthly payroll costs up to $10 million (definition of payroll costs to be determined)
- Payback over 10 years at 4% for EIDL
- Payback over 2 years at 1% for PPP
- Loan forgiveness in PPP only for payroll, rents, utilities, and mortgage interest paid from 4/1/2020 to 6/30/2020
- Debt relief for existing SBA Borrowers
- SBA will cover all loan payments for existing SBA borrowers for six months
- This relief is also available to borrowers who take out an SBA loan with six months after the President singes the bill
Payroll tax delay
Delays payment of 50% of SOME of the 2020 Federal employer payroll taxes until 12/31/2021
The other 50% will be due 12/31/2022
- It only applies to federal taxes incurred between March 27, 2020, and December 31, 2020, so that means most Q1 taxes are not eligible for deferment.
- It only applies to the employer’s 6.2% Social Security Tax.
- It does not apply to the taxes withheld from employees, such as federal Withholdings or Medicare taxes.
- Applies to ½ of Self-employment taxes.
- Employers who have debt forgiven under the Payroll Protection Program are not eligible for payroll tax deferral.
- It does not apply to state taxes as this is part of the Federal CARES act only.
Tax Tip: if you can afford to pay all of the taxes at this time, I strongly urge you to do so. Trying to pay all these taxes later can be daunting.
Many clients are calling us to hold off paying their payroll taxes this quarter. This can be a massive mistake as the penalties for failure to pay the portion that is not allowed in this deferral will be 10% to 25% of the taxes owed, creating an even greater burden.
- Temporarily suspends Required Minimum Distributions for 2020
- See this post on Retirement Provisions in the CARES act
Keep checking back here for more COVID-19 Tax Updates and FAQs.