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Coronavirus, Aid, Relief, and Economic Security Act Insights
CARES ACT
On March 27, 2020, Congress approved the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) to provide assistance to individuals and businesses. The act, is the largest financial package ever passed by Congress and in total includes approximately $2 trillion of assistance. We will share some highlights of the act, as it may apply to our clients.
The CARES Act is the third aid package from Congress and it is intended to speed relief across the economy. Approximately $300 billion is expected to fund direct stimulus payments and approximately $260 billion is allocated to fund and expand unemployment benefits to individuals.
A total of $500 billion is authorized for direct loans, grants, and guarantees to business. In addition, one of the core pieces of the CARES Act is the provision of $349 billion (in addition to the $500 billion) for small businesses through federally backed loans through the SBA. This loan program is called the Paycheck Protection Program.
Time will tell whether the CARES Act will provide the intended relief. Congress is preparing to work on a Phase Four if needed. Here is an interesting visual breakdown of the spending:
Stimulus payment
The act includes a one-time direct payment to taxpayers. Treasury Secretary Mnuchin stated the payments are expected to arrive within three weeks, but it may take longer for the IRS to issue the checks. The law instructs the IRS to issue the payments “as rapidly as possible.”
The amount of the stimulus payment is based upon your particular situation and your earnings. Individuals may receive up to $1,200, married couples are eligible to receive up to $2,400 and $500 for every child under 17-years of age.
There are income restrictions. If you earn more than $75,000 as an individual, or $150,000 as a couple, the amount of the payment will be reduced. Individuals earning more than $99,000 and married couples earning more than $198,000 will not receive a payment. To estimate your expected payment here is a link to a helpful calculator. Your adjustment gross income is reported on Line 8b of the 2019 Form 1040.
If you have not filed your 2019 income tax return yet, the stimulus payment will be based upon your 2018 income tax return. Differences in the amount of the payment you receive based upon 2018 versus 2019 tax information will likely be addressed on the 2020 income tax return.
If you have not filed an income tax return for 2018 or 2019, we recommend filing a return in order to receive the stimulus payment. Schedule a virtual tax appointment with us.
If you had to pay the IRS (instead of receiving a refund), the IRS will not have your bank account information, and we expect the IRS will issue a paper check instead of direct deposit. Paper checks may take longer than 3 weeks.
If you earned too much income during 2018 or 2019, and you currently lost your job, you are unlikely to receive the stimulus payment right away. It is unclear, but possible, you could receive the amount when you file your 2020 income tax return.
Roughly 125 million people are expected to receive a check.
The stimulus payment is not taxable income.
expanded unemployment benefits
The CARES Act expands eligibility for unemployment benefits to workers who are impacted by COVID-19. The act extends benefits to far more individuals than who are usually covered and increases the amount of potential unemployment benefits. We recommend you evaluate whether you may qualify.
As of today, unemployment benefits are available to individuals who are self-employed, independent contractors, and workers with limited work history; in addition to unemployed individuals who received Form W-2 wage compensation. If you report your income on Schedule C, receive a Form 1099-MISC, earn your wages on Form W-2, or own your business and you have stopped working (or you have experienced a substantial reduction in work), you may qualify for unemployment benefits.
Also, the CARES Act provides an additional $600 per week increase in benefits to individuals collecting unemployment. For example, if you are receiving the maximum allowed benefits in Ohio, with two allowable dependents, your unemployment benefits would be $582 plus and additional $600 (total $1182) per week, following the enactment of the law. To estimate your potential benefits you may refer to this chart provided by Ohio Job & Family Services Office.
Under the new unemployment laws, unemployment benefits can be received for up to 39 weeks of combined federal and state unemployment assistance. The one-week waiting period has been temporarily suspended in Ohio.
To apply for unemployment benefits in Ohio, we recommend filing online. If you need assistance, please let us know by sending an email.
Tax deadline extended to july 15
The Tax Deadline has been postponed to July 15, 2020. Tax returns filed prior to July 15th will not be considered late and there is no need to file an extension.
Balances owed to the IRS for 2019 income tax liability do not need to be paid until July 15, 2020. First quarter estimated tax payments are not due until July 15, 2020. However, second quarter estimated tax payments are still due by June 15, 2020.
Prior year contributions to IRAs and Roth IRAs do not need to be funded until July 15.
If you still need to file your 2019 income tax returns, please schedule a time with us today.
small business loan programs
One of the core pieces of the CARES Act is the provision of loans specifically directed at small businesses and sole proprietors.
Paycheck Protection Program - the ability to obtain SBA loans has been greatly expanded. Under this program, small businesses that generally have fewer than 500 employees; self-employed individuals; sole-proprietors; independent contractors; and other business concerns, are eligible for small business loans to cover payroll; health care costs; business mortgage interest payments; rent and utilities; and payments on pre-existing loans.
The amount of the loan is based upon is based upon 2.5 times the average monthly payroll expenses, up to $10 million.
The maximum interest rate is capped at 4%. Unlike traditional SBA loans, no personal guarantee will be required to receive funds and no collateral needs to be pledged. Payments are deferred for at least 6 months, but not more than 1 year.
Loan applications must be filed before June 30, 2020 or before the funding runs out.
Borrowers under the program are eligible for loan forgiveness for 8 weeks from the loan origination date. The amount of loan forgiveness will be reduced if the certain employment requirements are not met (i.e., maintenance of payroll through a certain date).
To learn more please review this summary.
Emergency Economic Injury Disaster Loans (EIDLs) - The EIDL eligibility has been expanded to include business, with less than 500 employees, impacted by COIVD-19. EIDLs are intended to help small businesses meet working capital needs.
EIDLs may be approved solely on the bases of the applicant’s credit score or alternative methods to gauge the borrower’s ability to repay the loan. Personal guarantees for loan amounts up to $200,000 have been waived.
Please send us an email if you would like to schedule a time to discuss these loans with us.
