Here is the latest information on the CARES ACT and how it may impact YOU!
CARES Act for individuals update
The following represents a summary of the recently signed into law CARES Act—also referred to as the Stimulus Package.
RECOVERY CHECKS – KEY POINTS
Recovery check distribution amounts—Single taxpayers will receive $1,200 and joint taxpayers will receive $2,400. There is an additional $500 for each qualifying child.
The recovery check is considered a credit for 2020, but paid in advance.
The amount is reduced (but not below zero) by 5% of each dollar a person’s adjusted gross income (AGI) exceeds. AGI is LINE 7 on PAGE 2 of your FORM 1040 (for 2018) and AGI is LINE 8b on PAGE 1 of your FORM 1040 (for 2019). These are important numbers for you to know!
Consider the following:
• Married filing joint: $150,000 (AGI over $198,000 does not qualify)
• Head of household: $112,500 (AGI over $146,500 does not qualify)
• Single: $75,000 (AGI over $99,000 does not qualify)
Consider the following example:
1. A married couple with no children has an AGI of $190,000.
2. $190,000 is $40,000 above the $150,000 amount shown above.
3. The couple’s check is reduced by 5% of $40,000, which is $2000.
4. Therefore, they would receive a check for $400. (i.e., $2400 - $2000 = $400)
Other key details for recovery check eligibility include:
• Nonresident aliens are not eligible for the rebate.
• If a taxpayer has an outstanding debt (which the IRS would typically offset a refund by paying that debt), recovery dollars will not be used to offset that debt.
• Amount will be direct deposited into the account on the last filed return. Every taxpayer will receive a letter indicating their recovery check was dispersed. If the letter is not received, there will be a specific phone number to call to have the check re-issued.
• AGI (Adjusted Gross Income) will be accessed from 2019 returns if filed at the time of determination. Otherwise, 2018 returns will be used. Taxpayers who have not filed a return will not receive a check unless they did not file because they only have SSA-1099 or RRB-1099 (social security). The Treasury Department will review those forms for 2019 and issue the appropriate amount via check. So, something important here may be which year (2018 or 2019) that your tax return will show the most advantageous AGI – and what your timing should be for filing your 2019 tax returns!
UNEMPLOYMENT – KEY POINTS
Any employee who was furloughed or part of a layoff is eligible for state unemployment. Details are as follows:
• Unemployment amount via the state typically ranges from 30-50% of the standard wage, depending on the state.
• The amount a person will receive for unemployment over four months will be the amount the state would already provide, but increased by $600 per week through July 31, 2020. For example, if a person is eligible for $300 weekly, they will receive $900 per week over four months or through July 31, 2020, whichever comes first.
• If an employee is already unemployed due to COVID-19, the $600 weekly additional payment will be paid retroactively.
• The law temporarily increases the amount of and expands eligibility for unemployment benefits, and it provides relief for workers who are self-employed, including INDEPENDENT CONTRACTORS (you received a 2019 1099 Form) who file SCHEDULE C on their tax return ! See below for more...
UNEMPLOYMENT BENEFITS FOR SELF EMPLOYED
• Self-employed individuals, independent contractors, and other individuals who are unable to work as a direct result of COVID-19 public health emergency, and would not qualify for regular unemployment benefits under state law may be eligible to receive “Pandemic Unemployment Assistance.” This excludes individuals who have an ability to telework with pay or individuals who are receiving sick leave or other paid leave benefits.
• The unemployment assistance is available to individuals who are unemployed, partially unemployed, or unable to work for the weeks impacted as a result of COVID-19 between Jan. 27- December 31, 2020.
• These benefits will be administered by the states, in accordance with this new Federal law. As of right now, Pennsylvania has no link for independent contractors on their website. Here is what
states right now:
• Self-employed Individuals
• The federal CARES Act will provide unemployment benefits to the self-employed, independent contractors, and gig workers. Please continue to check this page for filing instructions. At this time, you should NOT file a claim through the existing online system or phone number if you are not currently eligible for unemployment benefits.
• There is a maximum of 39 weeks of assistance, where the amount is equal to what is authorized under the state unemployment compensation law, plus an additional $600 per week for up to four months (and this is available to Self-employed individuals as well).
RETIREMENT DISTRIBUTIONS – KEY POINTS
Ability to withdraw up to $100,000 retirement in 2020 for COVID-19-related purposes without 10% penalty—The distribution is taxable over a 3-year period unless electing to pay it back within 3 years. This essentially equates to a loan unless it is not paid back within the
3-year timeframe. This rule applies to individuals:
• Diagnosed with COVID-19
• Who have family (spouse or dependent) who have been diagnosed with COVID-19
• Who have adverse financial consequences in relation to COVID-19
• Who include the distribution in taxable income (unless they elect the 3-year payback)
Waived required minimum distributions (RMD) from individual retirement accounts—The required minimum distribution for 2020 has been waived. If a retiree elects to take an RMD, this must happen by April 1, 2020—otherwise, the same penalty for late withdrawal will be applied.
ECONOMIC INJURY DISASTER LOANS (EIDL) AND 7(a) PAYROLL PROTECTION PLAN
On Friday, March 27, 2020, President Trump signed into law the CARES Act, which provides additional assistance for small business owners, including the opportunity to receive up to a $10,000 Advance on an Economic Injury Disaster Loan (EIDL) for emergency capital. The SBA is updating our system to implement this provision so small businesses can request an EIDL advance when they apply for the loan. This update will be available in the coming days. In the interim period, you can still apply for a full Economic Injury Disaster Loan, but will need to reapply for the Advance when the system is updated with a streamlined application. Once updated, the Advance will be included in your EIDL application process.
The CARES Act dramatically increased the role of the Small Business Administration (SBA) in efforts to assist U.S. businesses impacted by the COVID-19 crisis. The two main vehicles for these relief efforts are the SBA 7(b)(2) loans – Economic Injury Disaster Loans – and the SBA 7(a) loan program. Both loans are available to businesses with 500 or fewer employees that have been negatively impacted by the crisis.