Stimulus Bill Highlights for Individuals and Small Businesses

Congress approved and President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a massive tax-and-spending package intended to provide additional economic relief to address the impact of the COVID-19 pandemic. Here’s a summary of some of the major provisions that may affect you and your business:

NOTE: This summary does not capture all the provisions of the act nor does it explain the complexities of each provision. For a more detailed explanation, please reach out to your tax adviser or feel free to contact me at Lance@128financial.com.

Tax Benefits for Individuals

Recovery Rebate Checks

Individual taxpayers that made $75,000 or less ($150,000 or less for joint taxpayers) in adjusted gross income in 2019 will receive within weeks $1,200 ($2,400 for joint taxpayers) and an additional $500 for each child. This amount will be reduced for higher income taxpayers and begin phasing out after $75,000 in adjusted gross income for a single taxpayer, $112,500 for a head of household filer, and $150,000 for married couples who file a joint return. Single taxpayers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers will not receive a recovery rebate check. The IRS will base these amounts on the taxpayer’s 2019 tax return if filed, or alternatively, their 2018 return.

IMPORTANT NOTE: The payments will be made by direct deposit or check in the mail. BEWARE of phone and phishing scams. The IRS and state agencies communicate with taxpayers by regular mail, not by phone, text, or email. To date, no state has introduced their own version of a stimulus payment, so be on alert if you receive any communication saying otherwise.

Charitable Contributions

Taxpayers will be permitted to deduct up to $300 of cash contributions, regardless of whether they itemize their deductions.

For individuals who itemize, the 50% of adjusted gross income limitation will be suspended for 2020.

Retirement and Employee Benefits

For distributions from qualified retirement plans, individuals that have been affected by COVID-19 may take up to $100,000 without being subject to the additional 10% penalty for early distribution. The normal income tax that will be due on distribution can be paid equally over 3 years starting in 2020.

Required Minimum Distribution (RMD) has been suspended for 2020.

Companies have been granted more time to meet their defined-benefit plan funding obligations by delaying due date for any 2020 contributions to January 1, 2021.

Corporations and Small Businesses

Net Operating Losses (NOLs)

NOLs generated in 2018, 2019, and 2020 are not subject to the 80% taxable income limitation that was put in place by the Tax Cuts and Jobs Act (TCJA) of 2017. These NOLs can be carried back to the previous 5 years.

Interest Expense Deduction Limitation

The TCJA created a limitation of deductibility for interest paid. Under the CARES Act, businesses can deduct interest paid up to 50% of their business income in 2019 and 2020. This is an increase from the prior year, with was limited to 30%.

Acceleration of Alternative Minimum Tax (AMT) Credits

The TCJA allowed any available AMT credits to be taken as a refund over the subsequent 4 years. Under the CARES Act, any remaining available AMT credits can be taken as a refund in full on 2018 and 2019 returns (if 2018 has already been filed).

Qualified Improvement Property (QIP)

QIP will now be treated as 15-year property making it eligible for immediate expensing under the TCJA.

Increase of Charitable Contribution limitation

For contributions made in 2020, the income limitation has been increased from 10% of taxable income to 25%.

Employers with Payroll

Employee Retention Credit

If your business operations were suspended by orders issued in response to COVID-19 or you suffered a significant decline in income, you may be eligible for a credit of up to 50% of paid employee wages. This credit can be used to reduce your payroll tax liability. Non-profits are also eligible for this credit.

Deferral of Payroll Taxes

Employer's share of Social Security (but not Medicare) taxes from the date the law was signed to the end of 2020 is deferred and is due 50% on December 31, 2021 and 50% on December 31, 2022. Under certain circumstances, this deferral may apply to self-employed individuals.

Advance Refund of Credits

Employers may receive a credit for paying employees on qualified sick leave or family leave because of COVID-19. The CARES act allows employers to receive an advance on those credits.

Other Relief

Along with the provisions in the CARES Act above, there has been various forms of relief provided by Congress over the past few weeks. Some of those provisions include:

Tax Filing Relief

For 2019 tax year, taxpayers have until July 15 to file their federal return. Many states, including Georgia, have adopted the extended deadline.

Student Loan Relief

Interest on federal student loans are temporarily getting waived and federal student loan payments are eligible to be deferred. You must call your loan administrator for specifics. It’s not an automatic waiver/deferral.

Mortgage Payment Relief

Fannie Mae and Freddie Mac mortgages may be eligible to defer payments for up to one year of job/income loss. Other mortgages may soon be eligible. You must call your loan provider for details to see if you qualify. It’s not an automatic deferral.

I will continue to keep you informed in this rapidly changing environment and hope you and your families are safe and secure.