As promised, below find a comprehensive guide to understanding how the CARES act may affect you. Colman Knight is here to guide you as needed, to implement this relief package for your benefit.

This outline was drafted by the firm T. Rowe Price. We chose to share it with you because we found it thorough and clear. We have also added notes from other sources. For the full text of the bill, see Congress.gov.

Coronavirus Relief: What You Need to Know

Passed on March 27, 2020, the CARES Act was enacted to provide relief to Americans facing financial challenges due to the coronavirus pandemic.

KEY POINTS

Many Americans are facing financial challenges due to the 2020 coronavirus pandemic, and the U.S. government has taken multiple steps to provide relief.

CARES Act provisions for individuals include tax rebates, enhanced unemployment benefits, penalty-free access to retirement assets, and required minimum distribution and student loan relief.

The CARES Act also includes help for business owners, including potentially forgivable loans and relief from employment taxes.

In response to the financial challenges many Americans are facing due to the 2020 coronavirus pandemic, the U.S. government has taken multiple steps to provide relief. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, provides emergency financial assistance for affected individuals, families, and businesses. In addition, the Treasury Department announced that the due date to file and pay 2019 federal income taxes has been extended from April 15 to July 15, 2020.

This relief legislation is unprecedented in scope, with an outlay estimated at approximately $2 trillion. Much of that amount is in the form of loans available to businesses. For individuals, we believe there are six areas with the most impact in the short term.

1. Tax rebates.

The Treasury Department will issue rebates up to $1,200 per individual or $2,400 per married couple filing jointly, plus $500 per qualifying child (a dependent child age 16 or under). These rebates will be sent via check or electronic transfer to bank accounts (but not investment accounts) “as rapidly as possible.” The money will be deposited via electronic transfer if the IRS has your bank account information already on file. No action is required on your part.

Payments are limited based on adjusted gross income (AGI). The rebates are reduced by 5% of AGI over certain levels.

Filing Status	Rebate Reduced by 5% of AGI in Excess of	AGI Level Where Rebate Is Completely Phased Out (for Taxpayers Without Qualifying Children)
Married Filing Jointly	$150,000	$198,000
Head of Household	$112,500	$136,500
Other Individuals	$75,000	$99,000

The calculation of payments will be based on AGI reported for 2019 (or 2018 if a 2019 return has not been filed). Ultimately, however, the refund amount is an advance on a credit against 2020 taxes, so taxpayers could receive more when filing that tax return.

Individuals may want to consider:

• If you have been severely affected financially by the coronavirus, you should certainly use this money in any way necessary.
• If you are more financially stable, you may consider using it to build your emergency fund, reduce debt, or continue saving for retirement or other financial goals.
• If you have not filed your taxes for 2019, there are situations where you may receive more of the rebate based on your 2018 tax return.

2. Enhanced unemployment benefits.

Benefits in calendar year 2020 have been enhanced in three ways:

• People are eligible for unemployment benefits in a broader range of circumstances, including self-employed, independent contractors, and those furloughed or unable to work as a result of the coronavirus.
• Duration of benefits is extended to as long as 39 weeks (with specifics depending on state laws).
• Benefit amounts are increased by $600 per week through July 31, 2020.

Actions individuals may want to consider:

• If you are unemployed or become unemployed during 2020, you should file for unemployment benefits with your state even if you aren’t sure whether you qualify. The legislation was written so that these benefits do not reduce eligibility for other government benefits such as Medicaid.

Further detail of relief in the form of expansion of unemployment benefits:

Creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payments to individuals not traditionally eligible for unemployment benefits (self-employed, including gig workers and independent contractors, etc.). The Pandemic Unemployment Assistance program will be state administered but federal funded

Provides an additional 13 weeks of unemployment benefits through December 31st, 2020 for those for whom state unemployment benefits may have ended, including recipients of the Pandemic Unemployment Assistance program

Provides an additional $600 per week for up to four months to each recipient of Unemployment Insurance or Pandemic Unemployment Assistance

Provides funding to support existing state “short-time compensation” programs (where employers reduce employee hours instead of resorting to layoffs). Employees with reduced hours would receive a pro-rata unemployment benefit and funding through this provision would reimburse 100% of the costs incurred by the state through December 31, 2020. Also provides funding for states that enter into agreements with the Department of Labor to enact a “short-time compensation” plan, and would reimburse 50% of the costs that a state incurs under the plan through December 31, 2020

3. Access to retirement assets.

Families adversely affected by the coronavirus will be able to access money in IRAs and workplace retirement plans as an early withdrawal without penalty in 2020.

If you, your spouse, or a dependent is diagnosed with COVID-19, the disease caused by the coronavirus, or if you are an impacted individual who faces adverse financial consequences related to the crisis, you can take a distribution up to $100,000 without an early withdrawal penalty. Distributions from tax-deferred accounts, such as Traditional IRAs, will still incur income taxes, but that income is spread over three tax years (unless you elect otherwise). In addition, you can repay the distribution within three years and get back any taxes you paid.

If your workplace retirement plan allows loans, the CARES Act increased the maximum loan amount to $100,000 or 100% of your vested account balance, whichever is smaller. This applies until September 23, 2020 (180 days after passage of the act), for people eligible for penalty-free distributions as described above. The act also allows some deferral of plan loan repayments in 2020, including loans taken before the crisis.

Actions individuals may want to consider:

• While we generally caution investors to avoid withdrawing money from retirement savings, these provisions can be a big help if you face significant financial stress.
• Remember that workplace retirement plan loans typically have to be repaid quickly if your employment ends, and repayment relief may not extend into 2021. If you don’t have cash to repay the loan, it counts as a distribution and could be subject to taxes and penalties. Therefore, you should assess your employment situation and, if you qualify, consider a penalty-free distribution from your IRA or workplace retirement plan or a hardship withdrawal from your workplace retirement plan as an alternative.

4. RMD relief.

IRAs and workplace retirement plans will not be subject to required minimum distributions (RMDs) in 2020. This includes first-time RMDs for people who turned 70½ in 2019 but did not take their first RMD by December 31, 2019. It applies to everyone, not just people adversely affected by the coronavirus.

Actions individuals may want to consider:

• If you do not need a distribution from your IRA or workplace retirement plan in 2020 for spending, this provision gives you more flexibility. You may choose to take less from your tax-deferred accounts and reduce your taxes.
• Another option, if you expect you or your beneficiaries will be in a higher tax bracket in the future, is to convert some Traditional IRA assets to a Roth IRA.
• If you have taken an IRA distribution you don’t need within the past 60 days, you may be able to put that money back into your IRA (called a 60-day rollover). Keep in mind that you are only allowed one such transaction per 12-month period (measured from the date you receive the distribution).

Further detail of relief in the form of retirement account provisions:

 Providing the following tax relief for qualifying coronavirus-related distributions (defined later):

• waives the 10% penalty tax on early distributions made from qualified retirement plans and individual retirement accounts (IRAs),
• allows individuals to include the taxable portion of the distribution in his or her taxable income over a 3 year period,
• allows such distributions to be recontributed to a qualified retirement plan or IRA as rollover contributions within 3 years after the date of distribution,
• permits in-service distributions from qualified retirement plans, even if such amounts are not otherwise eligible for distribution under the federal tax rules, and
• exempts the distribution from mandatory 20% federal income withholding applicable to eligible rollover distributions from qualified retirement plans (and exempts such distributions from the 402(f) notice requirement and direct rollover requirement)

Qualifying coronavirus-related distributions are distributions of up to $100,000 in the aggregate that are made from qualified retirement plans and IRAs on or after January 1 2020, and before December 31, 2020, to an individual (1) who is diagnosed with the virus SARS-CoV-2 or with the coronavirus disease 2019 (COVID-19), (2) whose spouse or qualifying dependent is diagnosed with such virus or disease, or (3) who as a result such virus or disease experiences adverse financial consequences due to quarantine, furlough, layoff, reduced work hours, inability to work as a result of childcare issues, business closure or reduced business hours of a business owned or operated by the individual (and any other factor as determined by Treasury)

• Waives Required Minimum Distributions (RMDs) for IRAs and defined contribution plans (including 401(k), 403(b), and governmental 457(b) plans) for calendar year 2020, including RMDs for 2019 that must be taken on or before April 1, 2020, by individuals who turned age 70 ½ in 2019, but only to the extent such RMD was not distributed before January 1, 2020
• Provides the following coronavirus-related relief for loans from qualified retirement plans:
  • Temporarily increases plan loan dollar limits for qualifying individuals to the lesser of (1) $100,000 or (2) greater of $10,000 or 100% of the present value of the participant’s vested benefit. Only applies to loans taken within 180 days of enactment, and
  • Provides qualifying individuals a one-year delay for plan loan repayments that are due in 2020 (but due on or after the date of enactment).

A qualifying individual for purposes of this qualified retirement plan loan relief is an individual who would qualify for a coronavirus-related distribution (as described above)

5. Student loan relief.

Federal student loan payments are suspended through September 30, 2020, without any interest accruing.

In addition, the federal government will not enforce involuntary collection efforts (such as wage garnishment) during this time. The months without payments will still count toward requirements for loan forgiveness programs.

Actions individuals may want to consider:

• If you are on solid financial footing, you can still choose to make payments, which will be counted against the principal balance. If you don’t expect to get any of your balance forgiven, that will reduce the total amount of interest you pay over the life of the loan.

Further detail on student loan suspension provision:

Temporarily suspends payments due on federal student loans, and enables employers to contribute up to $5,250 to an employee’s student loan payments per year, excluded from the employee’s income

6. Delayed tax filing deadlines.

The due date to file and pay (without interest or penalties) 2019 federal income taxes has been extended from April 15 to July 15, 2020. This new deadline also applies to first quarter 2020 estimated taxes, but second quarter 2020 estimated taxes will still be due June 15, 2020. Along with that change, the deadline for making 2019 IRA contributions is also extended to July 15, 2020.

Actions individuals may want to consider:

• If you have not filed your 2019 tax return yet, you may want to estimate soon whether you will owe taxes or get a refund. If you expect to owe taxes, waiting to file until the new deadline can help your cash flow.
• You can also wait until closer to July 15 to assess your financial situation and whether you are in a good position to make an IRA contribution for 2019.

Additional items

Charitable considerations

• All taxpayers can take deductions for qualified charitable contributions in 2020 of up to $300. These “above the line” deductions are available if you don’t itemize, which gives people incentive to help charities in need.
• Charitable itemized deductions made in cash to public charities are generally limited to 60% of AGI, but that limit has been suspended for 2020. While that restriction did not affect many taxpayers, if you have ambitious charitable goals, this change gives you more ability to make a large impact in 2020. Note that this is intended for direct payments to charities, rather than to donor-advised funds or 509(a)(3) supporting organizations.

Provides certain relief for eligible consumers related to their mortgage loans insured or otherwise guaranteed by VA, FHA, USDA, Fannie Mae and Freddie Mac

Testing, treatment, and potential vaccines for the coronavirus must be covered by health insurance plans.

Relief for business owners.

• If you are a small business owner, the CARES Act provides for loans based on 2½ months of average payroll. The loans can be used for certain other purposes, including benefits, mortgage, rent, and utilities. Interest rates are capped at 4%, and the loans can be partially or fully forgiven if the business maintains certain employment levels.
• In addition, businesses can generally defer payment of employment taxes in 2020, with half due by the end of 2021 and the other half by the end of 2022. Some companies severely affected by the coronavirus may be eligible for a credit to reduce those taxes.

Further detail on key CARES Act provisions for businesses:

• Expands eligibility criteria for Small Business Administration 7(a) loans and provides under certain conditions loans of up to $10M, as well as grants, available via the US Small Business Administration
• Employee retention tax credit for eligible employers: a refundable Social Security tax credit equal to 50% of qualified employee wages (up to $10,000 of wages for each employee).
• Deferral of the Social Security portion of employer payroll taxes owed for the period between March 27, 2020 and December 31, 2020: 50% of the deferred amount to be paid by December 31, 2021 and the remainder to be paid by December 31, 2022
• Modification of Net Operating Loss (NOL) rules:
  • Temporary allowance to use NOLs to offset 100% of taxable income (as opposed to the 80% limitation established as part of the Tax Cuts and Jobs Act) for taxable years prior to 2021
  • NOLs generated in tax years 2018, 2019, and 2020 can be carried back 5 years (may require the amendment of prior year tax returns). Pass-through entities and sole proprietorships may be able to take advantage of this provision
• Temporary increase in business interest expense limitation to 50% of adjustable taxable income for tax years 2019 and 2020. Taxpayers can use their 2019 adjusted taxable income for the 2020 calculation
• Temporary suspension of the limitation on excess business losses established as part of the Tax Cuts and Jobs Act for tax years 2018, 2019, and 2020, for pass-through entities and sole proprietorships
• Accelerated ability to obtain AMT Credit Carryforward Refunds made available to corporations as part of the Tax Cuts and Jobs Act
• Charitable deduction increased for C corporations from 10% to 25% of taxable income
• Qualified improvement property, e.g. real estate and leasehold improvement, now included as eligible for bonus depreciation of 100% for property placed in service in tax years after 2017. This is a technical correction to the bonus depreciation provision of the Tax Cuts and Jobs Act
• Defined Benefit funding relief for single-employer defined benefit plans: the due date for employers to satisfy their plan funding obligations that would otherwise be due during 2020 (including the due date(s) for any quarterly contributions, if applicable) is delayed until January 1, 2021, with interest for payments made after the original due date
• Establishes certain limits on provisions from the Families First Coronavirus Response Act which require employers to provide paid leave

Please don’t hesitate to contact us with any questions you may have.

With care and concern from the Colman Knight team