The Tax Advantage 04/2020
As the world struggles with an unparalleled pandemic, our leaders here in the US have passed two major bills that will impact almost everyone in the country, The Families First Coronavirus Response Act and the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here are the major highlights of the bills that may impact you:
The IRS and most states, including California, have extended the due date of personal and some business tax returns to July 15. This includes payments that were normally due on April 15 and the June 15 estimated quarterly payments. If you need more time beyond July 15, an extension must be filed. Interest and penalties will be charged for payments received after July 15. You also have until July 15 to contribute towards an IRA or an HSA.
Recovery Rebate Credits will be advanced as immediate cash payments of up to $1,200 for an eligible individual plus $500 for a qualifying child less than age 17. The credit is reduced or eliminated if your income is over $75,000, or over $150,000 for joint filers ($112,500 for those filing as head of household). The easiest way to find out how much you should receive is by going to an online calculator such as https://www.washingtonpost.com/graphics/business/coronavirus-stimulus-check-calculator/
Most people will not have to do anything to get the rebate. If you have filed a 2019 tax return, they will look at that to determine your income. If you have not yet filed 2019, they will go back to 2018 to determine your income. For those who only receive social security and are not required to file a tax return, the IRS will get your information from the Social Security Administration (if you are not a dependent on someone else’s return). If you do not receive social security nor file a tax return, you will need to file in order to get the rebate.
If you received a refund on the last tax return you filed, they will use that account for direct deposit of the stimulus funds. They do plan to install a portal at IRS.GOV to enable you to add or change your account. Check this website link for the new portal and other COVID-19 news: https://www.irs.gov/coronavirus
Distributions from retirement plans can escape the usual penalties if you have suffered adverse financial consequences as a result of being quarantined, furloughed, laid off, had your hours reduced, or are unable to work due to lack of child care. You will still pay the tax on the distributions; however you will be allowed to spread it out over a three year period. You should consult with us and your financial advisor before making such a move that could be detrimental in the long run. Rules regarding 401(k) loans were also changed.
The Families First Act provides incentives to certain employers with less than 500 employees to pay them for COVID-19 related sick leave. Employees can get paid if they are sick or quarantined, caring for another sick individual, or caring for a child whose school or daycare has closed. Credits will also be available for the self-employed on their 2020 tax returns. This act also establishes free coronavirus testing, expands food assistance, and provides protection for front-line health workers.
The CARES Act has temporarily expanded and simplified eligibility the Economic Injury Disaster Loan (EIDL). These loans are administered by the Small Business Administration (SBA) and provides an emergency advance of up to $10,000 to small businesses harmed by COVID-19. The advance may be used to keep employees on payroll, pay for sick leave, or pay for other business obligations. If you are approved and receive an advance, the SBA says you do not have to pay back the advance if used for qualifying expenses. Here is the link for more information: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
The SBA is also administering a loan program called “Paycheck Protection Program (PPP)”. These are very low interest rate loans designed to help employers retain their employees and help the business cover near-term operating expenses during the crisis. The loans are designed to cover 2 1/2 months of payroll for your employees. See the above link for more information. These loans are available through your current bank or credit union. They will be expanded to businesses without employees on April 10.
The IRS is launching an “Employee Retention Credit” also designed to encourage businesses to keep employees on their payroll. This credit will not be available to those who take the PPP loan previously discussed. Updates on this credit can be found on the Coronavirus page of IRS.GOV (see page 1).
Employers and the the self-employed can elect to defer payments on the 6.2% employer share of the Social Security tax they normally pay. Not many details available on this provision yet, other than the deferred tax can be paid over the following two years, presumably interest free.
The CARES Act expands unemployment benefits to include part-time and self-employed workers, including contractors and gig workers whose income is impacted by the virus. You will not qualify if you are able to work from home with pay, or are getting paid leave while out of work. States are waiting federal guidance on how to distribute the funds, so it may be a few weeks before anyone starts seeing this money. Californians can find out more information and apply using this link: https://www.edd.ca.gov/Unemployment/
There is now a temporary waiver of required minimum distributions (RMDs) from certain retirement plans. This provision provides relief to retirement-age taxpayers who would otherwise be required to withdrawal funds from accounts that have recently tanked.
Section 2204 of the Act allows an “above the line” deduction for charitable contributions. This provision encourages you to contribute to charities in 2020 by permitting a deduction of up to $300 of cash contributions, whether you itemize your deductions or not.
Certain student loan borrowers received some relief. There will be automatic payment suspensions until September 30 for student loans held by the federal government, and no interest charged during the period. Employers can also provide tax-free student loan repayments benefits up to $5,250 until January 1, 2021. Wage garnishments for past-due accounts will also be suspended during this six month period.
Much more information and details will be emerging over the next few weeks on this historic aid package. Even though $2.2 trillion seems like an incomprehensible amount, Congress is still working on appropriating additional funds to get us and our economy back on track. To grasp the reality of $2.2 trillion, consider this—when you hear in the news about the $2 trillion package, by leaving off that .2 they are omitting $200 BILLION! That is a chunk of change in itself!
Watch out for scammers claiming to be from the IRS asking you for your account or other personal information. Scammers have been calling and emailing about the stimulus payments attempting to de-fraud you. Don’t fall for phishing emails, text messages, phony websites, or social media attempts that request money or personal information. The IRS will never call or email you out of the blue.
Here is another useful link to a government Coronavirus webpage: https://www.usa.gov/coronavirus . Also a myriad of information available at https://www.nytimes.com/
Please contact us if you have any questions or concerns. While we are not meeting clients in person until the shelter in place order is lifted, we are still in the office and available by email or phone. If you still need your 2019 tax return prepared and do not want to wait
(in some cases waiting can cost you your stimulus rebate), please use our mail slot in either office to drop off your documents. You can also email us documents, or upload them to our secure portal (Verifyle).
DISCLAIMER: Much of the information contained in this newsletter comes from the 880 page document quickly put together by Congress and will be subject to Treasury Department interpretation and clarification over the upcoming weeks and months. In addition, we are by no means business loan experts, so you should discuss the loan programs with your bank or other lending expert. Consult your financial advisor for any investment or financial advice.
Thank you again for your continued business and the trust you have placed in us. Please be safe!
The Tax Advantage
Tom Horner, Principal Partner
Phone: (925)754-9299 or (925)685-2137