How does the recent $2 Trillion stimulus package affect you?

On Friday, as we finished our week with an office-wide Zoom conference call, I agreed to write the commentary over the weekend on the recently passed $2 Trillion stimulus package, adequately titled The Coronavirus Aid, Relief, and Economic Security Act (The CARES Act). As I sit here late Sunday night, hours into researching and writing this commentary, it is safe to say that this new legislation’s impact is far reaching. Below are the highlights of the CARES Act, but there are several additional new changes that I did not include. I added the most impactful changes that may touch our clients directly. Aside from the cash payments, if one of the items below impacts you, please reach out to us. These are significant planning opportunities that need to be considered from several different perspectives.

Cash Payments: The most wide-reaching aspect of the CARES Act for most Americans will be the cash payments estimating around $300B. Individuals will receive $1,200 ($2,400 for a married couple) as a one-time payment, with an additional $500 per child. To qualify for this amount, you must have filed a tax return in 2018 or 2019 and your total Adjusted Gross Income (AGI) must have been under $75,000 ($150,000 married filing jointly). The benefit is completely phased out at an AGI of $99,000 ($198,000 married filing jointly). 

It is important to note that this calculation is initially estimated from your most recent tax return filed. A planning opportunity will arise if your 2018 and 2019 tax returns differ substantially, with one putting you in the phaseout range. For example, if your 2018 AGI was $125,000 and your 2019 AGI was $200,000, you may want to consider waiting to file your 2019 taxes.

This payment is based on your 2020 income. When you complete your 2020 taxes, if the IRS underpays you, you will get a credit on your 2020 tax return for the difference that you should have received (say for example you have a child in 2020 but the IRS didn’t know that). If, however, you were overpaid (say you made extra in 2020 and it bumped you into being phased out) it appears that there will not be a claw back for the funds.

No RMD (Required Minimum Distribution) Requirements in 2020: Requirements for RMDs have been waived for 2020. This includes beneficiaries of qualified accounts who are receiving life expectancy payments. Additionally, beneficiaries who are subject to a five-year distribution rule may extend their required distribution by one year.

401(k)/IRA Distributions: Normal rules for in-service 401(k) and IRA distributions may be modified through 12/31/20, if related to coronavirus and are subject to:

·      No 20% mandatory withholding

·      No 10% early withdrawal penalty

·      A new rule to indirectly roll the 401(k) funds back into an IRA or employer plan within 3-years from the date the distribution is taken. Amounts not indirectly rolled into an IRA or employer plan are included in gross income over three tax years, unless participant elects to include all amounts in a single year.

·      Limited to $100,000 per tax year, across all plans of an employer or controlled group.

401(k) Loans: The maximum allowable 401(k) loan, if coronavirus-related, has been increased to the greater of $100,000 or 100% of the vested account balance.

*Note that 401(k) providers will need to contact their Third-Party Administrator to add these provisions.

Mortgage Assistance: Mortgage lenders and servicers will be allowed to provide up to 180 days of payment deferrals on customers experiencing hardships due to coronavirus.

Charitable Deductions: With the Tax Cuts & Jobs Act of 2018 significantly increasing the standard deduction, only 8% of Americans itemized that year. The CARES Act creates a new $300 above the line deduction for taxpayers who take the standard deduction. In 2020 and going forward, donations up to $300 will be deducted against income, in addition to the taxpayer’s normal standard deduction.

Unemployment Benefits: In addition to State unemployment benefits, the Federal government will add an additional $600 per week for unemployment benefits, lasting a total of four months. The legislation also adds an additional 13 weeks of unemployment insurance.

Pandemic Unemployment Assistance: Typically, self-employed, freelancers, and 1099 contractors do not qualify for unemployment. The CARES Act establishes a new temporary unemployment program for this group of people through the end of this year to help those who lose work as a direct result of the public health emergency.

Delayed Tax Filing Date: Taxes and timely tax payments for tax year 2019 are now due on July 15th, instead of the normal April 15th deadline. Previous year IRA contributions, as well as HSA (Health Savings Account) contributions have been extended to July 15th, as well. It is important to note that not all state income tax due dates have been modified in a similar manner. As these rules have been changing rapidly over the past several weeks, you should check to confirm whether your state’s filing and payment deadlines match the July 15 federal deadlines.

Student Loans: Federal student loan payments have been suspended through September 30, 2020, without accrual of interest on the loans. However, this does not affect private student loans or FFEL Loans. Most resources believe that the federal government will still count these “payments” as part of any required federal student loan forgiveness program, including public service loan forgiveness. If you are planning on seeking a forgiveness program, please contact us to discuss this in more detail.

Small Business Grants: The legislation provides $10B allocated to grants of up to $10,000 to provide emergency funds for small businesses to cover immediate operating costs.

Small Business Administration Resources: There are two significant new SBA resources:

1) $350B was provided for loans through the SBA for businesses with less than 500 employees. The business must have been operational on 2/15/2020 to qualify. Businesses may qualify for up to 2.5 times their average monthly payroll expense and it may be used to cover a variety of expenses. Any portion used to maintain payroll, keep workers employed, or pay existing debt could be forgiven, provided certain parameters are met. There are still several logistical questions here, but we recommend acting now because of the maximum amount available and a likelihood of high demand. We hope to provide more detailed information in a future commentary.

2) $17B was provided to cover six months of payments for existing SBA loans.

Employee Retention Business Tax Credit: The legislation establishes a fully refundable tax credit for businesses of any size that are closed/distressed to help them keep workers on payroll. The legislation creates a credit to offset certain payroll taxes paid by employers through the end of the year. This equals 50% of payroll, per employee, on the first $10,000 of compensation, including health benefits, for each employee. For employers with less than 100 employees, the credit will apply if revenue is less than 50% of the previous year’s quarter.

Payroll Tax Delay: This legislation allows a business to delay payroll tax from 3/27/2020 through 12/31/2020. 50% of the missed payments must be made by the end of 2021 and 50% to be made by the end of 2022.

Due to the breadth of the CARES Act, the items above have been discussed at a very high level. If one applies to you and you want more information about it, please do not hesitate to reach out to us. We will continue to navigate through this time and provide timely information to help you, your family, and those who you care about most. Please keep the lines of communication open as we can help provide guidance, connect you with other professionals, or introduce you to an expert in a certain area.

As I conclude the longest commentary I have ever written, I want to share one additional thought. From my conversations with bankers, small business owners, and from different boards/councils I am involved with, one thing remains clear: if a business, organization, or family/person that you know is adversely impacted by the coronavirus, start the conversation now. Call lenders, landlords, advisors, etc. early to see what options are available. Call the Small Business Administration for options. There are many programs in place to help during these times and most businesses are willing to be flexible. It is very apparent that everyone wants the same thing, the best possible outcome as we emerge from this strange period of time.

The items discussed in this commentary are not comprehensive or conclusive. This list is intended to highlight particular sections of the CARES Act, material aspects to the law have not been included. Before acting upon any item discussed, please consult with an appropriate professional. This is not intended to be tax or legal advice. Ballast, Inc. ("Ballast") is a registered investment advisor. Certain advisory persons of Ballast are also registered representatives of APW Capital, Inc, ("APW") Member FINRA/SIPC.,100 Enterprise Dr, Ste 504, Rockaway, NJ 07866, 1-800-637-3211. In their separate capacity as registered representatives, securities are offered through APW. Ballast and APW are not affiliated.