Mary Owens: Selected provisions of the CARES Act
The massive economic stimulus bill known as the “CARES Act” — passed by Congress on March 27 of this year — is packed with opportunities to aide both individuals and businesses. It provides an estimated $2 trillion in various fiscal stimulus provisions, which is equivalent to approximately 10% of the U.S. GDP.
It is not possible to discuss all the provisions in this article, but addressing the following points will provide some insights on how the aide will most likely impact your household.
The broadest based relief that will aide most families comes in the form of direct payments to individuals structured as a federal income tax rebate. The payment is an advance of a special 2020 tax credit. For most recipients, the amount is expected to equal the tax credit they will calculate when preparing their 2020 tax return. It is not known for certain yet, but it is expected that recipients will not have to repay the rebate advance if it is greater than the credit they will receive on their 2020 tax return. Details like these will have to be sorted out by the IRS later this year.
The rebate is for $1,200 for individuals, $2,400 for couples filing jointly, and $500 for each child under the age of 17. High income earners will not be entitled to the stimulus checks. The rebate will start to decrease for joint filers whose adjusted gross income (AGI) is above $150,000, with a $112,500 limit for head of households and $75,000 AGI limit for singles. The credit is totally phased out for joint filers at $198,000, head of households at $136,5000 and $99,000 for singles.
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A person who has been claimed as a dependent on someone else’s tax return is not entitled to the rebate check. Most people needed to file either a 2018 or 2019 tax return to get a payment. Social security recipients who do not need to file a tax return will still get a check in the mail or direct deposited to their bank account.
The tax bill also includes several provisions on retirement account tax easing. As I mentioned last month, required mandatory distributions from your IRA, 401K, and other qualified retirement accounts have been waived for 2020. The 10% penalty on pre-age 59 ½ distributions is also waived for this year up to $100,000 for distributions that are coronavirus related. Any such distributions prepaid within three years will be treated as tax free rollovers. If the recipient is unable to repay the funds, the federal tax related to the early distribution may be paid over a three-year period without penalty.
Provisions for employers were also included to assist them in keeping their employees on their payroll. They can defer payments of the 6.2% share of social security tax on wages paid from March 27 through Dec. 31. Half of the deferral is due on Dec. 31, 2021 and the balance is due on Dec. 21, 2022. It is very important to note that employers still have to timely deposit the employee’s share. Full penalties and interest charges will apply if this portion of the employee payroll tax withholdings are not paid on time.
There is also a new $5,000 payroll tax credit per paid employee for employers impacted by the coronavirus, but employers must be eligible for the credit under some detailed guidelines in the bill. The credit offsets the 6.2% share of the social security taxes.
Business owners suffering business losses in 2018, 2019 and 2020 can now carry back those losses for five years and potentially receive refunds on taxes paid in previous years. The 80% limitation for taxable income limits for losses utilizing net income losses is also repealed for the same years.
For individuals, the deadline to file and pay income taxes is now July 15. Individuals also have until July 15 to deposit their 2019 IRA contributions and fund their 2019 health savings accounts.
The bill also had many provisions for forgivable and non-forgivable business loans. The rules are somewhat complex, and the business owner had to move quickly to receive the funding before the program ran out of money. More loan stimulus funding is expected to be passed soon once Congress is back in session.
This overview is just a small sampling of the new laws that went into place in the CARES Act. It is important to seek guidance from your tax professional and your local banker on how these provisions will be applied to your personal situation.
The intent of this act was to inject cash quickly into the economy. If you personally received a stimulus check that you do not need to pay your bills in these difficult times, please consider giving it away to someone who desperately needs it. Many local businesses and charities are really hurting because of the shutdown. While it clearly helped slow the spread of the virus, it is continuing to cause financial devastation to many.
If the shutdown does not end soon, many of our local business owners will not be able to survive.
Please do what you can to shore up our economic stability by sharing with others. The community is counting on us to act in the manner we are able. Spread the joy by spreading some cash.
Mary Owens, Principal/Branch Manager, RJFS, 426 Sutton Way, Suite 110, Grass Valley, 530-272-7500. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Owens Estate and Wealth Strategies Group is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax, legal or mortgage issues, these matters should be discussed with the appropriate professional. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Mary Owens and not necessarily those of Raymond James.
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