The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides tax relief and incentives to both individuals and businesses. Some of the provisions are straight forward, but others have far to many complications to address in this newsletter. This act was written and passed quickly, so there will be clarifications and changes as the provisions are put into practice.
Individual Tax Relief
Required Minimum Distributions: For the 2020 calendar year, the RMD requirements for defined contribution plans (including IRAs) are suspended. This means that plan participants and beneficiaries generally will not be required to take RMDs for 2020. This waiver will have no effect on the RMD rules in 2021; beneficiaries will not be required to catch up later. Individuals who have already taken a distribution for 2020 may follow the rollover rules and recontribute one distribution within 60 days after the withdrawal.
Coronavirus Related Distributions: The CARES Act allows eligible individuals access to their retirement funds without the 10% penalty for early withdrawal. The funds can be included in income over 3 years or recontributed to a qualified plan within 3 years. The maximum annual amount is $100,000. An eligible individual is one:
who is diagnosed with coronavirus by a test approved by the Centers for Disease Control and Prevention;
whose spouse or dependent has tested positive for the disease; or
who has experienced adverse financial consequences as a result of the coronavirus.
Retirement Plan Loan Repayment Deferral: If a qualified individual has a repayment due on a retirement plan loan after the enactment of the CARES Act and before December 31, 2020, the due date is delayed one year.
Charitable Contributions: For individuals who do not itemize deductions, there is a $300 above-the-line deduction for charitable contributions made in 2020. For individuals who do itemize deductions, the percentage of income limitation has been suspended for 2020.
Business Tax Relief
Employee Retention Credit: The CARES Act grants eligible employers a credit against employment taxes equal to 50% of qualified wages paid to employees who are not working due to the employer's full or partial cessation of business or a significant decline in gross receipts. The credit is limited to $10,000 in aggregate per employee for all quarters for wages paid after March 21, 2020 and before January 1, 2021.
Employment Tax Deferral: Employers may defer their portion of the 6.2% OASI payroll taxes that are due between March 27 and December 31, 2020. Half of the amount deferred will be due on December 31, 2021 and the other half due on December 31, 2022. Employers that received a Paycheck Protection Program loan may not defer the payment that is otherwise due after the employer receives a decision that the loan was forgiven. Self-employed taxpayers may also take advantage of this provision by adjusting their estimated tax installment payments.
Employment Tax Credits: The Families First Coronavirus Response Act requires employers to provide emergency paid sick leave and emergency paid family and medical leave. Eligible employers will be able to claim credits based on the qualifying leave they provide between April 1 and December 31, 2020. There are equivalent credits available for self-employed individuals. Eligible employers may also receive a refundable childcare leave credit, capped at $200 per day or $10,000 in the aggregate. In order to provide prompt payment, these credits may be used to reduce current payroll tax deposits.
Modification of Net Operating Loss Carrybacks: The CARES Act gives companies a 5-year carryback period for net operating losses arising in tax years beginning after December 31, 2017 and ending before January 1, 2021.
Expanded Educational Assistance Programs: The CARES Act has expanded the definition of "educational assistance" to allow an exclusion from an employee's income up to $5,250 for employer payments of principal and interest on any qualified education loan made before January 1, 2021.
More information can be found on the IRS website HERE and on the U.S. Department of Labor website HERE
Federal Unemployment Insurance Stimulus Programs
The CARES Act provides for a federally funded emergency increase in unemployment benefits. This will add $600 per week in benefits to individuals collecting unemployment. Connecticut Department of Labor (CTDOL) expects payments to start by April 27th with benefits retroactive to March 29, 2020.
Pandemic Unemployment Assistance (PUA) provides benefits to individuals who are not otherwise eligible for regular unemployment compensation, such as those who are self-employed, seeking part-time employment or have insufficient work history. CTDOL is expecting applications for PUA to be available by April 30, 2020.
More information can be found on the CTDOL website HERE
A word of caution: this is a very brief summary and does not include all of the details that may impact your individual situation. Please contact us if you would like more information.
About Lewitz, Balosie, Wollack,
Rayner & Giroux, LLC
We provide accounting, tax, and financial services to individuals, businesses, nonprofit organizations, estates, and trusts. Our services include tax return preparation, software consulting, and compilations, reviews, and audits of financial statements. We have been located in the shoreline community of Old Saybrook, Connecticut for over 60 years. Feel free to contact us if we can be of service. We can be reached at 860-388-4451. Our website is www.saybrookcpas.com
IRS Circular 230 Disclosure
Tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.