With COVID-19 forcing business closures and massive unemployment, the U.S. government sought to mitigate the negative financial effects as much as possible by passing a stimulus package for individuals, small businesses, and corporations. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed the House of Representatives and the Senate, and was signed into law on Friday, March 27. Now that we have a set $2 trillion stimulus package in place, our accountants in Raleigh are breaking down what’s in it for individuals and small businesses, and how it affects you.
How the COVID-19 Stimulus Affects Individuals
The CARES Act was designed to aid individuals directly through direct payments and expanded unemployment benefits, as well as through accessing retirement accounts and putting certain loans into forbearance.
Called “Recovery Rebates,” most individuals and families will receive a one-time direct payment. Here’s how it breaks down:
- Single filers with an adjusted gross income (AGI) of $75,000 or below will receive $1,200, and anything above $75,000, the rebate will be decreased.
- Joint filers with an AGI of $150,000 or less will receive $2,400, and anything above $150,000, the rebate will be decreased.
- Payments will be phased out for single filers with an AGI of $99,000 and for joint filers at $198,000.
- Families meeting the financial guidelines above will receive $500 for any dependent child 17 or under.
- Adults aged 18 to 24 whose parents claim them on their taxes will not be eligible for a direct payment.
The adjusted gross income is based on your 2019 tax return, if you’ve already filed, but if not, it will be based on your 2018 tax return. If you earned too much on your most recent tax return to qualify, but your 2020 income aligns with the guidelines, you can claim it as a tax credit when you file next year.
How does this affect your 2020 taxes? While the rebate won’t be taxed at the time of receiving (like a paycheck is taxed), recipients will reduce the amount of the credit from their 2020 tax return.
How Do I Receive My Economic Impact Payment?
**The IRS recently announced that taxpayers must use “Get My Payment” by noon Wednesday, May 13th, for a chance to receive their payment quicker.**
Taxpayers must provide their direct deposit information, otherwise there is a high chance that taxpayers will receive their economic impact payment via paper check. It is expected that these will be received late May into June.
The IRS have set up “Get My Payment“, which allows taxpayers to access more information on the status of their payment. For instance if you have still not received your payment, this tool allows you to see the expected date you should receive it. Furthermore, if you are unsure of the amount of your economic impact payment, this tool will give you this information. Lastly, you may not have received your payment yet because the IRS does not have enough information. To speed up the process of receiving your direct payment, you may need to provide the IRS with bank account details or latest tax return information.
For people who are unemployed during this time, the CARES Act adds additional funding and expands who is eligible for benefits. In addition to employees who are laid off, got sick, or had to care for someone who is diagnosed with COVID-19, now self-employed individuals and independent contractors are eligible for unemployment. Also, those who are approved for unemployment will receive an additional $600 per week for four months on top of what states typically pay, and the first week of unemployment will be paid for.
Retirement Penalties & Required Minimum Distributions (RMDs)
The stimulus package allows you to pull up to $100,000 from a retirement plan without the Sec. 72(t) 10% tax penalty for early distribution, and it can be repaid over three years. Eligible recipients include those who have been diagnosed with COVID-19, those with dependents or spouses diagnosed, or people whose income has been directly impacted. The bill also states that loans are possible against a qualified retirement plan until September 22, 2020, and repayment can be delayed.
Seniors and retirees (individuals who turned age 70 ½ in 2019 or older) should also note that it is not a requirement to take money out of IRAs and workplace retirement plans during this year, since the CARES Act was passed. If you have already taken an RMD in 2020 you do have the option to return it back to the account. If you need help identifying if your retirement plan qualifies for some of these benefits, speak to one of our financial advisors today.
If you give to charity, you can receive an above-the-line deduction of $300 or less. Plus, the food contribution limit is increased to 25 percent for 2020 to encourage donations to food banks.
How the COVID-19 Stimulus Affects Businesses
Because so many businesses are impacted by the outbreak of coronavirus, businesses will receive a large amount of the stimulus.
Deferring Employment Tax Deposits & Payments
Under the CARES Act, businesses are allowed to defer the deposit and payment of the employer’s share of Social Security taxes. It also enables individuals that are self-employed to defer certain tax payments. The IRS has issued a list of FAQs to help answer issues and questions that may arise for employers.
Payroll Tax Refunds
This provides a refundable payroll tax credit for up to 50 percent of wages paid to your employees during the pandemic.
Employee Retention Tax Credit
If you own a business during 2020, no matter how large or small, and you’ve either had to close due to North Carolina shut down rules or you’ve had to partially suspend service or operations, you may be eligible for the employee retention credit. This provides you with a tax credit against your employment taxes equal to 50 percent of qualified wages up to $10,000 for each employee. Also, your portion of the Social Security payroll tax can be delayed until January 1, 2021.
Small Business Loans
Businesses with fewer than 500 employees are eligible for a Payroll Protection loan of up to $10 million. This is specifically for payroll and other expenses accrued between February 15, 2020 and June 30, 2020, and the loans may be forgiven if used for payroll, mortgage interest, rent, and utilities. This loan is meant to reduce the amount of people on unemployment and are made through the Small Business Administration that has other programs designed to support businesses through the coronavirus outbreak.
Contact Us for Tax Preparation and Assistance
If you would like to learn more about how the CARES Act affects your business taxes and how you can leverage your eligible deductions and refunds, our accountants in Raleigh can help. Reach out to us today at (919) 872-0866 or fill out the form below to connect with a member of our team today!