Recently governments and businesses have launched various programs and changes to help those affected financially by the COVID-19 pandemic. To assist in navigating these, RubinBrown has summarized some of the highlights of the programs and changes available specifically for individuals and families.
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- The CARES Act provides for what some referred to as the “Economic Impact Payments.”
- The maximum benefit amount is $1,200 for individuals, $2,400 for joint filers with and an additional benefit of $500 per child under the age of 17.
- This is an income based program. Depending on the level of Adjusted Gross Income (AGI), people can expect to receive full, partial or no payment. For Joint filers with AGI under $150,000 ($112,500 Head of Household filers and $75,000 Single filers) they can expect a full payment ($2,400 + $500 per child). Those with AGI in excess of these amounts will lose 5 cents of the Economic Impact Payment for every dollar of AGI is in excess of the stated thresholds above. This continues until no Economic Impact Payment remains.
- Income eligibility will be determined based upon 2019 tax return. If no 2019 return is on file with the IRS, 2018 will be used. If neither 2019 nor 2018 tax returns were filed, consult IRS News Release here.
- The IRS will automatically determine payment size and issue a check or direct deposit that amount to each person due a payment.
- The payment is tax free and is scheduled to start April 9, 2020.
- For those who use direct deposit on their tax return, the IRS will use the most recent banking information from your return to make the direct deposit.
Tax Deadline & Payment Deferrals
- The IRS has deferred the April 15, 2020 due date for both filing returns and payment of tax to July 15, 2020. This is an automatic deferral of federal income tax returns and payments for the 2019 taxable year.
- The IRS has deferred the April 15, 2020 due date for first quarter and the June 15, 2020 second quarter estimated payments to July 15, 2020.
- Most states are offering similar 2019 income return filing and tax payment deferrals, however, the states are more varied on their deferrals for 2020 estimated payments. We recommend reviewing state requirements on a case by case basis.
Paycheck Protection Plan Loans (PPP Loans) and Economic Injury Distress Loans (EIDL)
- Self-employed individuals are eligible for PPP Loans. These loans are primarily to pay yourself and your employees (if any) as well as, to a lesser degree, various other expenses.
- Loan applications are made through a Small Business Administration (SBA) approved lender and include terms of 2 years and 1% interest.
- Self Employed individuals may apply starting April 10th.
- It is expected that if used for qualifying expenses the loan may be partially, or entirely, forgiven tax free.
- NOTE: As of the release of this article, until additional guidance from the SBA is given, it is unclear how the calculation for loan amount or forgiveness will work.
- Another loan option provided to self-employed individuals is the EIDL. This SBA loan program can be applied for directly from the SBA and its proceeds used more freely for general operations.
- Loan terms are up to 30 year, 3.75% interest and a $10,000 tax free grant advance on the loan.
Paid Sick Leave, Family and Medical Leave Expansion and Unemployment
- Full time employees, who qualify, are entitled to up to 80 hours of paid sick leave and 8 weeks of paid Family and Medical Leave. These programs can be used in conjunction and there are multiple restrictions on who qualifies for benefits and how much they will receive. For a comprehensive review of these programs, see our Paid Sick Leave and FMLA Expansion article.
- There are various reasons why an employee would not qualify for Sick Leave or the Family and Medical Leave Expansion. Those employees may need to apply for unemployment through their state’s unemployment office. States are providing different programs with different benefits specifically for people whose employment has been affected by COVID-19. Contact your states unemployment office for more detail on what COVID-19 programs it is providing.
IRA and HSA Deferral
- Similarly to the extension of the April 15, 2020 due date for filing and payments, the IRS has extended the date that taxpayers must fund their 2019 IRA and Health Savings Account (HSA) contributions to July 15, 2020.
Retirement Account Programs
- Required Minimum Distributions (RMD) for all qualified retirement accounts have been suspended for the year 2020.
- This includes those accounts that would have started RMD in 2020 and those that have already been making the minimum distributions.
- Inherited qualified retirement accounts are also eligible to defer distributions for 2020.
- For 2020 distribution under $100,000 made from retirement accounts for Coronavirus-related reasons, the 10% early withdrawal penalty from qualified retirement accounts for those under age 59 ½ has been suspended.
- 401(k) loan limits have been increased from $50,000 to $100,000 for 180 days starting on March 29, 2020.
- For those individuals Treasury has determined as affected by Coronavirus, income from early distribution of up to $100,000 from retirement accounts may be spread over three years. Or repaid and treated as a rollover if done within three years.
Mortgage Relief Programs
- There were no programs for mortgage payment relief in the CARES Act or Family First Coronavirus Relief Act.
- Individual lenders, Fannie Mae, Freddie Mac, FHA, VA and USDA are offering various programs for those adversely affected by the COVID-19 pandemic.
Education and Student Debt
- Employees may exclude from taxable income student loan payments made by their employer.
- Loan servicers may defer or reduce monthly payment amounts.
- A $300 deduction for cash contributions may be included by taxpayers who do not itemize their deductions for the tax year ending December 31, 2020.
- Increase in the charitable contribution limits to 100% of AGI (normally 60% of AGI) for certain cash contributions for 2020.
Appeals, Examinations and Installment Agreements
- As part of the People First Initiative, the IRS has issued statements regarding appeals and examinations. Appeals will continue as usual but without in person meetings. In general, no new field, office or correspondence audits will be started and existing examinations, seizures, leans and levies will be suspended.
- Installment Payments may be suspended between April 1 and July 15, 2020. However, interest will continue to accrue.
Readers should not act upon information presented without individual professional consultation.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.