31 Mar The Individual and Employee Guide to the CARES Act
We recently sent an update titled, “The Small Businesses Guide to the CARES Act” that addressed the information you will need as a small business owner. The information in this update is focused on the individual and employee. However, if you are a business owner, we recommend that you read the following information as well.
Some of the specifics are evolving as the IRS, Re-employment, and other government entities continue to interpret the newly signed bill. We recommend checking with us if you are going to make any of these decisions, as many times your particular case is not the same as everyone else’s.
Here is what we know now (as of 3/30/2020):
Employees and others filing for Re-employment in Florida:
This is the most recent Re-employment (aka Unemployment) information from Florida. Most questions will be answered in the following link PLEASE REVIEW HERE
Unemployment (Re-employment) payments are calculated at the state level, but the Federal Government is adding a extra $600 per week to many claimant’s weekly checks, paid through the state unemployment funds, through July 31, 2020.
Each state has their own “rules” as it applies to Unemployment (Re-employment) Compensation. The Federal Government, under the CARES Act, has advised the states to “open up” unemployment (re-employment) to the self employed and individual contractors, but each state makes their rules and interpretations. You will see information on self employed in the above Q&A link from Florida. This information seems to be changing often right now. Check back to Florida’s re-employment website often as these rules may continue to change — as it applies to the COVID-19 crisis.
When in doubt, apply — the questions in the application will guide you, along with the above link, and ultimately, you should allow the state unemployment (re-employment) workers to make the determination of your eligibility.
If you make quarterly estimated payments:
- 1 st quarter estimated payment is due 7/15
- 2 nd quarter estimated payment is STILL DUE 6/15
HSA and IRA contributions can be made until 7/15 as well for the 2019 year.
IRS Installment agreement payments can be stopped/paused until 7/15. Call your bank to stop these payments if you need to. However, our advice is to keep these payments going, due to the potential IRS issues with tracking the ‘pause’, but if needed, you can stop payments until 7/15.
IRA withdrawals and Required Minimum Distributions (RMD):
There are three provisions which directly affect your Individual Retirement Account (IRA) and RMD:
1. Required Minimum Distributions (RMDs) for 2020 are not required. There will be further guidance to come on how this pertains to ALL investment accounts subject to RMD. This is in place to allow time for investment account balances that require RMD to stabilize (potentially improve) later this year (as stated by government leaders).
2. Distributions prior to age 59 1/2 of up to $100,000 are not subject to the 10% excise tax in 2020, and,
3. Distributions of up to $100,000 this year can be reported as income over three years and/or repaid.
The suspension of the RMD rules apply to all taxpayers who are otherwise required to receive an RMD in 2020.
The other two provisions (#2 and #3) apply only to IRA owners affected by coronavirus. This is defined as a person:
who is diagnosed with coronavirus,
whose spouse or dependent is diagnosed with coronavirus,
who experiences adverse financial consequences as a result of:
- being quarantined,
- being furloughed or laid off,
- having reduced hours,
- being unable to work due to lack of childcare,
- closing or reduced hours of a business owned or operated by the participant, or
- any other factor determined by the Secretary of the Treasury.
You will certainly want to verify that you qualify for the IRA distribution deferment of taxes on distribution BEFORE taking money out of your IRA. As of today, the “adverse financial consequences” requirement has not been clearly defined. The taxable calculations (and accompanying IRS forms) have not yet been published. We will know more once we have them.
You want to be careful, and make sure you are not getting yourself into a poor tax situation with this. Here is what we understand now about the future taxation of this, based on the current information available:
- Inclusion in income for the distribution is spread over 2020, 2021 and 2022, unless otherwise elected.
- For the three-year period beginning on the date after the distribution is received, the participant can contribute up to the amount received as a coronavirus-related distribution to a IRA plan to which the participant could make an eligible rollover contribution (and if so contributed, the distribution will be treated as a nontaxable eligible rollover distribution) – Pro rata
The loan limit from 401(k) accounts are increased from $50,000 to $100,000. Contact your 401(k) administrator to do so.
Individual stimulus Payments:
If you have not filed a 2018 or 2019 tax return, and you have a filing requirement, you will NOT receive a stimulus check in 2020. Contact us ASAP to arrange for your return to be filed if your income would cause you to be eligible for a stimulus check now.
If you’re not required to file because you’re on Social Security or Railroad Retirement, don’t worry – you’ll still get a stimulus check. It will be calculated under the Social Security Administration. However, we recommend filing anyway, because at this time, we are not certain how the Social Security Administration will actually handle this.
2019 will be the first return that IRS looks at, so if your income dropped significantly from 2018 to 2019 and you haven’t filed 2019 yet, or if you had children in 2019, or divorced in 2019 and haven’t filed yet, PLEASE let us know ASAP so that we can expedite your return if possible to maximize your stimulus.
If your direct deposit (of refund) banking information is accurate as of the most recent tax return used (2018 or 2019), then the funds will be direct deposited into that account. If not, or the IRS does not have your current banking information, the checks will be mailed to you.
Our guidance now is that the stimulus check is an advance credit on your 2020 tax return. So, if your income dropped in 2020, bringing you into the income limitations to qualify in 2020 (for example, if you made too much to qualify in 2018 or 2019) you will receive the stimulus funds when we file your 2020 tax return in 2021 (based on your AGI (Adjusted Gross Income) calculated on the 2020 tax return).
How much individual stimulus to expect?
Adults will receive $1,200 each increased by $500 for each qualifying child (under 17 and your dependent on your return). The benefit would start decreasing at a rate of $5 for every additional $100 in income over the lower phaseout threshold.
The phaseout starts at:
- $75,000 in adjusted gross income for single filers
- $112,500 for heads of household
- $150,000 for married couples filing jointly
The stimulus phases out entirely at:
- $99,000 for single filers
- $198,000 for couples (with no children).
Student Loans (Contact your student loan provider):
Suspension of All Payments on Federal Student Loans through September 30, 2020. Under the Act, the Secretary of the Department of Education will suspend all payments due for federal student loans made under the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program (that are held by the Department of Education) through September 30, 2020. Interest will not accrue on these loans during the period of this suspension.
Payments Will Be Deemed to Have Been Made for Certain Purposes. The Secretary of the Department of Education will deem each month for which a loan payment is suspended as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program or rehabilitation program authorized under the Higher Education Act of 1965. The Secretary of the Department of Education must also ensure that, for the purpose of reporting information to a consumer reporting agency, any payment that has been suspended is treated as if it were a regularly scheduled payment made by a borrower.
Suspension of Involuntary Collections. During the period in which the Secretary of the Department of Education suspends payments on a loan, the Secretary of the Department of Education will also suspend all involuntary collection related to the loan, including wage garnishment, reduction of a tax refund, reduction of any other federal benefit payment by administrative offset and any other involuntary collection activity by the Secretary of the Department of Education.
Enhanced Tax Benefits for Charitable Gifts
$300 Deduction of Cash Contributions: Ability to deduct up to $300 of cash contributions to charities, regardless of whether the individual itemizes deductions.
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FURTHER COVID-19 UPDATE INFORMATION
We will be keeping you updated on small business and individual stimulus changes and tax changes during these times as it pertains to COVID-19. There are a lot of different opinions and commentary online about the stimulus that will be coming out soon. We will not provide speculation, rather we will only provide facts as soon as they are available. So, we will continue to proactively send out information as it becomes finalized and real. We will do so via these newsletters, on our website link for COVID-19 resources and information and on our Facebook page.
Our staff at Unbehagen Advisors is committed to advising you and your business. We appreciate your support of our firm — Since 1992.