What you need to know about the CARES Act
There is a lot of data flying all over the place in these uncertain times. Before you make major decisions it's wildly important to get factual data from sources who specialize in particular areas this Act covers. This act is a mix of labor law, employee benefit law, tax law, finance, lending law.. our point is that not one individual is possibly equipped to know it all. It will take a team of pros by your side working together to help you make the right decisions for you and or your business.
The biggest caution we want to make is to not act rashly but pause, think of whose already on your team and connect with them on the areas they can help with and make informed wise decisions, factoring in your short-term and long term needs. Prioritize your options and start working towards solidifying ones you can control. If you are missing a key area on your team, ask the pros you do have who they use themselves. Please understand, that although we might know a little across all these areas of expertise, we can't know it all, and it's good stewardship to guide you to the one who does specialize in that area, it truly does take a tribe.
Here's a breakdown of the top issues with the new CARES Act. Business owners there's a special section later for your business.
Unemployment Funding Given to States
- 26 week unemployment coverage increased to 38 weeks
- Expanded coverage now available to self-employed, independent contractors, those with limited work history and others who are unable to work because of COVID-19 (these categories were previously not allowed to file for unemployment)
- Regular unemployment rules still apply for determining what you are paid,they will compute that for you.
- New funding for 'short-time compensation programs' where employees hours were reduced by their employers but they are still working partially. Employees will get pro-rated unemployment benefits, determined by the agency
Stimulus Recovery Rebate Checks
- Every individual will receive $1200 plus $500 for every dependent child under age 17, subject to income limitations. If you are married filing jointly you receive $2,400 plus applicable child amounts
- Checks will be sent the end of April, beginning of May and will come via direct deposit if you have done so on your last tax return, otherwise you will get a check mailed
- Income Test - the following will receive the full stimulus checks if your adjusted gross income is at or below these limits: Single taxpayers under $75,000 AGI, Head of Household under $112,500 AGI, Married Filing Joint under $150,000 AGI
- Adjusted Gross Income (AGI) is based on your 2019 tax return if filed and if not, your 2018 tax return. WE ARE WATCHING THIS CLOSELY, if you are sending us signed efile forms we are reviewing them to determine if filing 2019 now will impact your stimulus check, or if it's best to delay filing 2019 until after your stimulus check has arrived. We will contact you to decide. If you don't qualify in 2018 or 2019, you may qualify and receive the rebate on your 2020 income tax return.
- Stimulus checks will be reduced and fully phased out for folks with AGI's above the limits above. Phase out is computed as $5 for every $100 over the limit with full phase out at: Singles $99,000 AGI, Head of Household $136,500 AGI and Married Filing Joint $198,000
- Here is a link to a FAQ provided by Senate Finance Committee staff that is very helpful to understanding the stimulus checks Click Here
Retirement Funding & Distributions
- 10% early distribution penalty waived up to $100,000 of distributions used for COVID purposes
- Distributions to be taxed as income spread over 3 years
- Ability to return these funds back into a retirement plan within 3 years without restriction to maximum contribution rules. This only applies to the funds originally taken out up to $100,000
- Required minimum distribution for tax year 2020 is waived
- Up to $300 deduction to churches and charitable organizations is allowed as an above the line deduction, whether you itemize or not. In order words you get a deduction no matter what up to $300.
- For 2020 the limit of deducting up to 50% of AGI is suspended
- For corporations making donations, the limit of 10% of taxable income is increased to 25%
Delay in Paying Employer Payroll FICA Taxes
- Employers and self-employed individuals can defer paying the 6.2% employer FICA payroll tax match for 2 years. 50% must be paid by December 31, 2021 and the rest by December 31, 2022.
- Note - payroll software companies will be scrambling to re-write software code, it is unknown at this time how this will be handled. Expect more information in the near future.
Employee Retention Credit (ERC) (another payroll tax related credit)
- If your business is shutdown and you continue to pay employees OR your business is open but gross revenue for the quarter is down 50% or more compared to the same quarter last year, there will be a federal payroll tax credit available. The credit will come to you via the 941 quarterly payroll tax returns.
- The IRS needs to interrupt this law, update tax forms and provide guidance on how it is computed and implemented. Then the payroll companies need to write the software to handle it. These payroll credits impact other payroll related items.
- For now, the credit is 50% of gross wages per employee up to $10,000 of wages paid during March 12, 2020 through January 1, 2021
Net Operating Loss Rules Expanded
- Any loss generated by a business in 2018, 2019 and 2020 can be carried back 5 years to years when you paid taxes on profitable years.
- By filing an amended return, you can recoup income taxes previously paid
- Basis rules still apply. This is an area to explore with your CPA in the spring/early summer months and once your 2019 returns have been filed. It will most certainly be of impact once your 2020 returns are filed and sustained losses currently affecting your business.
Qualified Commerical Property Improvements
- If you made capital commercial property improvements in 2018 or 2019, these capital improvements required depreciation expensing over 39 years. The law changed this to 15 years which makes it eligible for bonus depreciation which is a 100% deducting of the improvement. Versus, expensing over 39 years.
- Note Mass does not follow bonus depreciation rules
- This change only impacts a small number of folks in small business
Loans, Loans, Loans
There are a vast array of loan programs out there. Our advice is to reach out to your banker to discuss your options. They should already be familiar with SBA loans and the processes as well as the full spectrum of options available to you.
I understand apprehension to talking with them because you don't want to jeopardize your existing loans. The truth is that they will see it anyway in your bank account activity and your tax returns. Having an honest partnership with them is what you and your business need. Accurate information, analysis of what's in the businesses best interest long and short term is what you need help with. Do NOT just assume you will receive a loan, or that it will be forgiven, as you are one of countless small businesses in need of help and applying and there is a limit.
If you need to talk with a lender and don't know who, or yours is not helpful, reach out to us and we'll connect you with our team. You'll need to make your own decisions if working with them is right for you and any options presented, but we can at least give you a name.
On a personal note from us at OnaWay, our hearts are heavy with what has become everyone's life at this moment. Please know that we are working night and day 7 days a week to provide you knowledge, answer your questions, be a resource, get your taxes done for refunds, ensure steps taken are adjusted to help you obtain stimulus checks and other benefits out there and help businesses hang on...
It requires constant checking with our team of pros in other areas of expertise and our vendors on how they are adjusting. It's a lot, some of it is outside our control, and we have to make hourly decisions on priorities. We hate that, because you are all a priority to us.
Just like every business we also have to think of the health and welfare of our team and those we serve. It was not easy to close our doors to normal pickup and dropoff services, especially this time of year. But we have to ask ourselves who we want to be when this is all over. And who we want to be is a team of people that come together that puts people before profits, safety of lives before convenience, an example of following our governments suggestions, and a company that will weed through the noise and be a champion of calm resilience. That is how we are making our decisions as a team right now and for those of you that are extending grace, we deeply thank you. We will continue to be here for you, for each other, for our communities and for our fellow businesses. That's the Ona Way.