The CARES Act – What Does It Mean for the Individual or Small Business Owner

I know, I know not another article on the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The 880-page stimulus package was just signed into law on March 27, 2020 and already there have been numerous summaries written. My goal for this blog is to provide you an easy to read summary of the provisions that may impact you as an individual or small-business owner.

Before I get into the academics of the CARES Act, I want to take this opportunity to acknowledge the uncertainty the coronavirus has caused. This uncertainty may include that with the health and safety of you and your family, your employment situation, your financial/retirement situation, and many other areas of your life. Bottom line, right now you may find yourself in a place of uncertainty. If this is the case, please feel free to reach out to me. Taking action allows you to take back control and this action could simply be educating yourself on your personal situation.

In response to the Coronavirus global pandemic, aka COVID-19, the U.S. Congress passed the CARES Act. This $2 trillion package was passed to help ease the economic blow experienced by families and businesses.

The following is a brief review of the provisions I feel to be most noteworthy to individuals and small-businesses. This is not a complete review, but it is a gathering from four different reliable sources1.

Individual Provisions:

Individual Recovery Rebates

The CARES Act provides up to $1,200 stimulus check to eligible adults earning up to $75,000. Married couples filing a joint return and earning up to $150,000 will receive up to $2,400. This is based on 2019 adjusted gross income (or 2018 AGI if you haven’t yet filed your 2019 tax return).2 https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-HCCF2DA7CBD6341059EAB97C24489743B Eligible families (individual and joint filers) receive an additional $500 for each child under the age of 17. As with typical refundable tax credits, this potential stimulus payment begins to phase out when a taxpayer’s income exceeds their applicable threshold. For those taxpayers who’s 2018/2019 AGI exceeds the threshold, but then in 2020 meets the criteria based on loss of income, the Act directs the payment. Yes, this means you will get the stimulus check, but much later. Interestingly, there won’t be a “clawback” for those who end up making more in 2020 than they did in 2018/2019.

It is a good time to mention that prior to the signing of the CARES Act, the 2019 filing deadline was extended to July 15, 2020. If your 2019 AGI meets the applicable threshold and your 2018 exceeds it, you may want to ensure you file your 2019 taxes as soon as possible to try to get it to the IRS before they calculate the stimulus payment. Also, it’s important to mention, 2019 IRA/ROTH/Health Savings Accounts (HSA)/Medical Savings Accounts (MSA)/Coverdell Education Savings Account contributions are all extended along with the filing extension.

That being said, per the U.S. Treasury Secretary Steven Mnuchin payments should go out within three weeks (as of March 27, 2020)3. In an interview on CNBC on March 29, 2020 the Secretary said payments will go out by April 16, 2020.

COVID-19 Related Retirement Distributions

Another relief provided which actually is similar to Federally declared disasters, is the waiver of the 10% early distribution penalty up to $100,000 of 2020 distributions from IRAs and employer-sponsored retirement plans for those impacted by COVID-19 (qualified individuals). The income tax is due, but it can be spread out evenly over 3 years. And the day after receipt of said distribution, one has up to three years to “roll back” all or any portion of the distribution back into a retirement account; thereby, eliminating the tax paid for the distribution. This may require an amended tax return. For employer-sponsored retirement plans, loans can be taken by “qualified individuals”. The maximum amount of the plan loan is increased to the lesser of $100,000 or 100% of the account balance and it applies to loans taken 180 days from the Act’s date of enactment.

As defined in H.R. 748-CARES Act (a)(4)(A)(ii), a “qualified individual” is one:

  • who is diagnosed with COVID–19 by a test approved by the Centers for Disease Control and Prevention,
  • whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or
  • who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).
Required Minimum Distributions (RMD) Waived

For those not in need of income the CARES Act suspends RMDs during 2020. This applies to retirement account owners and beneficiaries taking stretch distributions. This is a big help because RMDs are based on the account value at the end of the previous year (December 31, 2019). Without this specific relief, retirement account owners would be forced to withdraw and pay tax on a higher percentage of their current IRA balance.

This subject warrants a more detailed discussion with your personal financial advisor given your specific situation. Please reach out to me if you’d like to discuss your situation.

Student Loan Deferral

There are several provisions geared to provide relief to student loan borrowers, the main one I want to address is the temporary relief for Federal Student Loan Borrowers. In general student loan payments on Federal student loans are suspended through September 30, 2020. During this time, no interest will accrue. By default, payments will continue unless individuals take proactive steps to contact their loan provider and request a pause in payments.

Again, if you want to discuss this area more in depth and specifically to your situation, contact me directly.

Health Care Provisions

The definition for “qualified medical expenses” for HSAs, MSAs, and Healthcare Flexible Spending Accounts (FSAs) is expanded to include over-the-counter medications.

Additional personal healthcare provisions include:

  • Medicare beneficiaries will be eligible to receive the COVID-19 vaccine (when available) at no cost
  • During the COVID-19 emergency period, Medicare Part D recipients must be given the ability to have up to a 90-day supply of prescribed medication (must request)
  • Telehealth services may be temporarily covered/relaxed (contact me if you’d like to discuss)

Small Business Provisions:

Paycheck Protection Program/Forgivable Loans

This program is a partially forgivable loan program provided by the Small Business Administration (SBA). One must apply for this loan by June 30, 2020 and have a maximum maturity of 10 years. To qualify the business (to include sole proprietorships) have fewer than 500 employees (with a few exceptions)4. Eligible borrowers are required to certify by good-faith that the loan is necessary due to the “uncertainty of the current economic conditions” caused by COVID-19.

Under this program, the loan may be used to pay for a variety of expenses to include:

  • Payroll
  • Group health insurance premiums/other healthcare costs
  • Salaries/Commissions
  • Rent (business)
  • Mortgage interest (does NOT include pre-paid)
  • Utilities
  • Other business interest incurred prior to February 15, 2020

The most significant potential benefit of a loan provided from this powerful program is the possibility of having all or a portion of it forgiven. The amount eligible is the amount actually spent (during the first 8 weeks after the loan is made) on:

  • Payroll (excludes prorated amounts for individuals with compensation over $100,000)
  • Rent (lease in force before February 15, 2020
  • Utilities
  • Group health insurance premiums/other healthcare costs

Now there is a particular requirement to for the above to be forgiven. The business MUST maintain the same number of employees from February 15, 2020 through June 30. 2020 as it did in the same period in 2019 or from January 1, 2020 until February 15, 2020. If this requirement is not met, the amount eligible for forgiveness is reduced (additional reductions may also apply).

This is definitely a good time to discuss your personal situation with me or your personal financial advisor as there are additional benefits to this program and it can get confusing.

Employee Retention Credit

If a small business is not receiving a covered loan as defined in the SBA Section 7(a)(36), the CARES Act provides a new payroll tax credit. A thorough review of the CARES Act is recommended to see if your company is eligible for this credit.

Deferral of Payment of Payroll Taxes

Another payroll-related tax break is the ability to defer payroll taxes from the date of enactment of the CARES Act through the end of the year, and until the end of 2021 and 2022. Again, employers are NOT eligible if they have debt forgiven by the CARES Act for certain SBA loans.

As I stated in the beginning, the CARES Act is an 880-page document and there are a number of other provisions I opted not to address. There is assistance provided for unemployment insurance expansion, aid for states and municipalities and aid for large companies.

Given the number of benefits/programs provided in the CARES Act that may impact you or someone you know, I highly recommend taking this time to check in with your financial advisor and discuss your personal situation.

 To learn more about how we can help you, contact us today!

Blog Sources

1 https://www.kites.com/blog/analyzing-the-cares-act-from-rebate-checks-to-small-business-relief-for-the-coronavirus-pandemic/;

https://www.schwab.com/resource-center/insights/content/how-us-economic-stimulus-package-may-affect-investors?cmp=em-QYD;

https://www.thinkadvisor.com/2020/03/30/3-stimulus-bill-provisions-advisors-should-act-on-now-jeff-levine/?kw=3%20Stimulus%20Bill%20Provisions%20Advisors%20Should%20Act%20On%20Now:%20Jeff%20Levine&utm_source=email&utm_medium=enl&utm_campaign=retirementreport&utm_content=20200331&utm_term=tadv;

https://onwallstreet.financial-planning.com/news/new-cares-act-would-bring-tax-relief-for-retirement-accounts?position=editorial_1&campaignname=OWS_daily_Trending-03302020&utm_source=newsletter&utm_medium=email&utm_campaign=OWS_daily_Trending%2B%27-%27%2B03302020&bt_ee=GdXWKV%2FMfaUGTnJLpVuvkUHokpEANU5X%2FIQCCupDgS11hPFCWg2Ii9Esh2rgjY4Q&bt_ts=1585598463930

2 https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-HCCF2DA7CBD6341059EAB97C24489743B

3 https://www.bloomberg.com/news/articles/2020-03-26/when-and-how-will-i-get-that-1-200-stimulus-payment-quicktake

4 H.R. 748-CARES Act Sec. 1102. (a)(2)(D)(i)/(ii)/(iii)/(iv)