As REDW continues to study the Coronavirus Aid, Relief and Economic Security (CARES) Act in greater detail, we are highlighting a few of the most impactful areas for our clients. While this is not intended to be a comprehensive explanation of the Act, we are prepared to answer your questions and proactively guide you through its implications for you and your business. We will be watching for new federal guidance and FAQs in the coming days and weeks from the IRS, Small Business Administration, Department of Labor, and more, and will also be sharing updates with you directly or through our Insights section at REDW.com.
Relief for Individual Taxpayers
Relief from Payroll Taxes for Businesses and Nonprofits
Relief for Individual Taxpayers
Direct Stimulus Checks
- Payments to eligible individuals up to $1,200 ($2,400 for joint filers) plus $500 per qualifying child under the age of 17. The stimulus begins to be phased out if the individual’s adjusted gross income (AGI) exceeds $75,000 ($150,000 for joint filers and $112,500 for head of household filers).
- The IRS will calculate the amount of the rebate based on a taxpayer’s 2019 federal income tax return, or the 2018 tax return if the taxpayer has not filed the 2019 tax return and send the payment to the taxpayer.
Retirement Plans & Accounts
- Taxpayers younger than age 59 1â„2 can withdraw up to $100,000 from their individual retirement accounts (IRAs) and/or defined contribution plans (such as 401(k) plans) without paying the 10% penalty tax. These distributions will still be taxable with the tax paid over three years.
- Taxpayers over the age of 70 ½ are not required to take a distribution.
- Withdrawal must be coronavirus-related and made between January 1 and December 31, 2020.
- Defined benefit plan sponsors may postpone minimum funding contributions (including quarterly contributions) until January 1, 2021. (Postponed contributions will have to include interest.)
Relief from Payroll Taxes for Businesses and Nonprofits
Employee Retention Tax Credit
- A business of any size (including non-profits) that is forced to fully or partially suspend operations or has a 50% reduction in quarterly receipts measured year-over-year due to COVID-19, but continues to pay employees during that period, is allowed to offset the employer’s 6.2% share of Social Security taxes and the excess is refundable.
- When an employer has more than 100 employees, based upon 2019 employment data, the credit is based only on qualified wages paid to employees when an employee is not providing services during a suspension of business.
- When an employer has 100 or fewer employees, based upon 2019 employment data, the credit can be based on not only when there is a shut-down, but also when the business has experienced a sharp decline in gross receipts.
- For wages paid after March 12, 2020, and before January 1, 2021, eligible employers will be allowed a new refundable payroll tax credit equal to 50% of the qualified wages paid. The total eligible wages per employee are $10,000, resulting in a maximum credit of $5,000 per employee.
- Qualified wages include amounts paid to maintain group health insurance coverage.
- Wages taken into consideration for determining the new payroll tax credit under the Sick Leave Act or the Emergency Family Medical Leave Act may not be taken into consideration for this credit. If the business takes out a payroll protection loan under Section 7(a) of the Small Business Act, then this employee retention tax credit is not available.
- This credit is not available if Payroll Protection Program Loan is employed.
Deferral of Payroll and Self-Employment Taxes
- Grants employers the option of deferring their share of this year’s Social Security and Medicare payroll taxes until next year and 2022. Sole proprietorships would also qualify.
- Fifty percent of these taxes are deferred until December 31, 2021, and the remaining 50 percent are deferred until December 31, 2022.
- The deferral is not available if the Payroll Protection Program Loan is employed.
Paycheck Protection Program (PPP) Loans
- The PPP offers loans of up to $10 million with a maximum 4% interest rate. The total amount of the loan will be the lesser of the $10 million maximum and 2.5 times the borrower’s average monthly payroll for the past 12 months (excluding compensation over $100,000).
- During the covered period of February 15, 2020 through June 30, 2020, the SBA will guarantee 100% of issued PPP loans. Loan proceeds may be used to cover payroll costs (excluding individual employee compensation over $100,000), group healthcare benefits, mortgage interest payments, rent, utilities, and interest on other debt incurred prior to the covered period.
- In order to secure a loan, borrowers must certify that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19, that the business will use the funds to retain workers and maintain payroll or other eligible expenses, and the business is not receiving duplicative funds from another SBA program.
- The loans are fully guaranteed by the US federal government through December 31, 2020. No personal guarantee is required by the business owner(s).
- The SBA will encourage lenders to prioritize loans for small businesses in under-served and rural markets, including veteran-owned businesses, businesses owned by socially and economically disadvantaged individuals, women-owned businesses, and businesses in operation for less than two years.
- With restrictions, CARES Act permits a portion of any paycheck protection loans to be forgiven on a tax-free basis.
REDW advisors can help you navigate these complex new rules and analyze the right mix of loans and other relief remedies available to your business. Since so much of the support available through the CARES Act is related to changes to the tax laws, we are publishing a separate, more comprehensive article on Federal tax considerations under CARES Act here. Please contact your primary REDW Relationship Manager for more information or assistance. Back to top
REDW is committed to keeping you informed at all times, but especially during a crisis of the magnitude of the COVID-19 pandemic. Stay connected with us on LinkedIn and @REDWLLC. Or check out some of our other updates here.
