The Senate and House of Representatives approved a $2 trillion stimulus package named the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the COVID-19 crisis – the largest emergency package of its kind in American history. The bill is designed to inject funds into the economy via large corporations, the healthcare industry, small businesses, and individuals. Our RegentAtlantic team has been spending time dissecting the most important pieces that will have an impact on our clients and their families.
Important Stimulus Package Components
Individuals who meet the income thresholds below will receive $1,200, adjusted to $2,400 for those married filing jointly with an additional $500 for each child under the age of 17.
Many Americans are out of work due to COVID-19 with over 3 million individual claims being filed in the past week alone. The bill will bolster unemployment benefits by increasing compensation by $600 per week and also extending unemployment compensation for an additional 13 weeks.
For clients who are of RMD age, the CARES act suspends those required distributions in 2020. This applies to Traditional IRA’s, SEP IRA’s, SIMPLE IRA’s and 401(k), 403(b), and 457(b) plans as well as to beneficiaries who inherited those accounts and are mandated to take RMD’s.
If you have already taken your RMD for 2020, you may be able to reverse it by putting assets back into the account within 60 days of the distribution, taking advantage of what is known as the 60-day rollover rule (this would not apply to inherited accounts).
For those who do not rely on their RMD’s to fund living expenses, the suspension allows them to lower their 2020 taxable income and, as a result, lower their taxes due. If you find yourself in a low tax bracket in 2020, the RMD waiver presents a unique opportunity to convert assets to a Roth IRA without having to first take your RMD.
In an effort to provide relief for people who have been impacted by the coronavirus, the 10% penalty for early withdrawals of retirement assets is being waived on amounts up to $100,000. Individuals have the ability to repay the amount within three years or, if they do not repay the full amount, the taxable income can be spread over three years. This relief is available to individuals who have been diagnosed with COVID-19, the coronavirus disease, (or have a spouse or dependent who has been diagnosed), have seen some reduction or elimination of work due to the disease, or own a business that has been closed or operates under reduced hours.
In addition, for those with assets in retirement plans, the available loan amount from the plan has been increased from $50,000 to $100,000.
Two changes have been made to charitable giving and their tax treatment. The first change, which appears to be permanent, is that a new deduction has been included for taxpayers allowing them to deduct $300 of charitable contributions if they do not itemize deductions on their Federal return. There are a few catches in that this gift must be made in cash and cannot be made to a Donor Advised Fund.
In addition, there is a temporary increase in the limit that a taxpayer can deduct on their tax return for cash gifts made to charities. Previously, individuals could deduct cash contributions for up to 60% of their Adjusted Gross Income, and now that number has been temporarily increased to 100% for 2020. Like the change above, these contributions have to be made directly to charities and cannot be made to a Donor Advised Fund.
The good news for those with Federal student loans outstanding is that all payments are deferred until September 30, 2020 and no interest will accrue on the loans during this time. Importantly, this period of time will still count for those who are in loan forgiveness programs.
There has been an expansion of the loans available through the Small Business Administration. To encourage businesses to keep individuals employed, the newly introduced Paycheck Protection Program can provide loans of up to $10 million or 2.5 times the company’s average monthly payroll for the previous year (note: it excludes those whose compensation is over $100,000). Maximum interest on these loans will be 4% and the loans can be used for payroll, health insurance, rent, mortgage interest, utilities, and to pay other interest costs. The big win for businesses here is the potential for forgiveness of the loan in an amount equal to those costs above for an 8-week period as long as the company does not cut pay or reduce the workforce. If debt is forgiven, it is not taxable. These loans are also available to the non-profit community.
For businesses that have seen a 50% year over year decrease in business due to closure or limited by the COVID-19 crisis, they are eligible for a payroll tax credit as an incentive to retain employees.
Businesses as well as self-employed individuals will also have the option to defer payroll taxes for the remainder of 2020. 50% of the taxes owed would be due on December 31, 2021 and the remaining 50% on December 31, 2022.
For companies with Net Operating losses in 2018, 2019, and 2020, they can carry those losses back for up to five years to reduce prior years’ tax bills in order to receive refunds. Previously, businesses could only carry those losses back two years.
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.
This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.