CARES ACT - Key Changes in Tax/Benefits Provisions for Families and Businesses | SJS Investment Services
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CARES ACT – Key Changes in Tax/Benefits Provisions for Families and Businesses

April 7, 2020
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In these times of change, when news seems to hold more emotion and impact, it can be difficult to keep track of relevant news and sift through the noise. To that end, we wanted to share a summary of recent legislation that may affect you as you are navigating through the next couple of months of decision-making for your families and your businesses.

Tax Filing Dates and Estimated Tax Payments

As you may be aware, the IRS delayed the date for filing and making federal tax payments from April 15 to July 15, 2020.¹ This change applies to individual returns, payment due from trusts and estate, and C corporations. Businesses or other entities that have filing due dates other than April 15 have not been granted a tax extension.

While some states have adjusted their tax return filing and payment deadlines to match the new federal dates, each state is making their own decision. To see if your state has delayed its filing deadline, you may check the following website: https://www.taxadmin.org/state-tax-agencies.

For those who pay estimated taxes, the first payment will be due June 15, with the second payment following on July 15.² As always, please be sure to check in with your tax professional for guidance.

IRA Contribution Deadline Extension

The IRS has extended the deadline to make IRA contributions for tax year 2019 to July 15, 2020.

Relief for Small to Midsized Businesses and Their Employees

On March 18, Congress passed the Families First Coronavirus Response Act. Taking effect on April 2,this law provides benefits to businesses with up to 500 employees, with possible waivers for businesses under 50 employees. While some of the details are being determined by the Department of Labor, the Act assists both employees and employers. Workers may be eligible for up to 80 hours of paid sick leave and expanded paid childcare leave. Employers are eligible to receive 100% reimbursement for paid leave pursuant to the Act, including coverage for health insurance costs and payroll tax liability. Self-employed taxpayers are eligible to receive a similar credit.³

CARES Act Stimulus

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus package. This is the third piece of legislation since March 6 aimed at combating the economic disruptions caused by the coronavirus epidemic. Some notable provisions of the CARES Act include the following4:

  • Cash Payment Payout: Individuals will receive $1,200 as a one-time cash payment from the federal government, while married couples will receive $2,400. Note that cash payments are available to individuals who had less than $75,000 of Adjusted Gross Income (AGI) in 2019, and to married couples with less than $150,000 AGI. Taxpayers will receive an additional $500 per qualified child. Payments are anticipated to be made in April.
  • Small Business Help: Certain businesses with fewer than 500 employees impacted by coronavirus will be able to take out loans of up to $10 million. These loans may be eligible for forgiveness if used to cover payroll, rent and utilities. Employers will also be able to delay paying Social Security payroll tax normally paid in 2020; payments will be due at the end of 2021 and 2022.
  • Unemployment Benefits Expansion: There will be an increase of $600 per week for up to four months for unemployment benefits. Benefits will also be extended to self-employed individuals and independent contractors.
  • Student Loan Payment Deferral: Federal student loan payments are deferred through September 30, 2020.
  • IRA Withdrawal Changes: Required minimum distributions from IRAs are waived for tax year 2020. The ten percent early withdrawal penalty that may apply to distributions made from retirement accounts for “Coronavirus-Related Distributions” is eliminated.

Additional IRA Distribution Information

As part of the CARES Act, Required Minimum Distributions (RMDs) are now suspended for 2020. RMDs do not have to be taken from Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), and governmental 457(b) plans. Individuals who turned 70 ½ in 2019, do not have to take their 2019 RMD (normally due by April 1, 2020) or their 2020 RMD.

Distribution rules vary for beneficiaries of inherited IRAs. Beneficiaries taking “stretch IRA” distributions over their lifetimes do not have to take these distributions for calendar year 2020. However, beneficiaries of IRAs who must distribute the entire inherited IRA in a five-year period are given an additional year to distribute the full inherited IRA balance. Those beneficiaries subject to a ten-year distribution schedule for inherited IRAs will not receive an extension, as the first IRA distribution would be required in 2021.

So, should you still take an IRA distribution if there is no requirement? The answer is, it depends. If you need to take IRA distributions to support your lifestyle expenses, then you may still need to make distributions. You might consider making a partial or full IRA distribution if you can do so at a relatively low tax rate. Also keep in mind that if you are at least 70 ½, you can continue to use IRA distributions to make charitable gifts, which may reduce taxable income distributed to you, if you cannot itemize deductions on your tax return.

What should you do if you have already taken a distribution? In some circumstances, it may be possible to reverse unnecessary RMDs.

1. RMD has taken place within the last 60 days:
An individual may be able to write a check or transfer an amount equal to the distribution back into a retirement account before the end of the 60-day rollover window. Care must be taken to comply with the once-per-year rollover rule (the funds cannot have been rolled from a plan in the last 365 days, go to a plan in the next 365 days, and/or no other IRA-to-IRA rollover can have been made within the past 365 days).

2. RMD took place more than 60 days ago:
If the individual meets one of the qualifications for taking a Coronavirus-Related Distribution (CRD) in 2020, then the IRA funds can be repaid within three years from the date of distribution. Alternatively, the distribution can be taxed over three years. Distributions of up to $100,000 from an IRA or retirement plan may be eligible for CRD treatment if the taxpayer, spouse or a dependent is diagnosed with COVID-19, or any of the following circumstances apply:

  • Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;
    Become unable to work due to lack of childcare as a result of the disease;
  • Own a business that has closed/operate under reduced hours because of the disease; or
  • Meet some other reason approved by the IRS.

What about for beneficiaries of inherited IRAs who made distributions already? These individuals are not able to make a rollover or return the funds to an inherited IRA. The only exception is for surviving spouses who took distributions from an inherited spousal IRA – the surviving spouse may be able to deposit the RMD back into their own retirement account as a spousal rollover.

Please know that your SJS team is here to help guide you and your organization through these difficult times.

 

SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.
Sources:
1. Erb, Kelly Phillips. “All You Wanted To Know About The IRS Tax Filing & Payment Extensions & Relief But Were Afraid To Ask.” Forbes.com. March 19, 2020. www.forbes.com/sites/kellyphillipserb/2020/03/19/all-you-wanted-to-know-about-the-recent-irs-tax-payment-relief-but-were-afraid-to-ask/#73b88b8845d5
2. “Filing and Payment Deadlines Questions and Answers.” IRS.gov. March 24, 2020. www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers
3. “Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave.” IRS.gov. March 20, 2020. www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus
4. “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic.” Kitces.com. March 27, 2020. www.kitces.com/blog/analyzing-the-cares-act-from-rebate-checks-to-small-business-relief-for-the-coronavirus-pandemic/.