Covid-19 Update, March 26, 2020
The CARES Act: This still requires a vote and Presidential signature; however, we learned more about it and I have read through the entire current version. Keep in mind this is not yet final, but it will give you a glimpse on what may be in our very near future. Bear with me as I believe some of the technical information included will be helpful to many.
SBA Job retention loans with loan forgiveness: According to Secretary Treasurer Mnuchin, these will immediately cover eight weeks of salaries as long as businesses keep workers employed. FDIC insured banks will be able to make them with a simple process and he expects it to be available by the end of next week with a same day application and funding. The covered period would be March 1-June 30 which is 4 months. Payroll for this calculation does not include anyone paid $100K or more.
Forgiveness would be based on payroll for the period plus debt obligation payments for debt acquired prior to 3/1/2020. There are calculations based on number of employees for the covered period and number of employees from 3/1/19-6/30/19, the equivalent prior year period – which makes sense given they want employee retention in exchange for the forgiveness.
There would be a process to submit to the lender at a later date for loan forgiveness, if not qualified the loan could be for up to 10 years at 4%. Also, the cancelled indebtedness under this section would be excluded from gross income for tax purposes. Maine has not yet followed suit on this, or the payment extension. Many states have made progress, see this chart for a particular state.
- Recovery rebates for individuals would be at a maximum of $1,200 for an individual and $2,400 joint filing. There is an additional $500 per qualifying child. The amount is the lesser of net income tax liability or the $1,200/$2,400 with a minimum of $600/$1,200. To qualify you would need net income of at least $2,500 or a net income tax liability of greater than zero and a gross income greater than the basic standard deduction with income for these calculations based on either tax year 2018 or 2019, depending on the most recent filed. The amounts are phased out starting at $75K individual/$150K joint and are fully phased out at $99K/$198K. According to Mnuchin these would come within the next three weeks.
- Tax favored withdrawals from retirement plans not to exceed $100K. These withdrawals you would have up to 3 years to repay. If you did not repay, you would take it into taxable income ratably over the three year period. In order to qualify for these you would need to either a.) be diagnosed with Covid-19 or b.) have a spouse or dependent diagnosed with Covid-19, or c.) experience an adverse financial consequence as a result of being quarantined, furloughed or laid off, unable to work due to child care, closing or reducing hours for a business you own, or other factors to be set by the Secretary of Treasury. These distributions would also not be subject to the early withdrawal penalties.
Other items in the CARE Act:
- Increase on limit on loans from qualified retirement plans from $50K to $100K and delayed repayment for one year.
- Allowance of partial above the line deduction for charitable contributions of up to $300 (encouraging Americans to donate up to $300 per family). This means you would not need to itemize to get the deduction.
- Modification of the limitations on charitable contributions.
- Food inventory contribution percentages increased from 15-25%.
- Delays in payment of employer payroll taxes.
- Net operating loss modifications temporarily repealing the taxable income limitation.
- Technical amendments regarding qualified improvement property allowing direct write-offs for costs to improve facilities.
- Emergency relief through other loan and loan guarantee programs.
- An additional $600 per week payment for up to 4 months on unemployment.
- Unemployment expanded to include independent contractors and self-employed.
- Mnuchin also mentioned the Treasury would have access to $500 billion to work with the Federal Reserve for emergency programs that will create up to an additional $4 Trillion to support American businesses and American workers in an unprecedented way.
NOTE FROM TABITHA: The job retention loans with forgiveness and increased unemployment should be able to help many of you through the next four months. If there are any changes to the package when it reaches its final state, I will be sure to keep you informed in these newsletters. Determining the amount of loan to request may require assistance next week, we will be here to advise you along the way.
Also if you feel inclined to call your local representatives to voice concern that Maine is not following the national lead on extending the tax deadlines and payments, we would be greatly appreciative. We do not feel it is prudent to push our employees the way we normally would during tax season in order for their personal health, and we are taking extra time to assist you in making important business decisions during this crisis. The Maine tax return requires the federal tax return to be complete in order for a timely filing. We are all working hard for our clients, but we feel the Maine tax filing date of 4/15/2020 is an undue burden on our employees and our clients given the Covid-19 pandemic.