Everyone has heard "I'm from the government and I'm here to help." Well, now they are delivering. Attached is a discussion of the CARES Act for individuals and a CARES Act highlights that includes some company aspects, as well. Additionally, we have attached a guide from the Treasury on the PPP forgivable loan.
Welcome to tax week…normally.
As part of the response to the coronavirus situation, income tax deadlines have moved to July 15, 2020. Both for payments and filings. This ncludes first quarter and second quarter estimates for 2020. In doing so, the IRS also extended the amount of time that you can deposit into your IRA to affect 2019 taxes. Well worth considering.
What follows is a few pointers for planning in addition to the extension of IRA contributions:
Required Minimum Distributions from IRAs and 401(k)s
The federal government has given a few breaks to everyone that has a qualified retirement plan from IRAs to 401(k)s. First, if you do not need your Required Minimum Distribution (RMD), you do not have to take it for 2020. For those of you that do need it, perhaps consider whether it may be better to take the distribution from your non-qualified account or Roth IRA this year. For those of you who already have taken your RMD, you are permitted to return it to your IRA without penalty over this 2-year period. By the way, if you thought this year was your first year to take an RMD because you turn 70.5, the SECURE Act raised that to 72 years of age, so you get an extra reprieve.
If you do need a distribution, as a last resort, from your retirement plan and are under 59.5, the 10 percent penalty has been removed for 2020 COVID-19-related withdraws. You can pay the taxes that you do owe on the distribution over three years, as well. And, better yet, you also have three years to repay the distribution from the plan to return it to its previous tax deferred status and save the tax. Dipping into your retirement should be a last resort strategy because you are stealing from your retirement years and, if at all possible, the distribution should be repaid so that you can stay on track for your retirement plans. Click here for more details.
Charitable contribution limits are increased and certain contributions to qualifying charities dealing with the virus are deductible above the line which means that you do not have to itemize your deductions to take advantage of that.
Unemployment benefits have been expanded even to individuals who would not normally qualify such as 1099 receivers and people who are furloughed and do not get paid time off. The federal government has lengthened the time to receive benefits and has added $600 per week to the state benefits that you can receive.
Up to $1,200 per person and $500 per child automatic bank deposits (for those that have filed for tax refunds that way in the past) should start arriving any time in bank accounts. For those that receive their tax refunds by check, that will be several weeks behind and checks will be sent in the mail. You do not have to have your 2019 taxes filed already for the assistance to come. It is taxable, but will be treated as a tax credit on your 2020 taxes.
The Ohio governor, through the Ohio Department of Insurance has instructed Insurance companies on life- and long-term care policies to lengthen the grace period form 30 days to 60 days. It is important to remember YOU STILL HAVE TO PAY YHE BILL, but they cannot cancel you until you are 60 days late according to the governor. We encourage you, if you have trouble paying any of your bills, to contact the creditor directly. Often, even those creditors not required by the government to work with you will. Also, even if they are a creditor that is required to give you more time, contact them as well to make sure that you understand the fine print.
For Employers, including sole proprietors where you are the only employee, many of the benefits are to help keep your employees. Through the SBA website, you can apply for an EIDL advance, a $10,000 advance that is forgivable. As well through your existing bank, you can apply for a forgivable loan for up to 2.5 times your monthly payroll, including payroll taxes, limited to annual payrolls up to $100,000 per year. As for a PPP application from your existing bank. It is forgivable if spent on payroll or overhead, such as rent, mortgage or utilities. See the Treasury guide on PPP.
Retirement plans receive some deferment, as well. Defined benefit contributions normally required in 2020 may be deferred to 2021. There is a credit of 50 percent of qualified employee wages with a maximum per employee of $5,000 against the employers 6.2 percent of employment taxes. There are some qualifications, which can be accessed here.
Employer side Social Security payroll taxes for 2020 can be paid over 2 years: split evenly 50 percent in December 2021 and the other 50 percent in December 2022.
These are just some of the provisions. Congress is currently debating a second round of assistance on top of these current provisions. Both Congress and the administration are intent on providing the fiscal assistance necessary to make it through this crisis.
Monetary assistance is there, too. Federal Reserve Chairman Powell has said during a webcast from the Brookings Institute, that “the Fed will react forcefully, proactively and aggressively," and that they “will continue to act until they are confident that we are substantially on the road to recovery”. The chairman also said that he has “every reason to believe the rebound, when it comes, will be robust.”
The government seems to be doing its part to get the economy through this. It is my belief that the markets will follow. There may still be much more volatility ahead... both up and down. We will continue to monitor the economy and the portfolios in light of your goals and strategies that we have discussed.
We are interested in how you, your families and your companies are getting through this time as well. Drop us a line, give us a call or schedule a time on the calendar. That is something everyone should do, at least annually, anyway. As this situation progresses, the more we know about you and your successes and challenges, the better we can serve you. Stay Safe. We will get through this together… next up, our look at the economy and portfolios.