The CARES Act and what it means for you
We have a guest blogger on Direct Talk today - David McIntee, CPA
The CARES Act passed Friday, offering much needed-relief to America’s small businesses. Here is an excellent summary of key provisions by Guest Blogger, David McIntee, CPA.
CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT
Paycheck Protection Program
The CARES Act was signed into law on Friday, March 27, 2020. Many details remain to be provided by the various federal agencies charged with managing the disbursement of the aid package and benefits. The bill is 880 pages long and contains many provisions impacting many individuals and businesses across many industries. It’s complicated, contains ambiguities that will only be clarified through regulation.
ELIGIBILITY FOR BUSINESS ASSISTANCE
The Paycheck Protection Program
An eligible businesses and nonprofit organization with not more than 500 employees, or that otherwise qualifies as a “small business” under the SBA size standard. “Business” includes sole proprietorships, independent contractors and self-employed individuals.
The loan amount is the lesser of:
* 2.5x average monthly payroll costs for the 1-year period prior to the loan date,
* $10 million (maximum loan amount)
* Payroll costs include:
Salaries, wages, commissions or similar compensation
Payment for vacation, parental, family, medical or sick leave
Healthcare and retirement benefits
State and local taxes on wages
- Payroll costs exclude:
Compensation of an individual employee in excess of $100,000 a year
Compensation paid to employees outside of the U.S.
Loan amounts used for the following will be eligible for forgiveness:
Loan proceeds may only be used for specific expenses, such as payroll costs, utilities, mortgage interest, rent/lease payments, group healthcare benefits, interest on existing debt, and other approved efforts to retain employees
The amount forgiven is based on the ratio of the number of employees employed during the period February 15, 2020 to June 30, 2020 to the number of employees employed during either a) the period February 15, 2019 to June 30, 2019, or b) the period January 1, 2020 to February 29, 2020.
The amount of forgiveness is also reduced by the amount that total salary or wages of any employee is reduced by more than 25 percent.
The amounts forgiven are excluded from gross income for federal income tax purposes.
For purposes of CARES Act loans, no personal guarantees will be required and no collateral will be required.
The requirement to be unable to obtain credit elsewhere does not apply.
Loans will have a maximum maturity of 10 years.
The interest rate will not exceed 4 percent.
Loan repayment will be deferred for at least 6 months and up to 1 year.
You can verify your eligibility at the Small Business Administration website.
Eligible businesses will apply for these loans at your local bank that is an SBA-approved 7(a) lender.
Latest information from the Treasury Department.
RECOVERY REBATE CREDITS FOR INDIVIDUALS
The CARES Act enacted “Recovery Rebates” — which are being treated as advance refunds of a new 2020 tax credit. Under this provision, individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals. The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.
Source: The AICPA Journal of Accountancy
Essentially, this is a new 2020 tax credit for individual taxpayers that meet the above criteria. Therefore, if your 2020 AGI were to exceed your 2019 AGI on which the advanced rebate check is based, or vis-a-versa, the credit will be adjusted when filing the 2020 return.
This was signed into law on Friday, March 27, 2020.
EXTENDED INCOME TAX RETURN FILING AND PAYMENT DUE DATES
IRS Notice 2020-18
Pursuant to IRS Notice 2020-18, income tax filings have been extended to July 15 from April 15 in response to the coronavirus pandemic. These new due dates apply to individuals, corporations, estates and trusts.
According to the Wall Street Journal, “the new filing delay appears to extend other deadlines for taxpayers, such as the April 15 deadline for making contributions to individual retirement accounts, Roth IRAs and Health Savings Accounts. The new guidance doesn’t explain whether an automatic six-month extension to complete tax paperwork will remain Oct. 15 or be extended to Jan. 15, 2021.”
The IRS announced last week that July 15 would be the due date for payments and that there would be no charge of interest or penalty for payments that would have been payable on the traditional April 15th due date. It was unclear at that time whether filing & payment due dates would be the same --- they are now the same!
The Notice allows taxpayers to delay their 1st quarter estimated tax payment that would have been due on April 15th. The 2nd quarterly estimate due date remains at June 15th.
It is important to note that the IRS is processing tax refunds. Electronic return filers with no discrepancies can generally expect a direct-deposited refund in 10 -14 days. States will differ.
To track State changes to the tax filing and payment deadlines, see this link provided by the American Institute of CPAs.
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