Please note that this is very recently passed (3/25/2020) and more clarification and regulation will be coming through the pipes as it is further developed. This is our interpretation of the preliminary passed rulings. Please reach out to us if you have specific questions.
Individual Stimulus Payments
Individuals may be entitled to a check for up to $1,200 per person ($2,400 per married couple) and an additional $500 for each dependent under the age of 17. There are income limitations for high earners, you may be subject to a reduced, or no, credit if your income is above $75,000 (if you are single) or
$150,000 (if you are married). These payments are based on your most recent tax return and you do NOT need to apply to get your money. It is unclear if the IRS will direct deposit if this info was available on your tax return, or if they will solely be mailing checks out. Payments will be made between now and 12/31/2020. Please note- this is an advance payment that will need to be reconciled with your 2020 income. When you file your 2020 tax return, if your income is above/below the income they use to give you your check, you may get more money back or potentially have to repay your stimulus check (this part is still not clear).
Small Business Loans
If you have fewer than 500 employees there are great loans to help you stay afloat.
Small Business Loans: Paycheck Protection Loans
These are fully guaranteed by the government and are limited to the lesser of (1) average total payroll costs for the 1 yr period prior to the date the loan was made multiplied by 2.5 or (2) $10 million. Payroll costs are defined as the following:
- Wages, commission, salaries,
- Payment for vacation or medical leave
- Payment for group health care benefits
- Payment of retirement benefits Payroll costs do NOT include the following:
- Compensation to any individual employee in excess of an annual salary of $100,000
- Payroll taxes
- Any compensation paid to an employee that lives outside of the US
- Any sick/medical leave for which another COVID-19 credit is taken
These loans will have a max maturity of 10 years and interest should not exceed 4%. Proceeds should be used to cover payroll, mortgage payments, rent, utilities and any other debts. No personal guarantee is required by the owner on these loans. There are deferment measures in place for repayment to defer payments for at least 6 months, sometimes one year.
These loans have a great forgiveness clause in them- any portion used for the aforementioned allowed costs in the 8 week period immediately following the date of the loan may be forgiven (without incurring cancellation of debt income). To seek forgiveness, substantiation of qualified expenses will need to be submitted to the lender. This forgiveness clause is limited if you reduce your employee base or you reduce highly compensated employees pay to meet the rules.
Small Business Loans: Emergency Government Disaster Loan
This is also for employers with 500 or fewer employees, and comes with the same rule that no personal guarantee is required by the owner (as long as the loan is $200k or less). For these loans, the government will pay the principal and interest for the first six months for which payments are due. You can also receive an advance of up to $10,000 immediately, which may not be required to be repaid even if your loan is denied.
Special Rules for Using Retirement Funds for COVID-19 Costs
The penalty for early withdrawals from retirement accounts (typically a 10% early withdrawal penalty applies if you are below 59 ½) is waived if a “corona virus related distribution” is made. See below to see if you qualify:
- A distribution made to an individual who is diagnosed with COVID-19
- A distribution made to someone who’s spouse or dependent is diagnosed with COVID-19 who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, reduction of work hours or being unable to work due to lack of childcare
Please note these distributions are still taxable, however the 10% penalty is waived. The taxable income may be spread out over a 3 year period instead of all being taxable in 2020.
Changes to Charitable Contributions
There is an “Above the line” deduction for charitable donations to certain qualifying charities of cash donations up to $300. This is allowed only for taxpayers who do not itemize their deduction. Previously if you took the standard you would not be able to write off this donation. These rules are currently relaxed to allow the write off.
Employee Retention Credit
There is a one year credit to help employers whop are paying payroll taxes. The following businesses are eligible for this credit:
- The operations of the business were fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID-19 or
- The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for that same quarter in The business will be entitled to this credit each quarter until they have a quarter where they have recovered sufficiently that their gross receipts exceed 80% of that same quarter in the previous year
For each eligible quarter the business will receive a credit against their payroll taxes equal to 50% of the “qualified wages” paid to each employee, ending on 12/31/201 (subject to limitations). If there were less than 100 employees, qualified wages include wages paid for each quarter the business suffered a decline as indicated above. Qualified wages per employee are limited to $10,000 total (not per quarter). You cannot combine this with the paycheck protection loan benefits.