On Friday, March 27 , The President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This is a $2 trillion stimulus bill intended to protect small business and individuals who are a risk of losing income due to the COVID-19 pandemic. Following is part 1 of an outline detailing the major pieces of the bill that may impact small businesses and their owners.
Recovery Rebate for Individuals:
- Direct payments made from Federal government to individuals
- $1,200 for individuals, $2,400 for married filing jointly, $500 per child
- Rebates are phased-out based on Adjusted Gross Income (AGI)
- Phase-out starts at $75,000 if single, $150,000 if married
- Fully phased-out at $99,000 in single, $198,000 if married, $218,000 if married with two children
- Government looks at last tax return filed to determine rebate amount
- Tax planning opportunity – consider delaying 2019 filings if 2018 AGI will give rise to a rebate and 2019 AGI is above the phase-out limits
Paycheck Protection Loans:
- For small businesses with generally less than 500 employees
- No personal guarantee or collateral required, no fees, no pre-prepayment penalties
- Government loans is based on average monthly payroll costs incurred during the last 12 months multiplied by 2.5
- Payroll costs include salary, commission, vacation, sick, health insurance premiums and retirement benefits
- Exceptions include compensation of an individual employee in excess of an annual salary of $100,000 and employer payroll taxes
- To the extent not forgiven (see below), loans are at 4% over a 10 year term with a six month deferral of initial payment
Paycheck Protection Loan Forgiveness:
- Paycheck Protection Loan as discussed above can be forgiven tax-free
- Amount forgiven is the sum of the following payments made during 8 week period beginning on the date of the loan:
- Payroll costs as defined above
- Mortgage interest
- Rent
- Certain utilities
- Amount forgiven may be reduced if employer reduces its workforce in the 8 week period when compared to the periods of February 15, 2019 thru June 30, 2019 or January 1, 2020 thru February 29, 2020 or if there are significant reductions in employee salaries
- Businesses are advised to contact their banks as this program is administered through lending institutions
Retirement Fund Withdrawals:
- Certain individuals may withdraw up to $100,000 from retirement plans before the age of 59 ½ without paying the 10% early withdrawal penalty
- Distribution is still taxable as ordinary income to the recipient
- Distribution must be related to Coronavirus and individual must experience adverse financial consequences
Please contact anyone on the team at Baker Holtz (616-458-1835) to discuss these provisions in more detail and to see how this impacts you and your business.
Please see our COVID-19 resource page for additional information: https://bakerholtz.com/covid-19-resources/