Economic Stimulus Package continued New Tax Benefits for Individuals Recovery Rebates: The tax-related centerpiece of the third economic stimulus bill consists of “recovery rebates” — a $1,200 one-time payment (plus $500 per child) — mailed (or direct deposited) to every eligible taxpayer in the coming weeks. • Eligible recipients include taxpayers with adjusted gross income up to $75,000 (single)/$112,500 (head of household)/ $150,000 (joint filers). Joint filers will receive $2,400. • The rebate is phased out for taxpayers with higher incomes and is completely phased out for single filers, heads of household, and joint filers with incomes above $99,000, $136,500, and $198,000, respectively. • All eligible taxpayers will receive a check, which will be processed automatically based on the taxpayers’ 2019 tax returns. If the taxpayer has not yet filed a 2019 tax return, the IRS will use their 2018 tax return. • This is structured as a tax credit that is refunded in advance. Taxpayers will have to account next year for any “recovery rebate” on their 2020 tax returns. Waived Penalties for Early, CoronavirusRelated Withdrawals from Retirement Funds: Taxpayers will not have to pay the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts. • Taxpayers will have three years to pay taxes on income from such a distribution, and • The taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. •This provision is only applicable for coronavirus-related purposes. To qualify, the taxpayer must: • Be diagnosed with COVID-19; • Have a spouse or dependent diagnosed with COVID-19; or •Experience adverse financial consequences as a result of: • Being quarantined, furloughed, laid off, having work hours reduced; • Being unable to work due to COVID-19 related child care issues; • Closing or reducing hours of a business operated by the taxpayer; or • Other factors as determined by the Secretary of Treasury. Temporary Waiver for Required Minimum Distribution Rules for Certain Retirement Accounts: For 2020, this waives the required minimum distribution rules for certain defined contribution plans and individual retirement accounts. Partial Above-the-line Deduction for Charitable Contributions: Non-itemizing taxpayers will be eligible for a deduction up to $300 for cash contributions to churches and certain other charitable organizations. This applies for contributions made in 2020 and becomes a permanent feature of the tax code for subsequent years. New Tax Benefits for Individuals and Corporations Temporary Increase in Limits on Charitable Deductions: Prior to the CARES Act, individuals and corporations could only deduct charitable contributions up to 50% (individuals) or 10% (corporations) of their adjusted gross income (AGI). To encourage charitable giving in 2020: • The individual deduction limit is suspended. • For corporations, the limit is increased to 25% of adjusted gross income New Tax Benefits for Businesses Employee Retention Credit: Eligible employers are allowed a credit equal to 50% of qualified wages with respect to each employee, on a quarterly basis. An eligible employer means any employer carrying on a trade or business in 2020 during which in any calendar quarter: • The operation of the trade or business is fully or partially suspended during the appropriate calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19; or • The trade or business experiences a significant decline in gross receipts, with a 50% decline in gross receipts when compared to the same quarter in the prior year. Businesses remain eligible until their gross receipts recover to 80% when compared to the same quarter in the previous year. •Maximum wages, including health insurance benefits, eligible for the credit for all calendar quarters is $10,000. • For businesses with 100 or fewer employees, generally all wages of full-time employees are eligible. • For larger businesses, only those wages paid to full-time employees who are not providing services due to a suspension of business operations or reduction in gross receipts are eligible. •Wages may also include an employer’s qualified health plan expenses allocable to the employee. • 501 (c) tax-exempt organizations are eligible. • Employers receiving a loan under section 7(a) of the Small Business Act are not eligible for the employee retention credit. • Credit is refundable to the extent it exceeds payroll taxes. Delay of Employer-Paid Payroll Tax Payments: Employers and self-employed individuals may defer payment of the employer share of Social Security taxes they are responsible for paying. • This allows employers and self-employed to save temporarily on the 6.2% Social Security tax on wages. •These deferred taxes must be repaid over the following two years. • Half of the amount will be due by Dec. 31, 2021 and the other half by Dec. 31, 2022. Advanced Refunding of Sick and Medical Leave Credit: Under the Family First Coronavirus Response Act, employers are required to provide paid sick leave and paid family and medical leave under specific circumstances resulting from COVID-19. The law created new tax credits to offset the employer cost of providing this leave. The CARES Act will allow employers to quickly claim credits to reduce financial strain from this new mandate. Page 4
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