A Letter to our Members from Mary E. Corrado Regarding the Coronavirus Aid, Relief, and Economic Security (CARES) Act - American Society of Employers - Mary E. Corrado

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A Letter to our Members from Mary E. Corrado Regarding the Coronavirus Aid, Relief, and Economic Security (CARES) Act

Last Friday, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  The following are highlights of the law.

Payments to Individuals
The law provides a one-time direct payment of $1,200 to adults and $500 per child to American households, structured as tax refunds to allow the Internal Revenue Service to distribute the funds quickly. Payments will be made by direct deposit to bank accounts identified in tax returns. For those who did not file a tax return, IRS will coordinate with Health and Human Services for those on Social Security and SSI.  It’s not perfect, but the IRS will identify other ways for those to get the money they otherwise couldn’t make a deposit.

These payments will phase out starting with $75,000 of individual income, head of household at $112,000 and $150,000 for families.   These amounts are determined by the Adjusted Gross Income in either the 2018 or 2019 tax return (depending if they filed a 2019 return at the time of payment).  These payments fall by $5 for every $100 in income above the maximum salary $75,000, $112,000, and $150,000 and phase out at $99,000, $136,500 and $198,000 respectively.  To determine the amount of a payout, click here.

Unemployment
Unemployment will be extended from 26 weeks to 39 weeks.  There would be a one-time boost to benefits received of $600 on top of what they would otherwise receive for four months until July 31, 2020.  For example, if the person would receive $300 per week, they would get $900 per week.  Again, the boost ends July 31st. These benefits would be extended to contract workers, freelancers, and other nontraditional workers, who lack benefits in some states. The $600 benefit will be taxable (like regular unemployment benefits), but it will be disregarded in determining Medicaid or CHIP eligibility.

Because the workload may be overwhelming, the law provides states the ability to waive personnel standards through December 31, 2020 to expedite hiring of new staff to process unemployment claims, including allowing the hiring of independent contractors to process claims.

Retirement Funds
The law temporarily loosens the rules on hardship distributions from retirement accounts, giving people affected by the crisis access to up to $100,000 of their retirement savings without a 10% penalty. The law doubles the amount 401(k) participants can take in loans from an account for the next six months to the lower of $100,000 or 100% of the account balance. (IRAs don’t permit loans.)

The law waives required minimum distributions that are required to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs. The waiver includes required minimum distributions that are due by April 1, 2020, because the account owner turned 70 ½ in 2019.

Health Accounts
The law allows a high deductible health plan to provide telehealth and remote care services without a deductible for 2020 and 2021. It permits tax-free reimbursement of feminine hygiene products from health savings accounts (HSAs), health reimbursement arrangements (HRAs), health flexible spending accounts (health FSAs), and Archer medical savings accounts (Archer MSAs).

Student Loans
The law allows most Americans with federal student loans to suspend their monthly payments through Sept. 30, 2020, without any interest accruing. It would also enable employers to make tax-exempt contributions toward their workers’ student-loan payments.  Employees can exclude up to $5,250 from gross income for payments made by their employers to pay off their student loans.

Auto Industry
The law authorizes hundreds of billions of dollars in loans if needed to the auto industry.  “If not for that, I would foresee quite a bit of bankruptcies,” said Jeremy Rice, automotive practice lead at accounting firm Mazars U.S.A.

Small Businesses
Businesses and nonprofits with up to 500 workers in a single location would be able to apply through qualifying banks for loans backed by the Small Business Administration. The loans would convert into grants that don’t have to be repaid for amounts spent on items such as payroll, rent, or utilities, with the grants reduced when workers are laid off.

The maximum loan amount is the lesser of (i) $10,000,000; or (ii) the average monthly payroll amount for the trailing 12 months (or, if not in business during the period from February 15, 2019 through June 20, 2019, then for the period from January 1, 2020 through February 29, 2020), times 2.5, plus the amount of any pre-existing emergency loan to be refinanced.

Borrowers are eligible to have loan amounts forgiven to the extent that they are used to pay for payroll expenses, interest on covered mortgage obligations, covered rent obligations, and utilities, during the period ending June 30, 2020. For federal income tax purposes, any amount that would be included in such borrower’s gross income due to such loan forgiveness is excluded from gross income.

Larger Businesses
The law allows for a special Section 13(3) Federal Reserve facility that provides financing to banks and other lenders that make direct loans to nonprofits and mid-sized businesses (between 500 – 10,000 employees). The loans will be subject to annualized interest rates of 2% per annum or less.  There will be no loan forgiveness under this program

Employee Retention Credit for Employers Subject to Closure or Experiencing Economic Hardship
The law would provide a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

Wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave).

Delay of Payment of Employer Payroll Taxes
The law allows employers and self-employed to defer paying the employer portion of Social Security tax (6.2%) through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Deferral is not provided to employers that avail themselves of SBA 7(a) loans designated for payroll.  It includes the employer portion of FICA.

FFRCA Tax Credit
The law also amends the Families First Coronavirus Response Act (the FFCRA) to allow employers to obtain an advance credit for the tax credit provided by the FFCRA. In addition, the amended FFCRA authorizes the Secretary of Treasury to waive the penalty for failure to deposit the employer’s portion of Social Security tax and Railroad Retirement Tax Act excise tax due to anticipation of the tax credit.

Loss Carrybacks and Forwards
Businesses will be able to apply losses (loss carrybacks) from 2018, 2019, or 2020 to past five years’ profits and claim refunds.  In the case of taxable years beginning before 2021, taxpayers will be entitled to a Net Operating Loss deduction equal to 100% of taxable income.

Business Interest Deduction
The law will allow businesses to elect to increase the interest limitation from 30% of ATI to 50% of ATI for 2019 and 2020 and allows businesses to elect to use 2019 ATI in calculating their 2020 limitation.

Lawmakers are already discussing what could be needed in a subsequent economic-relief package—which would be the fourth to address the health crisis. House Speaker Nancy Pelosi (D., Calif.) said she wanted to see more worker-safety protections added, along with access to free health care for those who become sick from the virus.

Our team is working hard to make sure we provide you with timely information that allows you to make the best decisions for your employees and your business. As always, please don’t hesitate to reach out if I or the ASE team can be of assistance.

Please also refer to ASE’s COVID-19 FAQ page for additional details.  All upcoming ASE events related to Coronavirus can be found here.  In addition, ASE will be hosting a Hot Button Briefing on Friday, April 3rd.  Click here for details and to register.

Sincerely,

Mary E. Corrado
President & CEO
ASE

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