Coronavirus Relief & You (and Your Small Business)
The federal government and agencies, state and local governments, as well as many private institutions have created or are expected to provide various forms of financial relief for individuals and business to help support the U.S. economy. After passing the FFCRA and CARES Acts, the U.S. Congress has indicated they're working on a third relief bill. The legislation is lengthy and complex, and will require work on the part of involved agencies to implement and provide guidance, but they include a significant amount of potential financial support. Whether you're in need of immediate relief or not, there may be opportunities for you to improve your financial position as a result of the programs available. Additional clarification is needed and expected in the coming weeks on several of the programs below, but you should act now if you're in need to expedite your potential receipt of aid. The following list is nowhere near exhaustive, and it's important to consider any decision in the context of your current financial position and financial goals. Consult with your legal, tax, and financial advisors to help determine which strategies may be beneficial. We're available to provide additional guidance and can recommend specialists in specific areas when appropriate.
Small Business Owners
The FFCRA significantly expanded FMLA to cover workers who must care for minor or disabled children whose schools, daycare providers or other paid care providers are closed or unavailable due to COVID-19, and are unable to telework. It applies to businesses, nonprofits, and government agencies with less than 500 employees who affect interstate commerce (government agencies are assumed to). Of note, it expands FMLA to include those with fewer than 50 employees, though there may be exceptions when compliance would affect business viability. It requires that the up to 12 weeks of leave provided under FMLA be treated as paid leave. These provisions take effect on April 1st, and are effective through the end of 2020. Depending on the reason for an employees leave, pay rate is required at 100% or 2/3 of their normal pay.
The FFCRA and CARES act both provide financial support via payroll tax credits and delayed deposits for employers who retain employees during this time. The tax credits are cumulative, immediate, and partially refundable. The employer portion of payroll tax deposits due on wages paid through December 2020 can be deferred with 50% due in December 2021 and December 2022.
https://www.dol.gov/agencies/whd/fmla/pandemic
Emergency SBA loans are available with potential principal forgiveness for employers seeking to retain employees or economically impacted by the COVID-19 response measures under the Paycheck Protection Program and Economic Injury Disaster Loans and Loan Advance.
https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
Retirement Plans
Qualified Defined Contribution Plans (401(k)s, 403(b)s, Profit-Sharing Plans, etc.) and IRAs can provide penalty-free early distributions to qualified participants of up to $100K from vested balances with no penalty. This should generally be a last resort, especially given depressed asset values. By default, such distributions are treated as taxable income over the next three years, but could be accelerated to 2020 if elected, which could be beneficial if it is an especially low income year. Additionally, any portion of a qualifying distribution that is repaid within three years will not be taxed. This may require amendments of future tax return filings depending on the timing of repayment.
Qualified plans are also permitted to increase the potential loan amounts from $50K to $100K, and up to 100% of the vested balance from the previous limit of 50%. Loan repayments due through December 2020 can be delayed up to one year.
Required Minimum Distributions from IRAs and Defined Contribution Plans have been waived for 2020, which provides a tremendous opportunity to reduce your 2020 tax liability and avoid distributions during a market correction. For those that may have already taken distributions in 2020, there are strategies available to repay the distribution and avoid taxation. If taxes were withheld, it's important to note that the gross distribution must be repaid to avoid all tax. If within 60 days from distribution, you may be able to treat as a rollover, and should do so as soon as possible. If beyond, there still may be the option to retroactively treat the distributions as COVID-19-related and repay over three years, though guidance may restrict this to individuals under age 59.5.
Federal Student Loan Borrowers
Federal loan interest has been set to 0% retroactively to March 13th, through September 30th 2020. Payments made in this time will apply to principal, once any accrued interest up to March 13th has been paid. However, given that most student loan interest rates are relatively low, it would generally be more favorable to request the available forbearance during the same period. While the 0% interest will automatically apply, you must contact your servicer to request forbearance. Payments skipped during this period will continue to count towards required periods for loan forgiveness under Income-Driven Repayment plans and Public Service Loan Forgiveness.
https://studentaid.gov/announcements-events/coronavirus#borrower-questions
Under the CARES Act Employers can provide up to $5,250 towards employees' student loan repayment income tax-free. If you expect to be eligible for loan forgiveness, this may not be an attractive option, however, it may be an attractive option to receive compensation in this manner to both save employer and employee tax expense.
Home and Other Borrowers
While home mortgage lenders and owners of mortgage-backed securities (MBS) have concerns, the U.S. Treasury Dept. has encouraged mortgage servicers to provide forbearance for borrowers affected by COVID-19, and the Fed has been supportive of markets by purchasing MBS. We expect pending legislation may address broader consumer debt, but recommend calling mortgage loan servicers to discuss relief available. Many lenders are providing for the deferral of payments due currently, with no fees/penalties or impact on credit. Call your loan servicer today to discuss. Similarly, auto and other lenders may provide similar relief.
Economic Impact Payments
Payments will be provided to taxpayers in the amounts of $1,200 for individuals and $2,400 for married couples filing jointly, with an additional $500 for qualifying children (dependents under age 17). Payments are subject to a phaseout for Modified Adjusted Income (MAGI) in excess of $75,000, $112,500 or $150,000 for individuals, heads of household, and married joint return filers. For every $100 of MAGI in excess of the applicable threshold, the potential payment is reduced by $5. The maximum income to receive a payment will differ based on filing status and number of qualifying children. It's important to note that payments will be initially based off of information from the most-recently filed return. As such, it may be beneficial to file 2019 in advance of the July deadline if you've had a child or a reduction in income since 2018 which might affect your payment. For taxpayers who would have qualified for a greater payment based on their 2020 return (especially those suffering a significant reduction of income this tax year or who have had children in 2020), you will qualify to "true up" the payment with the filing of your 2020 return and receive the difference as a refund in 2021. For those for whom the opposite applies, there will be no clawback of overpayments made based on 2018 or 2019 returns. So for those who would receive a greater payment based on 2018 returns v. 2019, do not rush to file your 2019 return.
https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
While thorough research and analysis was performed in the aggregation and presentation of the content provided, the information provided is not intended to be and should not be considered legal, tax, accounting, financial, investment, or professional advice. Readers are advised to consult with a qualified professional to discuss your specific situation and provide advice on issues discussed. Especially given the dynamic legislative and regulatory environment, we cannot guarantee that information has not been outdated or rendered incorrect by subsequent research or changes to law, regulation, guidance, or interpretation thereof.
Fee-Only Advanced Financial Planner & Wealth Management Advisor
5yEdited to clarify that the suspension of RMDs only applies to IRAs and Defined Contribution Plans. Defined Benefit Plans must still make Required Minimum Distributions. Probably should have run it by counsel before publishing. Much obliged, Adam Meehan.
DCIO Intermediary Sales Consultant
5yThis is great! We've been putting our info out as well, want to take a look and see if its applicable, would love the feedback...