We are sharing brief updates and resources that may be helpful as you navigate through the current health and economic crisis. If you prefer not to hear from us on these matters, simply reply to this message with unsubscribe in the subject line.
The few past weeks have seen the passage of two bills with important tax related benefits. While many open questions remain on the mechanics for applying the changes, we are highlighting some items that might be of immediate interest.
Take up to $100,000 out of Retirement Accounts
During 2020 you can take a penalty-free withdrawal from your retirement account, to a maximum of $100,000, to aid with coronavirus related hardships. You will still be taxable on the income, but can divide the income (and, thus, the tax) among 3 years. You are also allowed to recontribute the funds to your retirement account within 3 years.
Another option is to borrow from your retirement account. The maximum amount for loans taken between March 27, 2020 and December 31, 2020 is increased from $50,000 to $100,000.
NOTE: these provisions are only available for coronavirus related hardships as defined in the law. For additional details, please consult with your plan administrator.
Required Minimum Distribution Rules Suspended
The rules for required minimum distributions (RMDs) from retirement plans are suspended for 2020.
Rebates to Individuals
Tax rebates of up to $1,200 per individual and $500 per child have been authorized. The rebates are phased out for taxpayers with AGI over $75,000 single, $150,000 married filing joint, and $112,500 for head of household. The government is planning to make near term electronic deposits to your bank account using electronic deposit information from your previously filed tax returns, if provided.
IRS FAQs: https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
Paycheck Protection Program – Expanded Loans to Small Businesses
Payroll Protection Loans of up to $10 million are available to COVID-19 impacted businesses:
• The loans are guaranteed 100% by the Small Business Administration (SBA)
• Businesses with 500 or fewer employees can borrow 2.5 times their average monthly payroll (with some adjustments), up to a $10 million maximum
• The loans may be forgiven (won’t have to be repaid) for amounts used to cover up to 8 weeks’ worth of specified basic operating expenses
Practical details about the application process are still pending as of this writing, but should be available on the SBA website soon.
SBA Website: https://www.sba.gov
NOTE: Payroll Protection Loans are provided through your bank. It will be important to apply directly through an SBA approved lender.
Small Business Administration Disaster Loans
The Small Business Administration separately offers disaster area loans related to the coronavirus. These loans are issued directly from the SBA and do NOT include the option to have part of the loan forgiven.
https://www.sba.gov/disaster-assistance/coronavirus-covid-19
Employee Retention Credit
There is an employee retention credit for employers that are forced to fully or partially close due to the coronavirus pandemic. Eligible employers are allowed a credit against employment taxes for 50% of qualified wages.
NOTE: This credit is not available to employers who participate in the Paycheck Protection Program, above (no double dipping!). Additional guidance on the credit is pending.
Depreciation on Qualified Improvement Property
When the 2017 Tax Cuts and Jobs Act was passed, it was advertised that you would be able to take an immediate write off for most improvements to your business property. However, a technical error in the law prevented taxpayers from receiving this intended benefit. This technical error has now been fixed retroactively to the date of passage of the 2017 act. As a result, some previously filed returns may be worth amending for refund.
Paid Leave
Employers and self-employed individuals need to take note of the new paid leave rules going into effect April 1st.
The Department of Labor has provided resources for employers to help them understand their obligations and to aid in implementation:
- Fact Sheet for Employers
https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave
- Questions and answers
https://www.dol.gov/agencies/whd/pandemic/ffcra-questions
- Information to provide employees (NOTE: notification to employees of their rights is REQUIRED)
https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf
- Dollar for dollar federal payroll tax credits are available to offset the cost to employers (up to the stated maximums)
For self-employed individuals, an income tax credit is provided with similar maximums, but the refund won’t occur until filing personal returns in 2021.
Unemployment Insurance
https://www.edd.ca.gov/about_edd/coronavirus-2019.htm
Expansion of Qualified Medical Expenses
Some law changes can be oddly specific, and this item is one of those. The law expanded the definition of qualified medical expenses to include certain over-the-counter products. Specifically, monthly menstrual supplies. As a result, such purchases can now be made using HSA or FSA funds, should you wish to do so.