5 CARES Act Considerations for Individuals and Small Business Owners
Today marks one week since the President signed into law the Coronavirus Aid, Relief, and Economic Security Act – CARES Act. This 2 Trillion-dollar bill is intended to quickly spread relief across the American Economy, but for today, let’s talk about how it can impact individuals and small business owners.
1. Cash Payments Individuals earning less than $75,0000 or married couples earning $150,000 will receive a check of $1,200 (individual) or $2,400 (married) plus $500 per child. That means if a married couple has 2 children under the age of 17, they will receive a check for $3,400. So if you had a baby in 2019, quickly file your 2019 taxes so that child will be included on your stimulus check.
It’s important to know, for those who have a dependent over the age of 17 – they will NOT be able to get the $500 for that dependent, and that dependent will NOT receive the $1,200 stimulus check.
This cash payment is based on either your 2018 or 2019 tax filings. If you have not filed either and are on social security, they will be looking at information provided by the Social Security Administration.
If you have not filed your 2019 taxes yet, you will want to compare your income from 2018 to your 2019 income. For example, if your 2018 income was higher and disqualifies you for the stimulus check, but your 2019 income would qualify you – make sure you file your 2019 taxes as soon as possible. The same goes for the reverse - if you qualify based on your 2018 tax return, but not on your 2019 tax return, hold off on filing (filing deadlines have been pushed back to July 15).
If you do not qualify for the stimulus check in either 2018 or 2019, but your income in 2020 will have qualified you, you will receive the stimulus check as a credit on your 2020 tax return.
2. Unemployment Payments This bill will add $600 per week on top of whatever amount an individual receives for unemployment. The national average for an out-of-work person is about $340 per week, now under this new program, that same person will be taking home $940 per week.
The bill also extends benefits to self employed individuals, freelancers, and contractors who typically wouldn’t be able to apply for unemployment. These workers would be eligible to receive half of their State’s average weekly unemployment benefit plus $600 a week.
Keep in mind, unemployment income is taxable on your next tax return, so you may want to look into adding a withholding in order to not end up owing on your 2020 return.
3. Paycheck Protection Program The Paycheck Protection Program (PPP) provides incentives to small business owners who keep their current employees and bring back employees who have been laid off due to COVID-19.
The SBA will forgive loans if all employees are kept on the payroll for 8 weeks if the money is used for payroll, rent, mortgage interest, and/or utilities. 75% of the money must be spent on payroll in order to be forgiven, 25% may be used for the rest. The maximum loan will be 250% of the average monthly payroll costs from February 15 (beginning of the crisis period) to June 30.
4. Economic Injury Disaster Loan For those who are eligible, the government is providing Economic Injury Disaster Loans (EIDLs) for small business owners, sole proprietors, independent contractors, and most private nonprofits. The maximum loan amount is $2 million at a rate of 3.75% for businesses and 2.75% for non-profits. Payments are deferred for one year.
As long as an applicant is eligible, whether they are approved for the loan or not, they can receive a $10,000 grant within three days of applying (through Dec. 31.) This grant does NOT need to be repaid under any circumstances. However, if they also receive a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount of the PPP.
5. Disaster Relief Payments Under Section 139 of the U.S. Internal Revenue Code, disaster relief payments may offer employers a way to potentially reimburse employees for certain qualifying expenses incurred as a result of COVID-19. This potentially could allow for some strategic planning. Normally, any money provided from employer to employee is taxable, but under this code any “Qualified Disaster Relief Payments” made that satisfy the requirements are now deductible to employers and not subject to federal income or employment taxes. However, they may be subject to state and other non-federal taxation.
As I had mentioned before, this has only been a law for one week at the time of this writing. It is expected that as time goes on there will be amendments. You will need to consult with your tax professional before making any decisions to make sure it is the right one for you. Please, if you have any questions regarding the CARES Act and how it may benefit you, don’t hesitate to reach out to me. While I am stuck at home, I am fully operational and available for zoom calls, or good old fashion phone calls. I look forward to talking to you soon!