How can the CARES Act help you?
The CARES (Coronavirus Aid, Relief, and Economic Security) Act was crafted to blunt the impact of an economic downturn set in motion by the global coronavirus pandemic. At over $2 trillion, this is the largest government issued stimulus package in U.S. history, more than 2.5 times larger than the Recovery Bill in 2009. Lawmakers are expecting this bill to have a major impact on the U.S. economy and the effort to combat the effects coronavirus is having on Americans.
Here are some of the key features of this new relief bill and how you could be affected:
- Loan and grant programs for businesses
- Incentive programs to help employers maintain employees
- 2020 waiver of required minimum distributions
- Special coronavirus-related distribution options from an employer retirement plan or IRA
How will the CARES Act affect you as a business owner?
Small Business Loans
- From now through September 23, 2020, an employer plan may be amended to increase the maximum loan to a qualified borrower to the lesser of $100,000 or 100% of the vested account value.
- An employer plan may be amended to allow for a one-year delay for any loan payments by a qualified borrower due between March 27 and December 31, 2020.
- A qualified borrower is a plan participant who: is diagnosed with the virus, has a spouse or dependent diagnosed with the virus or has lost income on account of the virus.
Please note, annuity contract loan limits will continue to apply. Not all contracts allow loans. When permitted, a loan from a fixed and fixed-indexed contract is generally limited to the surrender value reduced by $500 and loan interest for the coming year.
Payroll Protection Act
To incentivize employers to maintain payroll during this economic crisis, small business owners may receive a 100% federally-backed loan for certain payroll expenses through June 30. These generous loans come with up to eight weeks of forgiveness for small businesses, certain nonprofits and self-employed individuals.
Additionally, these loans are forgivable if employers retain employees at salary levels comparable to salary before the COVID-19 pandemic. The payroll protection program also waives all loan fees and provides a deferral on loan repayments for a minimum of six months up to a maximum of one year.
If your business was affected by the COVID-19 pandemic, you may be eligible for such a loan:
- Any small business that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
- Any business, non-profit organization, veteran’s organization, or tribal business with less than 500 employees
- Any Accommodations and Food Services business that has more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons
You should apply soon as many people have already filled out applications and the funds will run out. Learn more at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options.
How will the CARES Act affect you as an individual or family?
2020 RMD Waiver
All required minimum distributions (RMDs) are waived for the 2020 tax year. This waiver includes 2020 RMDs from inherited IRAs. If you have turned 70.5 in 2019, the waiver also includes RMDs that were due by April 1, 2020 and not taken in 2019.
If you are receiving RMDs through systematic payments, you will receive your 2020 RMD as planned, unless you’ve requested otherwise. If you are already received your RMD for 2020, you may return it by April 30 to reverse the withdrawal, except for an RMD from an inherited IRA.
The Act includes the following provisions for coronavirus-related distributions taken from an employer retirement plan or IRA:
- 10% tax penalty for taking a distribution before age 59.5 is waived
- 20% mandatory federal income tax withholding for employer plans is waived
- Income tax on the distribution may be paid over a three-year period. Note the full distribution amount will be reported on 1099s for 2020
- Distributions may be rolled back into the employer plan or IRA within three years
- Distributions are limited to an aggregate amount of $100,000
- Employer plans may be amended to add an exception to the distribution restrictions to allow such withdrawals
- Any early withdrawal charges and market value adjustments will apply
You can qualify as a coronavirus-related distribution from an employer plan or IRA if you are diagnosed with the virus, have a spouse or dependent diagnosed with the virus, or have lost income on account of the virus. The provisions do not, however, apply to non-qualified contracts or inherited non-qualified contracts.
In the face of market volatility and economic uncertainty, it can help to have an experienced financial advisor to help guide you through your options. Reach out for a review of your financial situation.