The Coronavirus Aid, Relief, and Economic Security (CARES) Act and Other COVID-19 Recovery Programs

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by the Senate and is anticipated to be approved by the House tomorrow and signed into law by the President. CARES provides over $2 trillion in relief. About a quarter of the cost of the bill are "Recovery Rebate" checks we've heard about. Here's a summary of this program:

1. Payouts will be up to $1,200 per adult ($2,400 if married filing jointly) plus $500 per child under age 17.

2. Single taxpayers with adjusted gross income (AGI) up to $75,000 will receive a full $1,200 payment. The payment phases out by $5 for every $100 in AGI over $75,000, which means payments are reduced to zero at an AGI of $99,000.

3. Married taxpayers with AGI up to $150,000 will receive a full $2,400 payment. The payment phases out by $5 for every $100 in AGI over $150,000, which means the payment phases out at $198,000.

4. Head of household taxpayers with AGI up to $112,500 will receive a full $1,200 payment. The payment phases out by $5 for every $100 in AGI over $112,500, which means the payment phases out at $136,500 in AGI.

5. Taxpayers will receive an additional $500 per child under age 17, although it is unclear as of what date the age is determined.

6. The AGI is calculated based on your 2019 return, if filed; if not, your 2018 return.

7. You’ll be paid via direct deposit if they have your banking information on your last return; if not, then via check.

8. When? Starting sometime in April, until TBA.

9. I claim my parents as dependents. Will they receive checks? No.

10. Will it be taxable? No. It will be a refundable tax credit on your return.

11. Although the initial payments are based on your 2018 or 2019 tax returns, technically the payments are based on the AGI in your 2020 returns. What this means is that while you may not have qualified based on your 2018/2019 return, you may still qualify for the payment based on your 2020 return that will be filed in 2021. Inversely, if your 2020 AGI renders a smaller payment or no payment, I believe you will not have to pay the $$ back (this could change).

An example:

You are married with 2 kids under 17 and your 2019 AGI was $170,000. Your maximum payment is $3,400. But it is reduced by $1,000 ($170,000 - $150,000 = $20,000. $20,000 divided by $100 = 200. 200 x $5 = $1,000). Total payout is $2,400.

In February 2021 you file your 2020 return. Your AGI dropped to $150,000. Your payout will be increased to $3,400. You were previously paid $2,400, so you’ll receive another $1,000 credit on your 2020 tax return.

Here are some additional financial resources for those struggling as a result of the COVID-19 pandemic situation:

Penalty-Free IRA Withdrawals

CARES enables those impacted by COVID-19 to withdraw up to $100,000 from qualified retirement plans without penalty in 2020, though you will still owe taxes on the withdrawal, stretched over 3 years.

Unemployment: In states where the President approves a major disaster declaration, federal assistance comes in the form of Disaster Unemployment Assistance (DUA). DUA is generally available to any unemployed worker or self-employed individual who cannot work as a result of the disaster.  Learn more about this on the Calif EDD website at www.edd.ca.gov/unemployment/disaster_unemployment_assistance.htm.

SBA Loans: Small business owners are eligible to apply for low-interest loans due to COVID-19 with the SBA. Details at disasterloan.sba.gov/ela. There are also SBA Express Disaster Bridge Loans available for certain businesses that have existing relationships with an SBA Express Lender.

CARES also expands the SBA loan program to support new “Paycheck Protection Program” loans that would increase loan amounts and allow use for payroll, mortgage, rent and utility payments, insurance and other debt. Certain borrowers may be eligible for loan forgiveness for an 8 week period for payroll, interest, rent and utilities while retaining employees over that period (effectively an incentive to retain staff during the COVID-19 crisis).

City of Los Angeles Small Business Emergency Microloan Program offers business in the City of L.A. to apply for low-interest loans of $5K to $20K ranging from 6 months to 5 years. Details at www.edd.ca.gov/unemployment/disaster_unemployment_assistance.htm.

Bank Leniency: A number of banks are implementing programs to defer payments, suspend late penalties on loans, extend credit limits and payment deadlines and other things for those impacted by COVID-19. Contact your bank for details. A partial list of such banks is at abc7ny.com/6046582/.

Tax Return and Related Deadlines

Both federal and California tax returns due 4/15/20 have been pushed to 7/15/20. Additionally, any federal/California tax payments due 4/15/20, including 2019 taxes as well as 2020 estimated and franchise tax payments, have been pushed to 7/15/20. The Calif 2nd quarter estimated payments due 6/15/20 have been pushed to 7/15/20. The federal 2nd quarter estimated payments at this point in time are still 6/15/20.

IRA contributions for 2019 due to be made by 4/15/20 have also been extended to 7/15/20.