CARES Act Highlights
April 3rd, 2020

Last week, the $2 trillion Coronavirus Aid, Relief, and Economic Security Act of 2020, called the CARES act, was signed into law making the it the largest emergency stimulus bill in history. The details are still being released but our initial analysis of the 900-page bill is below. The bill includes stimulus checks, immediate emergency funds to small businesses most affected, and a loan provision to help businesses pay their workers in the short-term, as well as over the next 8 weeks. Due to the changes being implemented nearly daily, we may be updating this link in an effort to keep the information as accurate as possible.

Individual Highlights

Tax Return Filing Deadline
In addition to the stimulus bill, several bills have been passed to help taxpayers with tax filing and payment. The deadline to file and pay 2019 taxes has been extended from April 15, 2020 to July 15, 2020, for individuals, trusts and estates, regardless of the amount. Penalties and interest are waived until then. No extension filing is needed for the July extension, but you would still need to file an extension to file in October. This legislation passed after the partnership deadline, so it did not affect partnerships or S Corp filing dates. Important: Estimated tax deadlines were not universally extended, so only the 1st Qtr 2020 Estimated Tax payment will be pushed to July 15. The 2nd Qtr 2020 ES payment will still be due June 15th!

The new deadline also applies to contributions made to an IRA, Roth IRA, Health Savings Account, and Coverdell Education Savings Account for the 2019 tax year.

Required Minimum Distributions (RMDs)
Individuals taking RMDs from their retirement accounts can now choose to waive this requirement for 2020, as well as any first-time 2019 RMDs that have not yet been taken (these would normally be due by April 1, 2020). The waiver also applies to inherited IRAS. If you have already taken your RMD for 2020, you may have the option to return the funds to your account, with some strategic planning. Contact your advisor immediately if you would like to return your funds to your IRA.

You can still take your distributions as usual, if you would like. This includes voluntary qualified charitable distributions if you are over 70 ½. For those of you who give with your pre-tax IRA funds, you will still be allowed to give to the charities, up to the typical limits.

Qualified Charitable Contributions
The CARES Act increased the AGI limit for charitable cash donations made in 2020. The AGI limit will increase to 100% for qualified contributions, up from 60%. For those who do not itemize, cash donations made to qualified charitable organizations can be treated as an above-the-line deduction up to $300.
On both provisions, the additional charitable gift amount cannot be made to donor-advised funds or 509(a)3 supporting organizations.

Early Distribution Penalty for Retirement Accounts
Typically, any distributions taken from a retirement account before the owner reaches age 59 ½ would be subject to a 10% early withdrawal penalty. Under the Act, this penalty is waived in 2020 for early “Coronavirus-Related Distributions” taken from IRAs or employer sponsored plans up to $100,000. While taxes are still due on the amount withdrawn, individuals have the option to spread the tax liability over three years. Alternatively, the funds can be paid back into the plan within three-years to minimize the impact on one’s retirement savings.

Recovery Rebates
The stimulus checks that people are focusing on are based on your most recent tax return, 2018 or 2019, and are actually an advance on a refundable tax credit for 2020. 

Individual taxpayers with an adjusted gross income of $75,000 or less will receive a credit of $1,200.
Married couples filing jointly with an AGI limit of $150,000 will receive $2,400.
Families will receive an additional $500 for each dependent under age 17.

If your AGI exceeds the threshold limit, the credit will be reduced by $5 for every $100 earned above the threshold. If you qualified in 2019, but not 2018, you may consider filing quickly so that they will use the most recent AGI to determine whether you should receive the stimulus checks. If you qualified for the stimulus in 2018, but not in 2020, there is no claw back on the amount later.
Most importantly, for those that did not qualify in 2018 or 2019, but will for 2020, the credit will be available in 2020 as a tax credit, albeit not until you file in 2021.

Receiving your check
We believe the Treasury will deposit the rebate in the account where you receive social security checks or where a 2018/2019 refund was deposited to. If they do not have an account on file, they will mail the check to the last known address.
If you have moved since filing your last return, consider filing a form 8822, to change your address on file with the IRS as soon as possible. We don’t know yet when they will issue those checks but the process of finding your check after it has been issued will be tedious.

Loans from Employer Sponsored Retirement Plans
Individuals participating in company retirement plans can now borrow up to $100,000, which is double the normal maximum loan amount. The increased limit is available for loans made within 180 days of CARES enactment date. Payments on these loans that would be due in 2020 can be delayed for one year.

Student Loan Payments
Individuals with federal student loans have the options to suspend payments until September 30, 2020. The suspension also includes interest, which will not accrue during this period. Note that the borrower must reach out to the lender to initiate this request. It will not happen automatically.

Unemployment Benefits
The Act enhances unemployment benefits, both in terms of compensation and eligibility. States can now increase compensation for individuals claiming unemployment by $600 per week. Additionally, the one week waiting period is waived for new claimants and the total benefit period is extended by 13 weeks. Finally, the act provides unemployment coverage for self-employed individuals and those who would otherwise not be eligible for benefits.

Healthcare Provisions
For those with Health Savings Accounts or Flexible Spending Accounts, the definition of Qualified Medical Expenses will be expanded to include over the counter medication. Medicare participants will also be able to receive the future COVID-19 vaccine for free and Part D participants can get 90 days of prescription drugs in advance.

Business Details

Quite a few provisions have been added to help struggling businesses, targeted at helping businesses struggling with short-term cash flow issues, required closures and keeping employees on the payroll.

Paycheck Protection Plan
For businesses with less than 500 employees, the SBA will be administering a loan allowance of 2.5X average monthly payroll costs (excluding salaries in excess of $100,000 and certain other expenses) up to $10 million. The loan interest rate will be 0.5%, for a maximum term of up to 10 years, and may qualify to be forgivable if you maintain the same number of workers and keep payroll within 25% of the previous amount for the testing period. There will also be a minimum deferment of payments for 6 months and possibly up to one year. Once you obtain the loan, you have 8 weeks to use the funds to pay qualified payroll costs, healthcare premiums, mortgage interest, lease and utility expenses. If you think you qualify and will be negatively affected by the coronavirus crisis, apply at qualified banks and credit unions. Guidance and information from the US Treasury Department and SBA are changing almost daily. SBA qualified banks have yet to receive final guidance on the payroll relief loans, and we think it is unlikely that loans will actually be initiated by the original Friday timeline. We have attached a link at the bottom to give you more details, if you are interested.

Payroll Tax Deferment
With a few exceptions for businesses who have had SBA loans forgiven, businesses can defer paying payroll taxes from March 27 to December 31: 50% until December 31, 2021 and 50% until December 31, 2022. Self-employed individuals can defer their “employer” paid portion also – though the percentages and dates are slightly different. You cannot defer payroll tax if you take a PPP loan.

Economic Injury Disaster Loan
The CARES act expanded the Economic Injury Disaster Loan program and will be available through the end of the year. For businesses with less than 500 employees in a declared disaster zone, you can apply for a long-term loan up to $2 million with rates of 3.75% for up to 30 years, and access to an immediate $10,000 grant while the paperwork is being completed. If you take out a PPP loan, the grant will reduce the forgiveness amount of the that loan. The loan can be used for specific fixed expenses including rent, payroll and fixed costs. Applications are accessible at www.sba.gov/disaster.

Net Operating Loss
For Corporations, CARES Act changed the playbook on net operating losses once again. NOLs from years 2018, 2019 or 2020 can now be carried back five years and can be used as an offset up to 100% of taxable income for 2018, 2019 and 2020 (formerly 80% under TCJA) in addition to the carryforward. This can provide immediate liquidity to businesses that have former returns that can be amended.
For individuals with business losses, loss limits related to business losses were eliminated for 2018, 2019, 2020, which could allow them to claim their full business losses against their other taxable income. Individuals with suspended business losses should weigh the benefits of amending their previous returns.

Employee Retention Credit
To receive the employee retention credit, a business will need to be substantially shut down during the COVID crisis: either by governmental intervention or a reduction in revenue of 50% quarter over quarter from last year. The credit will be available until the end of 2020 or until the business can operate without government closures or recovers to the point it is earning 80% of its annual revenue from the same prior quarter. Depending on the type of qualifying event and the size of the business, the employee retention credit could be as much as 50% of wages up to $10,000 per employee, including qualified healthcare costs. For large businesses (over 100 employees), the credit is limited to wages paid to non-working employees. It is a refundable credit against payroll expenses and cannot be claimed if you received Paycheck Protection Plan. We are awaiting information on how to receive the advance on the credit.

In closing, we believe the stimulus bill has provisions to help many businesses through the next few months and grants some flexibility to individuals in this difficult time. As always, all of us at Meridian are here for any questions or concerns that you may have.

Do you need more resources for understanding the details?

The US Chamber has a landing page to help small businesses navigate this uncertain time:
https://www.uschamber.com/coronavirus

The US Chamber has a great resource for the Paycheck Protection Plan, designed to help small businesses keep their employees: https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf

Treasury has a link to the Cares Act info as well:
https://home.treasury.gov/policy-issues/top-priorities/cares-act

Experiencing a dramatic change in your small business due to COVID? Part of the stimulus has an emergency grant and working capital long-term loans.
https://www.uschamber.com/sites/default/files/uscc_covid19_sb-economic-injury-disaster-loans.pdf

The IRS has setup an online Coronavirus Resource Page: https://www.irs.gov/coronavirus



Meagan K. Moll, CFP®, CIMA®, CPWA®
Partner & Wealth Advisor


Josh L. Galatzan, CIMA®
Founder & Managing Partner



Kirk Price
Managing Partner


Brian J. Noonan, CEPA
Managing Partner



Sophie Brooks-Anne, CFIP
Associate Wealth Advisor


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