While our country battles a public health crisis with social distancing and quarantines, the United States “main street” economy is experiencing an unprecedented period of business disruption. The federal government is rapidly providing ways to mitigate the liquidity issues that are created by the mandated pause in economic activity. In addition to the trillions in spending forthcoming from the fiscal support packages, the Federal Reserve has cut short-term interest rates essentially to zero and rolled out a litany of programs that will provide trillions of dollars of liquidity to financial markets in order to avert a credit crunch.
Most notably, the Fed has authorized itself to lend up to $4.5 trillion to a new program called the Exchange Stabilization Fund, which the government can use to buy up to $5 trillion of corporate bonds, loans and even corporate bond ETFs. As a result, the Fed’s balance sheet could more than double to $10 trillion or more at full utilization. Furthermore, the Fed has decided to abandon the limit on its purchases of Treasury securities and agency mortgage-backed securities and make them open-ended. These previously-unthinkable figures clearly show the Fed’s commitment to deliver what is needed to keep markets functioning and restore investors’ confidence with shock and awe.
Highlights of the government relief that may be beneficial to you are summarized below. Please contact your South State Wealth team or your legal / tax advisor for a more detailed discussion of the full legislative and administrative actions as it relates to your specific situation.
Treasury Department Extension of Tax Deadlines and Payments
On March 21, 2020, the IRS issued Notice 2020-18 that automatically extended the federal tax filing deadline for any federal income tax return due April 15, 2020 to July 15, 2020. No additional forms need to be filed to qualify for this extension. Please note this automatic extension of the filing deadline does not apply to estate or gift tax returns.
Unlike the typical filing extensions, this relief also applies to federal income tax payments for all taxpayers, including any first quarter estimated tax payments that would have been due April 15, 2020. These payments can be deferred from April 15, 2020 to July 15, 2020 without interest or penalties. The maximum payment deferral for individuals is $1 million and $10 million for corporations. As of the writing of this article, the second quarter estimated tax payments have not been extended, however, the Treasury Department and the IRS have the authority to change that due date if they deem it appropriate.
If more time to file a federal income tax return is needed beyond July 15, 2020, the taxpayer can request an additional extension as they have in previous tax years.
The Internal Revenue Service has a website with more information, https://www.irs.gov/coronavirusStates:
State filing deadlines are not directly impacted by IRS Notice 2020-18. However, all State Departments of Revenue have offered some relief from the initial payment and filing deadlines. Please check with your tax advisor for the extensions offered in your filing jurisdictions.
Families First Coronavirus Response Act
The Families First Coronavirus Response Act (“FFCRA”) requires certain employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. Generally, FFCR provides that employees of covered employers (i.e. certain public employers and private employers with fewer than 500 employees) are eligible for:
- Two weeks of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
- Two weeks of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine , or to care for a child (under 18 years of age) whose school or childcare provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor; and
- Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee, who has been employed for at least 30 calendar days, is unable to work due to a bona fide need for leave to care for child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern. The Department of Labor’s Wage and Hour Division administers and enforces the new paid leave requirements. For more information, please see the Department of Labor’s website, https://www.dol.gov/agencies/whd/pandemic.
Covered employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA. For more information, please see the Department of the Treasury’s website.
The Coronavirus Aid, Relief, and Economic Security Act
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed March 27, 2020. This comprehensive bill is aimed at providing direct support to individuals and businesses impacted by the virus, as well as the economic disruptions. The Act is historically large both in the length of the text and dollars involved, providing an estimated $2 trillion in assistance. This includes almost $500 billion in individual rebate checks, $500 billion to support businesses and industries impacted by the virus, $400 billion in tax credits to businesses for wages and payroll tax relief, $300 billion to support various state and local governments and $150 billion to support the health care system.
Individual Tax Provisions
- Recovery/Rebate checks of $1,200 will be issued for all US resident adults, in addition to $500 checks for each child, subject to phase out limitations for high income taxpayers. The recovery checks are completely phased out at $99,000 AGI for single filers and $198,000 AGI for joint filers with no children.
- The 10% penalty on an early withdrawal from a qualified retirement account is suspended for coronavirus related withdrawals up to $100,000. A “coronavirus related” withdrawal includes withdrawals for a taxpayer with a diagnosis of the coronavirus, a spouse or dependent with a diagnosis, or taxpayers with adverse financial conditions from quarantine, furlough, layoff, cut hours, inability to work due to lack of childcare, etc. If the withdrawal is re-contributed to the retirement plan within three years, the initial distribution and repayment will be considered a qualified rollover and not subject to income tax. Typically, the rollover period is only 60 days. In addition, any income tax that would be due on the withdrawal can be spread ratably over a three-year period.
- The required minimum distribution (“RMD”) requirements from qualified retirement plans are waived for calendar year 2020. This allows taxpayers that do not need the cash flow from their RMD to leave that money in the retirement plan and reduce current year taxable income, as well as allow the investments time to recover from the decline in the stock market. This relief is available for all taxpayers, even those “unaffected” by the coronavirus.
- A new $300 above-the-line charitable deduction is allowed for taxpayers that claim the standard deduction on their Form 1040. This deduction is for “qualified” contributions made during 2020, defined as cash contributions to charitable organizations other than non-operating private foundations and donor advised funds.
- The traditional 60% AGI limit for cash contributions made during a taxable year is waived during 2020. This would allow a taxpayer to make and deduct qualified contributions, as defined above, up to 100% of their AGI for 2020. The deduction above 60% of AGI would not include contribution carryovers from previous tax years.
Changes to Unemployment Compensation
- Eligibility of state unemployment benefits is expanded to include self-employed, independent contractors, workers with reduced hours, and others through December 31, 2020 for those unable to work because of the pandemic.
- An additional $600/week payment, over and above the regularly calculated state unemployment benefit, will be added by the Federal Government through July 31, 2020.
- Funding is available to provide for an additional 13 weeks of unemployment benefits for workers that remain unemployed after their state benefits expire.
- The traditional one-week waiting period for unemployment benefits is waived.
- A new loan program from the Small Business Administration (“SBA”), named the Paycheck Protection Program, was created to provide up to $349 billion in forgivable loans to offset costs such as payroll, rent, utilities, and interest for eligible small businesses (not more than 500 employees). The maximum amount of the loan is 2.5 times the average monthly payroll costs, with a maximum of $10 million. Please contact your commercial banker for more detailed information on the application process for these loans.
- For businesses that do not participate in the Paycheck Protection Program offered by the SBA, federal tax credits for retaining employees, as well as a deferral of the 2020 employer share of payroll taxes through 2022 (50% payment due in 2021) are available to encourage employers to retain their employees.
- A five-year carryback period for net operating loss (“NOLs”) arising in 2018, 2019, and 2020 is now available. The 80% taxable income limitation on the use of NOLs in 2018, 2019, and 2020 has also been suspended. These changes could allow taxpayers to generate an immediate refund through amendments to prior year tax returns to provide additional cash flow and liquidity.
Provisions for Real Estate Owners/Investors
- A 60-day moratorium on foreclosures and an allowance for 180-day forbearance on all federally backed residential mortgages (Fannie, Freddie HUD, FHA, VA) is provided.
- For multi-family units where the landlord has a federally backed mortgage, an allowance for a 30-day forbearance is provided. During this 30-day period, a landlord cannot evict tenants or charge late fees.
- For residential rental property, for 120 days beginning on the date of March 27, 2020, landlords are prohibited from initiating legal action to recover possession of a rental unit or to charge fees, penalties, or other amounts related to the non-payment of rent where the landlord’s mortgage on the property is federally backed.