Mid-Year Updates: IRA And PPP Rules
The government passed the CARES Act and other stimulus to help provide more financial flexibility. We offer a summary of how those rulings may affect you.
By SJS Managing Director Jennifer Smiljanich.
In the current economic environment, the federal government has stepped in with the CARES Act legislation and other stimulus to help provide greater financial flexibility for Americans. In the last few weeks, there have been two additional rulings that intend to offer help to those needing relief. Below, we offer a summary of how those rulings may affect you. As always, please be sure to check in with your tax professional for guidance.
IRA Distribution Relief, Part 2
Earlier this year, the CARES Act allowed individuals who would be required to take a distribution from an IRA or defined contribution retirement plan in 2020, to avoid taking any withdrawals. In Notice 2020-51 issued on June 23rd, the IRS offered further relief regarding Required Minimum Distributions (RMDs).
First, the 60-day rollover period for any RMDs already taken this year has been extended to August 31. This extension will allow more taxpayers to take advantage of this relief. Second, Notice 2020-51 directs that any IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can repay the distribution to the IRA by August 31.[1]
For those individuals who took IRA distributions early in the year or who took distributions as beneficiaries of inherited IRAs, this guidance offers the option to return all or part of those distributions by August 31. More flexibility is certainly good news and offers a “fair and favorable outcome” to those who took distributions in compliance with the rules early in the year.[2]
Paycheck Protection Program Flexibility Act of 2020
On June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law, amending the CARES Act. Among its provisions, the PPPFA offers greater latitude to the millions of businesses that applied for Paycheck Protection Program (PPP) loans, as follows:[3]
Extended covered period for PPP loan forgiveness from 8 weeks to the earlier of 24 weeks or December 31, 2020. Borrowers who received loans before June 5 may extend or keep the original 8-week period.
Reduced the requirement that payroll costs make up 75% of covered loan amount to 60% in order to receive loan forgiveness.
Increased PPP loan maturity from a minimum of 2 years to 5 years for loans originating after June 5, 2020.
Extended safe harbor deadlines from June 30 to December 31 to restore any reductions in salaries or hourly wages, or full-time equivalency levels.
Amended reduction in loan forgiveness associated with staff levels. The PPPFA added flexibility if Borrowers could document an inability to re-hire or hire qualified employees; or could document an inability to return to similar business operations as of February 15, 2020 due to compliance with COVID-19 restrictions.
Allowed borrowers receiving loan forgiveness to also defer payroll tax payment per CARES Act provisions.
Please know that your SJS team is here to help guide you through these ever-changing and difficult times. Please feel free to reach out to us with any questions.
Important Disclosure Information and Sources:
[1] “IRS Extends RMD Rollover Relief Under CARES Act.” Melanie Waddell, 23-Jun-2020, thinkadvisor.com.
[2] “New Rollover Rules For Unwanted 2020 RMDs Under IRS Notice 2020-51… Welcome Relief And A Troubling Precedent.” Jeffrey Levine, 25-Jun-2020, www.kitces.com.
[3] “Paycheck Protection Program – Where are we Now? An Up-to-Date Guide to the Paycheck Protection Program.” Proskauer, 24-Jun-2020, proskauer.com.
SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
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CARES ACT: Key Changes in Tax/Benefits Provisions for Families and Businesses
We want to share a summary of recent legislation that may affect you as you navigate through future decision-making for your families and businesses.
By SJS President Kevin Kelly, CFA.
In these times of change, when news seems to hold more emotion and impact, it can be difficult to keep track of relevant news and sift through the noise. To that end, we wanted to share a summary of recent legislation that may affect you as you are navigating through the next couple of months of decision-making for your families and your businesses.
Tax Filing Dates and Estimated Tax Payments
As you may be aware, the IRS delayed the date for filing and making federal tax payments from April 15 to July 15, 2020.¹ This change applies to individual returns, payment due from trusts and estate, and C corporations. Businesses or other entities that have filing due dates other than April 15 have not been granted a tax extension.
While some states have adjusted their tax return filing and payment deadlines to match the new federal dates, each state is making their own decision. To see if your state has delayed its filing deadline, you may check this website.
For those who pay estimated taxes, the first payment will be due June 15, with the second payment following on July 15.² As always, please be sure to check in with your tax professional for guidance.
IRA Contribution Deadline Extension
The IRS has extended the deadline to make IRA contributions for tax year 2019 to July 15, 2020.
Relief for Small to Midsized Businesses and Their Employees
On March 18, Congress passed the Families First Coronavirus Response Act. Taking effect on April 2, this law provides benefits to businesses with up to 500 employees, with possible waivers for businesses under 50 employees. While some of the details are being determined by the Department of Labor, the Act assists both employees and employers. Workers may be eligible for up to 80 hours of paid sick leave and expanded paid childcare leave. Employers are eligible to receive 100% reimbursement for paid leave pursuant to the Act, including coverage for health insurance costs and payroll tax liability. Self-employed taxpayers are eligible to receive a similar credit.³
CARES Act Stimulus
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus package. This is the third piece of legislation since March 6 aimed at combating the economic disruptions caused by the coronavirus epidemic. Some notable provisions of the CARES Act include the following⁴:
Cash Payment Payout: Individuals will receive $1,200 as a one-time cash payment from the federal government, while married couples will receive $2,400. Note that cash payments are available to individuals who had less than $75,000 of Adjusted Gross Income (AGI) in 2019, and to married couples with less than $150,000 AGI. Taxpayers will receive an additional $500 per qualified child. Payments are anticipated to be made in April.
Small Business Help: Certain businesses with fewer than 500 employees impacted by coronavirus will be able to take out loans of up to $10 million. These loans may be eligible for forgiveness if used to cover payroll, rent and utilities. Employers will also be able to delay paying Social Security payroll tax normally paid in 2020; payments will be due at the end of 2021 and 2022.
Unemployment Benefits Expansion: There will be an increase of $600 per week for up to four months for unemployment benefits. Benefits will also be extended to self-employed individuals and independent contractors.
Student Loan Payment Deferral: Federal student loan payments are deferred through September 30, 2020.
IRA Withdrawal Changes: Required minimum distributions from IRAs are waived for tax year 2020. The ten percent early withdrawal penalty that may apply to distributions made from retirement accounts for “Coronavirus-Related Distributions” is eliminated.
Additional IRA Distribution Information
As part of the CARES Act, Required Minimum Distributions (RMDs) are now suspended for 2020. RMDs do not have to be taken from Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), and governmental 457(b) plans. Individuals who turned 70 ½ in 2019, do not have to take their 2019 RMD (normally due by April 1, 2020) or their 2020 RMD.
Distribution rules vary for beneficiaries of inherited IRAs. Beneficiaries taking “stretch IRA” distributions over their lifetimes do not have to take these distributions for calendar year 2020. However, beneficiaries of IRAs who must distribute the entire inherited IRA in a five-year period are given an additional year to distribute the full inherited IRA balance. Those beneficiaries subject to a ten-year distribution schedule for inherited IRAs will not receive an extension, as the first IRA distribution would be required in 2021.
So, should you still take an IRA distribution if there is no requirement? The answer is, it depends. If you need to take IRA distributions to support your lifestyle expenses, then you may still need to make distributions. You might consider making a partial or full IRA distribution if you can do so at a relatively low tax rate. Also keep in mind that if you are at least 70 ½, you can continue to use IRA distributions to make charitable gifts, which may reduce taxable income distributed to you, if you cannot itemize deductions on your tax return.
What should you do if you have already taken a distribution? In some circumstances, it may be possible to reverse unnecessary RMDs.
1. RMD has taken place within the last 60 days:
An individual may be able to write a check or transfer an amount equal to the distribution back into a retirement account before the end of the 60-day rollover window. Care must be taken to comply with the once-per-year rollover rule (the funds cannot have been rolled from a plan in the last 365 days, go to a plan in the next 365 days, and/or no other IRA-to-IRA rollover can have been made within the past 365 days).
2. RMD took place more than 60 days ago:
If the individual meets one of the qualifications for taking a Coronavirus-Related Distribution (CRD) in 2020, then the IRA funds can be repaid within three years from the date of distribution. Alternatively, the distribution can be taxed over three years. Distributions of up to $100,000 from an IRA or retirement plan may be eligible for CRD treatment if the taxpayer, spouse or a dependent is diagnosed with COVID-19, or any of the following circumstances apply:
Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;
Become unable to work due to lack of childcare as a result of the disease;Own a business that has closed/operate under reduced hours because of the disease; or
Meet some other reason approved by the IRS.
What about for beneficiaries of inherited IRAs who made distributions already? These individuals are not able to make a rollover or return the funds to an inherited IRA. The only exception is for surviving spouses who took distributions from an inherited spousal IRA – the surviving spouse may be able to deposit the RMD back into their own retirement account as a spousal rollover.
Please know that your SJS team is here to help guide you and your organization through these difficult times.
Important Disclosure Information and Sources:
[1] Erb, Kelly Phillips. “All You Wanted To Know About The IRS Tax Filing & Payment Extensions & Relief But Were Afraid To Ask.” Forbes.com. March 19, 2020. www.forbes.com/sites/kellyphillipserb/2020/03/19/all-you-wanted-to-know-about-the-recent-irs-tax-payment-relief-but-were-afraid-to-ask/#73b88b8845d5
[2] “Filing and Payment Deadlines Questions and Answers.” IRS.gov. March 24, 2020. www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers
[3] “Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave.” IRS.gov. March 20, 2020. www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus
[4] “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic.” Kitces.com. March 27, 2020. www.kitces.com/blog/analyzing-the-cares-act-from-rebate-checks-to-small-business-relief-for-the-coronavirus-pandemic/.
SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
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CARES ACT – Resources For Small Businesses And Nonprofits
To help small businesses and nonprofits, we have summarized a few key provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The past few weeks have been anything but normal. Federal and state mandates have impacted how most small businesses and nonprofits operate. According to JP Morgan, the median business holds cash reserves to cover just 27 days of expenses.[1] Even if your organization operates with a bigger cushion, anxiety about the future is forcing many business owners and organizational leaders to face difficult decisions.
The good news is that health and government officials have worked together to craft the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help small businesses and nonprofits through these tough times.
We have summarized a few key provisions below. These programs can provide a significant boost to struggling businesses. If you believe that you may be eligible or have any questions, please reach out to your team at SJS. We are here to help and can direct you to the correct resources.
Economic Injury Disaster Loans (EIDLs)
The Small Business Administration’s (SBA) EIDLs are the first line of support. While not new, these loans are available in the event of disaster.[2]
The SBA offers many favorable terms in their EIDLs:
Loans up to $2 million with terms up to 30 years. Interest rates are 3.75% for small businesses and 2.75% for nonprofits.
Borrowers can receive an emergency grant cash advance of $10,000, which can be forgiven if spent on paid leave, maintaining payroll, supply chain disruption costs, mortgage / lease payments, or repaying obligations that cannot be met due to revenue loss.
You apply for these loans directly through the SBA.
Paycheck Protection Program Loan Guarantee
This program can provide a business with a loan up to $10 million for payroll and other expenses including:[3]
Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000.
Rent pursuant to a lease in force before February 15, 2020.
Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020; and
Group health insurance premiums and other healthcare costs.
The amount spent on the above expenses during the first eight weeks after the loan origination date is potentially eligible for loan forgiveness. To qualify for loan forgiveness, you must maintain the same average number of employees for the first eight-week period beginning on the loan origination date. If you don’t meet this requirement, the loan amount forgiven is reduced.[4]
Employee Retention Credit for Employers Subject to Closure Due to COVID-19
If you are not receiving a loan, you may be eligible for a new payroll tax credit. To be eligible, your organization must continue to pay employees while not working, as well as satisfy one of the following criteria:
Organization operations were fully or partially suspended during Q1 2020 due to governmental authority.
Organization has less than 50% revenue in the quarter compared to the same quarter in 2019.
In simplest terms, the credit is equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee.[5]
Deferral of Payment of Payroll Taxes
If not receiving a loan, you may be eligible to defer payroll taxes from the date of the CARES Act enactment through the end of 2020, ultimately paying these payroll taxes in 2021 and 2022. More specifically, 50% of the payroll taxes that would otherwise be due during this period may be deferred until December 31, 2021. The remaining 50% is due by December 31, 2022.[4]
Net Operating Loss Rules Are Loosened
The CARES Act adjusts Net Operating Losses (NOL) rules to allow NOL from 2018, 2019, or 2020 to be carried back up to five years. In theory, this should allow companies to reduce tax bills from prior years, allowing them to claim refunds of amounts previously paid.[4]
Please know that your SJS team is here to help guide you and your organization through these difficult times.
Important Disclosure Information and Sources:
[1] “Cash is King: Flows, Balances, and Buffer Days.” Diana Farrell & Chris Wheat, jpmorgan.com.
[2] “Small Business & Nonprofit SBA Programs Available with the Impacts of COVID-19.” Jim Ashley & Corey Stone, bkd.com.
[3] “Paycheck Protection Program.” U.S. Small Business Administration, sba.gov.
[4] “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic.” Jeffrey Levine, kitces.com.
[5] “CARES Act Includes Employee Retention Credit.” Amy Barnes, Michael Goller, & Karla Nettleton, reinhartlaw.com.
SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.