Recovery Rebate, Penalty-Free, Retirement, Withdrawals, Waiver, RMD, Requirement, Temporary Removal, Charitable, Contribution, Limits, Employer, Student Loan, Payments, Employer, Delayed Payroll, Tax Deposits, Employer Credit, Retaining Employees, Temporary Reinstatement, NOL, Carrybacks, Limitation, Losses, AMT, Credit, Corporations Limitation, Business Interest Loan, Guarantees, Subsidies

The “Coronavirus Aid, Relief, and Economic Security Act” (Cares Act) includes many taxes. And, it includes financial breaks for individuals and businesses. We broke down many of the essential elements. This is how they can assist US expats and their business during this difficult time.

Recovery Rebate. The most talked-about provision is the “recovery rebates” for individuals. These rebates are actually credits on taxpayers’ 2020 tax returns. The Treasury will pay out in advance.

Each eligible individual will receive $1,200. However, the amount $2,400 is for married couples filing jointly. Plus, an additional $500 for each qualifying child (under age 17 at years end). These rebates are for low- to middle-income individuals. So, they phase out for higher-income folks. For unmarried individuals, the credit phases out at an AGI of $75,000. It fully eliminates at $98,990. For those filing as head of household, the phase-out range is $112,500 to $136,490. Additionally, for married couples filing jointly, it is $150,000 to $197,990.

The Treasury will determine who will receive a check. Along with the amount, based on the individual’s 2019 tax return. If you did not file the 2019 return at the time of the rebate payment, the Treasury will use the 2018 tax return. For those who have not filed either a 2018 or 2019 return, the Treasury will provide a payment. Specifically, to those that received 2019 Social Security or Railroad Retirement benefits.

In recent guidance, the IRS has indicated they will be providin on-line means for taxpayers.

This is to provide their direct deposit information. In order for rebates expedition rather than having to wait for a check. The IRS has also indicated they would provide later guidance. It is to show how people that are not required to file a return can file. In order to obtain an advance rebate. Find further details at www.IRS.gov/coronavirus.

Where an advance rebate is more or less than allowed because an individual’s filing status or family size is different in 2020. Or, the credit is a subject for phase-out bases on 2020 income. The adjustment is on the 2020 tax return. Thus, individuals may be entitled to an additional credit. And, if the advance rebate was greater than the actual credit, they will NOT have to repay the excess. This means that individuals who otherwise wouldn’t have a 2020 return filing requirement based on their income will likely have to file to reconcile their advance rebate with their actual credit.

Individuals dependent of another on a prior year return will not receive the rebates.

Also, ineligible for the credit or an advance rebate are those without a Social Security number (or ATIN for an adopted child who doesn’t have an SSN).

Additional Key Provisions – The Cares Act is over 500 pages covering tax provisions, economic stimulus, business loans, health care and more. Following is an overview of the key issues relating to individuals and small businesses.

Individuals:

  • Penalty Free Retirement Withdrawals – Penalty-free withdrawals from qualified retirement plans (including 401(k)s, TSAs, SEPs and traditional IRAs) are allowed. The withdrawals are limited to $100,000 and the income is taxable over a three-year period with an option to also recontribute the withdrawal over a three-year period.
  • RMD Waiver – There is a one-year waiver for the 2020 required minimum distribution (RMD) from qualified plans and traditional IRAs. It is for taxpayers that turned 70.5 in a year before 2020 and those that turn 72 in 2020. This prevents them from having to take a distribution when the stock market is declining.
  • Charitable Contributions – A suspension of charitable contribution limits applies for 2020. Generally, for cash gifts, tax deductible charitable contributions are limited to 60% of adjusted gross income. The suspension of the limitation will allow taxpayers to make larger charitable contributions during this trying time. Also included is an above-the-line charitable deduction limited to $300 of cash donations for those that don’t itemize their deductions.
  • Student Loan Payments – Employees can exclude from income payments (Up to $5,250) made before January 1, 2021 by their employers towards their student loans.

Businesses:

  • Payroll Deposits Delayed. Employers can delay payroll tax deposits for 2020 with 50% not due until December 31, 2021. And, the balance due by December 31, 2022.
  • Employee Retention Credit – Congress has provided a refundable employer retention credit. It is equal to 50% of qualified wages. Employers can use it to offset quarterly employment taxes. The qualified wages under this provision are $10,000 per employee in 2020.
  • NOL Carryback Reinstated – Under the 2018 tax reform legislation (TCJA), a business net operating loss (NOL) no longer allows to carry back to a prior year. One must carry it forward to the next tax year. The carryforward loss deduction limits to 80% of the carryforward year’s tax income. Under the CARES Act, carryback of losses in 2018 through 2020 reinstates. 80% of taxable income limitation repeals. So businesses with financial problems can file for tax refunds from the carryback years. When they were profitable and had paid income taxes.
Also,
  • Limitation on Losses – The legislation retroactively turns off the excess active business and farming loss limitation rules implemented. As part of tax reform to apply after December 31, 2020, instead of after December 31, 2017.
  • Prior Year AMT Credit for Corporations – Allows corporations to claim 100% of AMT credits in 2019 as fully-refundable. Provides an election to accelerate claims to 2018, with eligibility for accelerated refunds.
  • Limitation on Business Interest – Generally, allows businesses to elect to increase the interest limitation. From 30% of adjusted taxable income to 50% for 2019 and 2020. Also, allows businesses to elect to use 2019 adjusted taxable income in calculating their 2020 limitation.
  • Loan Guarantees and Subsidies – Includes over $300 billion for Small Business Administration (SBA) loan guarantees and subsidies. Plus, additional funding for SBA resources.

Of course, there are additional details that we will provide in the days ahead. Please call if you have any questions.