Advance Payment of Payroll Credit
Under the CARES Act, employers could get the payroll tax credit in advance. Guidance has not been issued by the IRS as to how this would function.
Employee Retention Credit
The provision provides a refundable payroll tax credit for 50 percent of wages to employers whose operations were fully or partially suspended due to COVID-19 related shut-down orders, or who had gross receipts decline by more than 50 percent compared to the same quarter the prior year. Additional guidance from the IRS is needed as to how the credit will be administered.
Option for Employers to Defer Payroll Tax Payments for 2020
Employers may delay the payment of the employer share of payroll taxes until 2021 and 2022, with half of payroll taxes for 2020 due by Dec. 31, 2021, and the other half due by Dec. 31, 2022. Additional guidance, and potentially new forms, are needed from the IRS to accommodate this provision.
Direct Payments to Individuals
Individuals that make up to $75,000 will receive a direct payment of $1,200. Married couples making up to $150,000 will receive $2,400. Parents with children under the age of 17 will also receive $500 for each child. Individuals with incomes that exceed those limits will receive reduced payments.
According to the Treasury Secretary, checks will be sent out within three weeks. Those impacted won’t need to apply for assistance. Instead, the IRS will transfer money to individuals via direct deposit based on its latest income tax figures. The Treasury Department will also run a “public awareness campaign” with information about the program, including for people who didn’t file a tax return for 2018 or 2019.
Expanded Unemployment Benefits
The federal government will provide unemployed workers an extra $600 per week for four months in addition to the state benefits. Unemployed workers will also receive 13 weeks of extended benefits, fully covered by the federal government. Currently, state unemployment checks last up to between 12 weeks and 28 weeks, depending on the state.
The CARES Act calls for a pandemic unemployment assistance program, which will provide jobless benefits to those who are unemployed, partially unemployed or unable to work because of the virus and don’t otherwise qualify for traditional benefits. Independent contractors and the self-employed, who typically don’t qualify for such assistance, would receive these benefits. So too would gig economy workers who aren’t eligible in many states.
Eligible small businesses could obtain loans to cover employee payroll costs as defined in the CARES Act. The loan program would apply to employers with fewer than 500 employees. Reporting and potential payroll tax impacts require additional guidance from the agency.
Employer Payments of Student Loans – Excluded from Income.
The provision enables employers to provide student loan repayment benefit to employees on a tax-free basis up to $5,250 annually toward an employee’s student loans. Provision applies to any student loan payments made by an employer on behalf of an employee from the date of enactment to January 1, 2021.
Penalty on Early Distributions from Retirement Accounts Waived
In line with past declarations of disaster relief, the CARES Act waived the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes. The waiver applies to distributions made on or after January 1, 2020.