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March 27, 2020

Financial Assistance for Individuals and Families Provided by the CARES Act

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Giulia Di Cenzo
By: Giulia Di Cenzo

As tax attorneys and business professionals in Columbus, Ohio, we assist business owners in many aspects of their business, including business and tax planning, as well as the impact of legislation on business income and cash flow. The unprecedented COVID-19 pandemic (“Coronavirus”) has caused unparalleled interruptions to almost all market sectors. Businesses are now facing significantly reduced income, or even zero income, and may be experiencing cash flow issues. The Coronavirus related economic ripple effects have prompted Congress to respond with phases of unprecedented legislation that provides economic assistance to individuals, families, and businesses affected by the Coronavirus.

On March 25, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act contains provisions that provide financial assistance to individuals and families in the form of direct payments and increased charitable contributions deduction; removal of certain penalties; and deferral of certain income tax, student loan, and mortgage payments. As of March 27, 2020, the CARES Act was passed by the House of Representatives and will be presented to the President for signature before becoming public law. The President is expected to sign the CARES Act, but despite this expectation, the CARES Act and the discussion below is still subject to change as it is not yet public law. Additional details will be provided when available.

The CARES Act:

  1. Provides direct payments to individuals and families in an amount based on their filed 2019 tax returns or filed 2018 tax returns, as applicable. Individuals with no income or those whose income is entirely from nontaxable means-tested benefit programs (such as SSI benefits) are also eligible for the direct payment in an amount as detailed below:
  1. $1,200 for single tax filers, if his or her adjusted gross income (AGI) is below $75,000 (and is completely phased-out if their AGI exceeds $99,000); or
  2. $2,400 for married couples that filed jointly, if their AGI is not above $150,000 (and is completely phased-out for joint filers with no children if their AGI exceeds $198,000); and
  3. $500 for each child of the taxpayer who has not attained age 17 and meets the definition of “qualifying child” for purposes of the dependency exemption in IRC § 152(c).
  1. Removes the 10% penalty on withdrawals from a qualified retirement plan up to $100,000 if the withdrawn funds are for coronavirus related purposes and otherwise nonexempt from the penalty imposed under IRC § 72(t). Withdrawn funds may be re-contributed to the qualified retirement account in full without penalty since the annual qualified retirement account contribution caps do not apply to such funds. The income tax generated from withdrawn funds will be divided and due over the three years after the withdrawal;
  1. Defers principal and interest payments for all Federal student loans for 6 months until September 30, 2020;
  1. Employers may contribute up to $5,250 per employee towards the employees’ student loans if contributed before January 1, 2021, which will be tax-free to the employees (however, student loan repayments for which this exclusion applies cannot be deducted under IRC § 221, which ordinarily allows the limited deduction of student loan interest. This means that the amount has already been excluded from taxes so the interest on that same excluded payment cannot be deducted twice);
  1. Allows an above-the-line deduction for qualifying charitable cash contributions up to $300, as well as increased charitable contributions limitations for donations made in 2020; and
  1. Allows individuals with federally-backed mortgages to request forbearance on such mortgage payments for temporary protection from foreclosures and evictions.

The CARES Act concerns additional tax-related provisions that may also impact business income and cash flow during and after the unprecedented COVID-19 pandemic. 

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March 27, 2020

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