HowardSimon CARES Act Highlights
Coronavirus Aid, Relief, and Economic Security (CARES) Act
Full text can be found at: https://www.congress.gov/bill/116th-congress/house-bill/748/text
President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the economic impact of the COVID-19 pandemic.
It is expected that each agency responsible for implementing each section of the CARES Act will issue regulations and guidance providing clarity on the various provisions over the next several weeks. We will continue to provide updates as details become available.
Update to Plan Loans Provisions
For the 180 day period from the enactment of the act plan loan limits increase to the lesser of $100,000 or 100% of the participant's vested account balance in the plan.
Individuals with an outstanding loan from their plan with a repayment due from the date of enactment of the CARES Act through Dec. 31, 2020, can delay their loan repayment(s) for up to one year.
Coronavirus Related Distributions
The CARES Act waives the 10% early withdrawal penalty tax on early withdrawals up to $100,000 from a retirement plan or IRA for an individual who meets one of the below defined eligibility criteria.
The legislation also permits those individuals to pay tax on the income from the distribution ratably over a three-year period.
The individual can repay that amount tax-free back into the plan over the next three years. Those repayments would not be subject to the retirement plan contribution limits.
The Coronavirus Related Distribution provisions apply to all employees who meet one of the following criteria:
1) Anyone who is diagnosed with the COVID-19 virus by a test approved by the Centers for Disease Control and Prevention,
2) Anyone whose spouse or dependent is diagnosed with such virus or disease by such a test,
3) Anyone who experiences adverse financial consequences as a result of:
- being quarantined,
- being furloughed, laid off , or having work hours reduced due to such virus or disease,
- being unable to work due to lack of child care due to such virus or disease,
- closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or
- other factors as determined by the Secretary of the Treasury (expected further guidance is anticipated).
The CARES Act does not specify whether or how a participant will be required to substantiate that the above requirements have been met.
Required Minimum Distribution (RMDs) Rules Temporary Waiver
RMDs can be waived calendar year 2020 for DC plans, including 401(k), 403(b), 457(b) and IRA plans, allowing individuals to keep funds in their retirement plans.
The legislation further permits retirement plans to adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans.
The plan must be amended on or before the last day of the first plan year beginning on or after Jan. 1, 2022 or later if prescribed by the Treasury Secretary.
Employer Social Security Payroll Tax Deferral
The CARES Act allows employers and self-employed individuals to postpone deposits of their share of federal Social Security tax on employees's wages paid as of the enactment date through and including December 31, 2020 (Employers are generally responsible for paying a 6.2 percent Social Security tax on employees' wages).
The CARES Act allows employers to deposit 50 percent of the deferred taxes on or before December 31, 2021, and the remaining 50 percent by December 31, 2022.
Employers utilizing either payroll agent arrangements under IRC Section 3504 or certified professional employer organizations arrangements under IRC Section 3511 will ultimately be liable for the taxes if such taxes were delayed at the request of the employer.
Employers who apply for and receive Paycheck Protection Program loans are not eligible for this deferment.
Note that relief from Medicare tax or other applicable employment taxes (for example, federal income tax) does not apply to either of the above CARES Act provisions.
Employee Retention Credit
The CARES Act has a provision for employee retention included in order to be eligible for the retention credit employers:
- Have their operations suspended due to a COVID-19 related order, OR
- Have 50% less cash receipts for the same period the prior year, unless the quarter prior to the credit period has increased gross receipts of 80% the prior year.
Note: Employers who receive Paycheck Protection Program Loans do not qualify for the retention credit.
All employers are eligible for a credit up to $5,000 representing 50% of the first $10,000 of wages paid this year.
Credits are limited to the total employer social security liability for the quarter, but reduced by the FFCRA credits taken against those same taxes. Limits also apply to Qualified R&D credits and WOTC credit for employment of qualified veterans.
Employers with 100 or fewer employees can take credit for all employees.
Employers with 100 or more employees can only apply the credit to employees furlough whose wages are continued for business closure relative to COVID-19.
Paycheck Protection Program (PPP)
Provides Small Business loans to qualified businesses with less than 500 employees to cover payroll and other business operating expenses. Loans are made by lenders certified by the Small Business Administration (SBA) and guaranteed by the federal government.
The loans, available at financial institutions currently extending SBA loans and other non-traditional lenders, would be completely forgiven if the employer continues to keep the employees or hires back those who already have been laid off, and uses the funds for covered expenses
Please contact your bank directly for more details on this program.
Information from the Treasury FAQ can be found here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf