GRAND RAPIDS, Mich. — In this week's edition of Smart Money, financial expert Chris Harper takes a look at how the coronavirus pandemic can impact your finances and some of the relief options out there.
Below is some of the information that Harper provided:
Payroll Protection Program (PPP) Loans for Businesses
Businesses will be scrambling to apply for these loans.
- Contact your banker NOW to investigate!
Federally insured loans administered through the SBA.
Available to businesses with 500 or fewer employees.
Partially forgivable under certain circumstances!
May be used to cover short-term expenses including payroll, rent, utilities, mortgage interest (but not principal), and interest on certain pre-existing debt.
The situation is quite fluid; be alert for evolving guidance.
PPP loans may preclude you from taking advantage of other tax provisions.
- Be sure you coordinate this decision with your overall tax strategy.
- The trusted advice of a CPA or attorney is more critical now than ever!
There are many more details; this is simply for general awareness, and to create a call to action.
Stimulus Rebates for Individuals
All U.S. residents with a work-eligible Social Security number are eligible.
Even though the credit is technically for 2020, the law treats it as an overpayment for 2019 that IRS will rebate as soon as possible during 2020.
Most eligible individuals won't have to take any action; the IRS will automatically initiate direct deposit or a paper check if you qualify! (IRS may directly deposit to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment).
- $1,200 single or $2,400 joint, plus $500 for each qualifying dependent child
- Reduced by 5% ($5 per $100) of AGI that exceeds specified thresholds:
- Single filers: $75,000
- Joint filers: $150,000
- Head of household: $112,500
- Therefore, the benefit phases out completely at these levels:
- Single filers: $99,000
- Joint filers with no children: $198,000
- Joint filers with two children: $218,000
- Head of household with one child: $146,500
- Taxpayers should decide when to file their 2019 returns to maximize the amount they will receive
- Rebate will be based upon 2018 if that is the only year available.
- However, 2019 will be used if this year’s return has been filed.
- If someone’s AGI for both 2018 and 2019 is too high to get the maximum rebate, but their AGI declines enough in 2020 to provide a larger credit, then they should receive an increased credit when they file their 2020 return.
- Conversely, if someone gets the maximum rebate based on 2018/2019, but their 2020 income increases to a level that would result in a lower credit, that taxpayer would NOT have to pay back any of the excess.
- On March 25 Treasury Secretary Steven Mnuchin said, “We expect the IRS will do direct deposit in the next three weeks.”
- Payment will take longer for taxpayers requiring paper checks.
Income Tax Payment and Filing Deadlines
Federal income tax returns and payments due on April 15 have been extended to July 15.
- Does not apply to federal returns or payments due on any date other than April 15.
- Delayed filing currently applies solely to federal income tax returns.
- Federal delayed payment only applies to income and self-employment taxes.
- No extension needs to be requested; the deadline has automatically become July 15.
- As of March 30, the IRS FAQs stated that Q2 2020 estimates are due on June 15. * An odd situation in which the Q2 payment is due before the Q1 payment!
The three-year statute of limitations to claim a refund is unaffected.
- The ability to claim a refund generally expires three years after the original due date.
- Thus, taxpayers who have not yet filed a 2016 return need to file by April 15, 2020 to obtain a refund. File now if you waited this long for your 2016 refund!
- COVID-19 relief only applies to returns for the 2019 tax year!
The State of Michigan extended the tax filing deadline to July 2020.
- Michigan returns and payments due on April 15 will now be due July 15.
- Michigan city returns due on April 15 or 30 will be due on July 15 or July 31, respectively.
City of Grand Rapids returns and payments have specifically been postponed.
- July 31 is the new April 30!
- This deferment applies to all taxpayers.
- This deferment does not apply to any withholding taxes.
- There will not be any penalty or interest on tax due unless it was for failure to make estimated payments.
Other Provisions
The 10% penalty for Coronavirus-related early retirement plan distributions will not apply for 2020.
- Taxation is also favorable.
- No taxation if withdrawn amounts are recontributed within three years.
- Alternatively, taxpayers may spread income taxation over three tax years.
Retired taxpayers do not need to take required minimum distributions (RMDs) during 2020.
- This could be especially helpful for retirees who may not want to liquidate distressed investments while markets are in turmoil.
There are many other provisions
- The CARES Act is massive!
- These are simply a few of the most prominent provisions.
If you're in need of more financial and tax guidance, check out the advisers at Hungerford Nichols.
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