On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. This extensive act provides much needed assistance to those struggling due to the impact of coronavirus/COVID-19 shutdowns. There are numerous provisions both businesses and individuals should be aware of to fully benefit from the CARES Act. This blog focuses on those provisions in the CARES Act that apply to individuals. A separate blog detailing the provisions of the CARES Act that apply to businesses can be found here.
The main provisions of the CARES Act relevant to individuals in general are (1) individual rebates; (2) increased unemployment compensation and durations; (3) short-term compensation program financing; (4) a pause on student loan interest accrual and payments; (5) forbearance of mortgages and protection from foreclosures and evictions; (6) relaxation of penalties for early withdrawal of retirement funds and increased limits on loans from retirement funds; (7) partial above the line deductions for charitable contributions; and (8) exclusion from gross income for employer payments of student loans.
A. How much of a CARES Act rebate do individuals receive?
Individuals receive a $1,200 rebate. Married couples receive a rebate of $2,400. Any dependent child under the age of 17 increases these amounts by $500. These rebates are in addition to, not merely advances on, tax returns otherwise owed.
B. What are the income limits for these amounts?
Individuals having an adjusted gross income under $75,000, heads of household having an adjusted gross income under $112,500, and married couples having an adjusted gross income under $150,000 receive the full amount of the applicable rebates. Any income over these amounts reduces the total rebate, including any increase in the rebate due to having qualifying children, by 5%. This causes the rebate to drop to $0, assuming no increases from qualifying children, for individuals making at least $99,000, heads of household making at least $126,500, and married couples making at least $198,000. For example, a married couple with 2 qualifying children and an adjusted gross income of $150,000 should receive a rebate of $3,400, but if their adjusted gross income was $175,000, this would reduce the rebate to $2,150.
C. How do I receive my CARES Act rebate?
Individuals with direct deposit information on file with the IRS should have already received their rebate directly in their bank accounts. The IRS will send checks to individuals without direct deposit information at the most recent address in their files. The IRS has developed a page to provide direct deposit information and check payment status for individuals who have not yet received their rebates.
A. How much are unemployment payments increased?
Unemployment payments are increased by up to $600 per week over the amounts otherwise available under each state’s original unemployment program.
In Michigan, this equates to a maximum of $962 per week ($362 limit per week under regular unemployment insurance plus the $600 from the CARES Act).
B. How long is unemployment available?
Individuals are now eligible to receive unemployment benefits for an additional 13 weeks. The expansion provided by the CARES Act expires on July 31, 2020, however.
In Michigan, this would make the maximum time for unemployment insurance 33 weeks, but Michigan’s Executive Order 2020-76 has increased the limit by 6 weeks. The maximum under the CARES Act is 39 weeks, therefore, until Executive Order 2020-76 expires without extension.
C. Who is eligible to receive unemployment payments?
Generally, employees laid off by their employer are eligible for unemployment benefits. The CARES Act expands this to self-employed individuals and independent contractors, however, with Pandemic Unemployment Assistance. Executive Order 2020-76 has also temporarily extended unemployment benefits to individuals who voluntarily leave work because they are required to care for someone diagnosed with COVID-19; because they have a family care responsibility from a government directive; or to self-quarantine because they are immuno-compromised, have at least one COVID-19 symptom (fever, atypical cough, or atypical shortness of breath), or has had contact with someone diagnosed with COVID-19 in the last 14 days.
The CARES Act provides federal financing for a state’s payments to an individual under a short-term compensation plan, up to a maximum of 26 times what the individual’s weekly benefits would be under the state’s regular unemployment program. Each state is responsible for creating its own short-term compensation program or work sharing program. These plans are designed to help employees who have continued working for their employer but with reduced hours. Only 27 states currently have such a program, which includes Michigan.
To be eligible in Michigan, employers and their proposed work sharing plans must meet multiple requirements outlined in MCL 421.28c and MCL 421.28d. Executive Order 2020-76 has temporarily waived or reduced many of these requirements, however. Until this order expires, employers do not have to do any of the following to be eligible for approval of their proposed work share plan:
Employers must still certify, however, that they are implementing the plan instead of laying off at least 10 percent of their employees, with an equivalent reduction in hours.
In addition, until the expiration of Executive Order 2020-76, proposed plans do not need to exclude employees who have worked for the employer for less than 3 months. Finally, Executive Order 2020-76 expanded the range that a proposed work share plan may reduce each participating employees’ normal weekly hours from between 15 and 45 percent to between 10 and 60 percent. This expanded range is temporary and will cease upon expiration of Executive Order 2020-76.
Employers must undergo the application process by submitting their work sharing plan, which can be started here.
A. How long does the CARES Act pause student loans?
Eligible student loans are paused until September 30, 2020. This means eligible student loans will not accrue interest until this date and payments are not required until this date. All involuntary collection of eligible student loans is suspended, including wage garnishments, reductions of tax refunds, and reductions of other federal payments.
B. What student loans are eligible?
Most federal student loans held by the Department of Education are eligible. To help borrowers determine if they are eligible, the CARES Act required the Secretary of Education to provide notices within 15 days of its enactment (April 11, 2020), so borrowers of eligible student loans should have already received this notification.
A. What mortgage forbearance is available?
Borrowers may receive forbearance of eligible mortgages with no fees, penalties, or increased interest accruals for 180 days upon request and certification that they are undergoing financial hardships because of COVID-19. Borrowers may also request an extension of this forbearance for up to 180 days. Extensions must be made before 120 days after the expiration of the COVID-19 National Emergency declared on March 13, 2020.
Borrowers of eligible multifamily mortgages are also eligible for forbearance, but they must provide documentation of their financial hardship and the forbearance is only available for 30 days, with 2 extensions of 30 days available on request. These extensions must be requested at least 15 days prior to the expiration of the forbearance period and before 120 days after the expiration of the COVID-19 National Emergency declared on March 13, 2020.
B. What protection from foreclosure is available?
Lenders may not foreclose any eligible mortgage, whether judicially or non-judicially, until May 18, 2020 at the earliest, unless the property is vacant or abandoned. Multifamily mortgages do not receive this protection.
C. What protection from eviction is available?
Landlords of covered dwellings must provide tenants with 30 days’ notice prior to requiring they vacate cannot provide this notice until July 25, 2020. Landlords also cannot file any legal action to recover possession of the property or charge additional fees or penalties for nonpayment of rent until this date.
Landlords of multifamily dwellings that receive mortgage forbearance under the CARES Act must also provide tenants with 30 days’ notice prior to requiring they vacate that dwelling and cannot provide this notice until the forbearance period on their mortgage expires. These landlords cannot evict tenants or charge additional fees or penalties for nonpayment of rent until the expiration of their forbearance period as well.
D. What mortgages and leases are eligible?
Mortgages are “eligible” if they are federally backed mortgages on residential property. A mortgage is “federally backed” if it is (i) insured by the Federal Housing Administration under title II of the National Housing Act; (ii) insured under section 255 of the National Housing Act; (iii) guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992; (iv) guaranteed or insured by the Department of Veterans Affairs; (v) guaranteed, insured, or made by the Department of Agriculture; or (vi) purchased or securitized by Fannie Mae or the Freddie Mac. Mortgages on residences designed for 5 or more families are “multifamily” mortgages (and must still be “federally backed” to be “eligible”).
Leases are protected from eviction if they relate to a “covered dwelling.” Covered dwellings are any properties that participate in a covered housing program listed under 34 U.S.C. 12491(a)(3), participate in the rural housing voucher program under section 542 of the Housing Act of 1949, or have a federally backed mortgage loan or federally backed multifamily mortgage loan. For the purpose of determining covered dwellings, the definitions of “federally backed mortgage loans” and “federally backed multifamily mortgage loans” are expanded to include any mortgage on residential property made, insured, guaranteed, supplemented, or assisted in any way by any officer or agency of the federal government; including housing, urban development, or related programs administered by any federal officer or agency; as well as any residential mortgage purchased or securitized by Fannie Mae or Freddie Mac.
A. What retirement accounts are eligible for withdrawals or increased loans?
Individual retirement accounts and annuities under 26 USC 408(a) & (b), annuity plans or contracts under 26 USC 403(a) & (b), eligible deferred compensation plans under 26 USC 457(b), and qualified trusts under 26 USC 401(a) are eligible for early withdrawals or increased loans until December 31, 2020. To receive an early withdrawal or larger loan, an individual must certify to the plan administrator that the individual is diagnosed with COVID-19, the individual’s spouse or dependent is diagnosed with COVID-19, or the individual is experiencing adverse financial consequences because of COVID-19 caused quarantine, layoff, reduction in hours, lack of child care, or closure or reduction in hours of operation of a business the individual owns or operates.
B. How much can I withdraw or receive as a loan from my retirement account without penalty?
Generally, withdrawals from retirement accounts prior to age 59 ½ are subject to a 10% penalty and loans from retirement accounts are capped at either half of the value of the retirement account or $50,000, whichever is lower (except the cap must be at least $10,000).
Under the CARES Act, however, individuals may withdraw up to $100,000 or take a loan of up to $100,000 or the full value of the retirement account, whichever is lower, from eligible retirement funds.
C. When do I need to repay my withdrawal or loan?
Individuals have the option of repaying withdrawals, but they do not need to, however. If they do not repay it, normal income taxes on the amount of the withdrawal is owed, although this tax liability can be spread over 3 years. If the individual does repay the withdrawal, the amount of the withdrawal is not included for income tax purposes. Repayments can be made at any time within 3 years after the day following the date of withdrawal.
Generally, loans from retirement accounts must be repaid within 5 years. The CARES Act provides that any payments that would normally be due before December 31, 2020 are delayed 1 year, and any payments delayed by this rule do not count towards the 5-year limit.
A. How are charitable contribution deductions changed under the CARES Act?
A limited amount of qualified charitable contributions are above-the-line tax deductions under the CARES Act, meaning taxpayers can deduct charitable contributions while taking the standard deduction. In addition, taxpayers who do itemize can deduct a larger share of their income using qualified charitable contributions.
B. What charitable contributions are qualified?
Only contributions made in cash in 2020 to public charities and private operating foundations are qualified. Contributions to supporting organizations, donor advised funds, and otherwise qualifying contributions that are carried over from previous years are specifically excluded.
C. How large of a charitable contribution deduction is available under the CARES Act?
The above the line charitable contribution deduction is limited to $300. Taxpayers who itemize, however, can use qualified charitable contributions to deduct up to 100% of their adjusted gross income.
A. What student loan payments are exempted from my income?
The exemption for employer educational assistance programs is temporarily expanded to include payments that go towards student loans. Payments by employers before January 1, 2021, either directly to a lender or to the employee, for principal or interest on most student loans (incurred for the employee’s education, not spouses or children) do not constitute gross income of the employee. The maximum amount of this exemption is $5,250.
B. What are the requirements for exempting student loan payments?
The other requirements for educational assistance programs are still applicable, however. The payments must be made under a separate written plan, therefore, and no more than 5% of the payments under the educational assistance program can go to owners with more than a 5% share of the company. Also, the program must not require recipients to choose between participating in the program and receiving other compensation that would be includible in gross income.
What if I have other questions?
There are resources available from the IRS and the Department of the Treasury. The state of Michigan has also provided some resources, and maintains a Frequently Asked Questions page for employees. If you need more help, the experienced attorneys at Gielow, Groom, Terpstra & McEvoy in Muskegon are closely following the CARES Act and other legislation, regulations, guidance, and executive orders related to COVID-19 as they are updated, so we are well-equipped to help with any questions you may have.
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