Four New Retirement Tax Breaks
Key benefits under the CARES Act
Some good news: The new stimulus law signed on March 27—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—provides substantial benefits for participants in qualified retirement plans and IRAs. Following is a summary of four new tax breaks for retirement-savers relating to the CARES Act.
1. Required minimum distributions: Generally, under the latest rules, participants in qualified retirement plans and IRAs have to begin taking required minimum distributions (RMDs) after age 72 (after age 70½ prior to 2020). But the CARES Act suspends this requirement for all RMDs, including those from inherited accounts, in 2020.
If you receive a distribution from a qualified plan or IRA, you normally have 60 days to roll it over to another plan or IRA without any tax liability. The IRS has extended this deadline to July 15 for RMDs taken between February 1 and May 15. You may recover withholding amounts on your 2020 return. Additional guidance is expected relating to distributions made in January.
2. COVID-19 distributions: If you make a withdrawal from a qualified plan or IRA before age 59½, you are hit with a 10% penalty tax on top of regular income tax, unless an exception applies. However, the CARES Act carves out special rules for COVID-19 related distributions.
Notably, a qualified plan or IRA participant does not have to pay the penalty tax on distributions of up to $100,000 in 2020 if he or she (or a spouse) is diagnosed with COVID-19 or experiences adverse financial consequences due to the coronavirus (e.g., being laid off, having hours reduced or being quarantined or furloughed).
The resulting tax on the distributions is spread out over three years. If you repay the full amount of the distribution within the three-year period, you avoid any tax liability. These distributions are not affected by the limits on IRA contributions.
3. Retirement plan loans: The CARES Act enhances the rules for loans from certain qualified plans, like 401(k) plans, made between March 27, 2020 and September 23, 2020. Specifically, the new law—
· Doubles the maximum loan amount from $50,000 to $100,000 and allows participants to take 100% of their vested benefit as a loan. The usual limit is 50% of the vested balance.
· Extends the due date for loan repayments due in 2020 by one year for an effective maximum repayment period of six years.
4. IRA contributions: Although not expressly included in the CARES Act, the deadline for filing 2019 tax returns and paying the requisite tax has been extended by the IRS from April 15 to July 15. Subsequently, the IRS also established July 15 as the deadline for making contributions to traditional and Roth IRAs. Thus, you still have time to make a contribution for the 2019 tax year.
These are just four new benefits for retirement plan and IRA participants. It is expected that the IRS will provide more clarity soon and address the current rules limiting IRA rollovers to one per year. Stay tuned for more developments.
Practical Ideas for Managing Remote Workers
Five ways to increase efficiency
Due to the COVID-19 outbreak, you may be managing workers from remote locations for the first time or to a much greater extent than before. This presents several challenges, including lack of face-to-face contact, limited access to information and other complications, including potential distractions and social isolation.
Practical advice: Develop a sensible plan for managing remote workers. Here are five tips for improving efficiency.
1. Check in regularly. Many business managers have found it beneficial to touch base with employees each day. For instance, you might set up a morning call for a team if your work is highly collaborative or schedule a series of one-on-one calls with key personnel. With this predictability, employees know they have a forum for consulting with you and getting answers to critical questions.
2. Rely on technology. Email alone may not be enough for in-depth communication. Video conferencing often provides visual cues that can influence decision-making. This may also preferable for addressing certain complex or sensitive issues. There are numerous options for companies that need to use video conferencing or chat or instant messaging functionality (e.g., Zoom, Slack and Microsoft Teams). But be sure to address security issues.
3. Set the parameters. Remote work becomes more efficient when managers establish rules for the frequency, means and timing of communications. For example, set up the best practices for “putting out fires” as well as handling typical day-to-day activities. Try to keep an eye on communications between staffers to ensure vital information is being properly shared. Put these procedures in place as soon as possible.
4. Be social. In these difficult times, it is important to give employees an opportunity for at least a modicum of social interaction. Consider leaving time on daily calls—either at the beginning or end—that allows employees to catch up with each other. Some companies are being even more creative by organizing virtual pizza parties or similar events. However, when providing a means for social interaction, take into account the circumstances of employees (e.g., those who also have child care responsibilities).
5. Offer your support: Recognize that working remotely is an abrupt change for many employees. Check up on them at regular intervals. If someone is struggling in this environment, manage the situation with sensitivity. Do not assume that your way is always “the right way.” Solicit input from employees and make adjustments, when appropriate
Finally, understand that employees are looking to managers to set the tone for this “new normal.” Not only do effective leaders acknowledge the stress and anxiety that employees may be feeling, they also express confidence that their staff can hold down the fort when the going gets tough. By doing so, you are more likely to see positive results. Meet the challenges ahead and keep the company moving forward.
Insights Into Employee Retention Credit
Little-noticed provision in CARES Act
One of the key components of the new Coronavirus Aid, Relief, and Economic Security (CARES) Act has largely flown under the radar. The new law authorizes a tax credit—a dollar-for-dollar reduction of your tax bill— to eligible employers that retain workers during the COVID-19 outbreak.
Background: The employee retention credit equals 50% of the qualified wages an employer pays to employees after March 12, 2020 and before January 1, 2021. Eligible employers can benefit immediately by reducing payroll tax deposits that are otherwise due. Furthermore, if an employer’s current payroll tax deposits are not sufficient to cover the credit, it can obtain an advance payment from the IRS.
Only the first $10,000 of wages paid to an employee during the designated timeframe qualifies for the credit. As a result, the maximum credit is limited to $5,000 per employee—still a significant amount.
A business is eligible to claim the employee retention credit if either of these requirements are met during any calendar quarter:
· It fully or partially suspends operations during any calendar quarter because of government orders limiting commerce, travel or group meetings due to the COVID-19 outbreak; or
· It experiences a significant decline in gross receipts. For this purpose, a “significant decline” occurs when gross receipts are less than 50% of the gross receipts for the same calendar quarter in 2019.
The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations are suspended.
The definition of qualified wages depends on how many employees worked for the employer last year.
If an employer averaged more than 100 full-time employees during 2019, qualified wages generally are the wages (up to $10,000 per employee), including certain health care costs, paid to employees who are not providing services because operations were suspended or due to the decline in gross receipts. An employer can only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.
Conversely, if an employer averaged 100 or fewer full-time employees during 2019, qualified wages are the wages (up to $10,000 per employee), including health care costs paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services.
Note that an employer is not eligible for the employee retention credit if it receives a loan under the Paycheck Protection Program (PPP) created by the CARES Act. Similarly, a business cannot claim the credit for the same wages designated as the paid sick and family leave available under the Families First Coronavirus Response Act or the family and medical leave credit authorized by the Tax Cuts and Jobs Act (TCJA).
Practical advice: Consult with your tax advisor for the best approach for your particular situation.
Seven Coronavirus Scams to Avoid
Watch out for latest schemes
Unfortunately, the COVID-19 outbreak has resulted in an upswing in scams exploiting the fears or anxieties of victims. Following are seven such schemes making the rounds.
1. Stimulus payments: The Coronavirus Aid, Relief, and Economic Security (CARES) Act authorizes cash payments of up to $1,200 for single tax filers and $2,400 for joint filers (plus $500 per qualified child). Although stimulus payments started going out in April through direct deposit, you may not have received yours yet and are vulnerable to a scam.
A caller may pretend to be from a government agency and say he or she needs your personal information, such as your Social Security number (SSN) to process your check or request a payment. This scam may also target those who have already received payments.
2. Phishing: In a variation of the traditional “phishing” scheme, a scammer may email or call you claiming to be from the World Health Organization (WHO), Centers for Disease Control and Prevention (CDC) or another agency. They will ask for your SSN or other personal information or instruct you to click on a link to receive relief.
This gives the scammer access to your financial accounts. Do not clink on any emailed resource, even if it looks legitimate. Instead, go directly to a company’s website for resources.
3. Business emails: Typically, a person purporting to be the company president or other higher-up emails an employee in this scam. The email directs the employee to take financial action—for example, wiring money or transferring funds to a new account for purchasing gift cards.
It is easy to be fooled in the current environment. A similar type of email may come from an “IT tech” requesting a transaction.
4. Fake charities: You may be encouraged to make donations to charities during these trying times. However, scammers can exploit your generosity.
Usually, a fake charity will adopt a name close to the name of an actual organization. Do your homework before making donations.
5. Retail scams: With certain items like toilet paper, sanitizers and paper goods in high demand, scammers may pose as retailers. They claim to have what you need, but require you to present your credit card number. Then they run up charges on your account.
Only deal with retailers you know to be reputable. Be suspicious about deals that seem too good to be true.
6. Money mule schemes: Essentially, you receive an email purporting to be from an online dating site or job posting. It asks you to provide your bank account information that allows money transfers to flow through your account during the health crisis. Then they offer to pay you for your service or establish a romantic relationship.
Not only is being a money mule an illegal activity, it is also compromises your personal information. Do not be an unsuspecting participant.
7. Robo-calls: Those annoying robo-calls have escalated during the COVID-19 outbreak. For instance, a caller may offer masks or testing kits or other equipment at reduced rates. But then they request your credit card number and charge high fees for supplies you never receive.
A reputable company would not price-gouge customers in this way. Hang up on robo-calls or ignore them.
Reminder: These are just seven variations of COVID-19 scams. Remain vigilant and aware.
New Directions for NOLs
Previously, net operating losses (NOLs) could be carried back for two years before being carried forward for 20 years. Then the Tax Cuts and Jobs Act (TCJA) repealed the carryback rule, beginning in 2018, but allowed NOLs to be carried forward indefinitely, based on a limit of 80% of taxable income.
Update: The CARES Act allows a five-year carryback of NOLs arising in 2018, 2019 or 2020. It also suspends the 80% limit to 2021 as well as another rule relating to excess losses claimed by non-corporate taxpayers.
Now the IRS has provided detailed guidance for NOLs that are carried back under the CARES Act. Depending on the situation, it may make sense to file an amended return for an appropriate tax year.
This is a complex area of the law. Small businesses owners are advised to contact their tax advisors for assistance.
Facts and Figures
Timely points of particular interest
Estimated Taxes—Initially, the IRS postponed the deadline for filing 2019 tax returns from April 15 to July 15, along with the due date for the first quarter of estimated taxes for 2020 normally due on April 15. Now the IRS has announced it is also extending the estimated tax deadline for the second quarter of 2020 to July 15. Note: You can still apply for an automatic filing extension for 2019 returns to October 15.
Where’s Your Payment?—Similar to its “Where’s My Refund” feature, the IRS has launched a new online tool, “Get My Payment” at https://www.irs.gov/coronavirus/get-my-payment. It enables taxpayers to track the status of their stimulus payment if it has not yet been received. All you have to do is enter some basic information. The IRS says that the new tool, which has already been modified since its inception, will also allow taxpayers to update their information on file.
Small Business Relief—Congress approved additional funding for Small Business Administration (SBA) loans after the Payroll Protection Program (PPP) quickly ran out of money. The extra funding for small businesses totals $370 billion, with $310 billion going to the PPP, $50 billion to the SBA Economic Injury Disaster Loan (EIDL) and $10 billion to small business grants for disaster relief. In this go-round, amounts were also set aside for community banks, credit unions and community development financial institutions.