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How Does the CARES Act Impact Me?
How Does the CARES Act Impact Me?
By: Catherine A. Ray
In this unprecedented time, we want to discuss a few other changes that come with the passing of the CARES Act, in addition to the changes discussed in our previous newsletters Coronavirus, Aid, Relief, and Economic Security (CARES) Act and Retirement Plan Update – Modified Distribution Rules under the CARES Act. We hope these changes will provide valuable information to you, our clients, in addition to your families, friends, and employees.
1) Direct Rebate Payments (“Where’s my check?”).
The most popular CARES Act topic is undoubtedly the direct rebate payment checks expected to be distributed to eligible individuals in coming weeks.
Eligible individuals may receive a credit, in the form of a direct rebate payment, up to $1,200.00 ($2,400.00 for taxpayers filing jointly), in addition to $500.00 for each qualifying child of such taxpayer. Eligible individual taxpayers who had an adjusted gross income (“AGI”) of $75,000.00 or less ($150,000.00 for joint filers; $112,500.00 for head of households) in the 2019 taxable year (2018 for eligible individuals who have not filed their 2019 tax return) will generally receive full direct rebate payments. However, for those taxpayers that exceeded the aforementioned limits, the credit is reduced by 5% of the exceeded amount.
For instance, a single taxpayer who is otherwise eligible to receive up to $1,200.00, but who’s AGI for the 2019 taxable year was $100,000.00, would be ineligible to receive a direct rebate payment, as the credit would be reduced by 5% of the exceeded AGI, totaling $1,250 ($1,200 max – $1,250 = $0 payment). However, a single taxpayer, who has not yet filed his 2019 tax return and who’s AGI in 2018 was $82,000.00, would receive a direct rebate payment of $900.00 ($1,200 max – $300 = $900.00 payment).
Nonresident aliens, individuals who qualify for a deduction on another taxpayer’s taxable return (i.e., a college student whose parents claimed her as a dependent on their joint tax return filing), and trusts and estates do not qualify for a direct rebate payment.
Otherwise eligible individuals will not receive a direct rebate payment unless such taxpayer, his/her spouse (if filing jointly), and child’s (if eligible for a child credit) valid social security number is included on the taxpayer’s 2019 (or 2018 if applicable) tax return.
The Internal Revenue Service (“IRS”) has released additional information on payments in the last few days.
2) Charitable Deductions/Limits.
The CARES Act provides a new above-the-line deduction for charitable contributions and temporarily modifies charitable deduction limits.
To qualify for the new above-the-line deduction, the charitable contribution must be made in cash by taxpayers who elect not to itemize. If the taxpayer qualifies, a deduction of up to $300.00 may be made to a qualified charity (not including a donor-advised fund). Eligible taxpayers may take this deduction in taxable years beginning after December 31, 2019.
The CARES Act also temporarily suspends and replaces the charitable deduction limits with more generous limitations on certain cash charitable contributions made in the 2020 taxable year. To qualify for these modified limits, charitable contributions must be made in cash during the 2020 calendar year to a qualified charitable organization (not including a donor-advised fund) and the taxpayer must elect, or in other words opt-in, to use the modified limitations. For individuals, the CARES Act now allows a deduction up to 100% of the individual’s AGI. For corporations, the CARES Act removes the 10% AGI limit and replaces it with a 25% AGI limit.
Charitable deduction limits have also been temporarily increased for food contributions to qualified charitable organizations.
3) Single-Employer Defined Benefit Plan Minimum Funding Rules.
Good news for Plan Sponsors of single-employer defined benefit plans with minimum funding requirements. The due date for minimum required contributions (including quarterly contributions) otherwise due during the 2020 calendar year has been extended to January 1, 2021. However, payment at such time will be adjusted to include interest (using the effective rate under the Plan) accrued from the original due date to the payment date.
Plan Sponsors may also elect to treat the Plan’s Adjusted Funding Target Attainment Percentage (“AFTAP”) for the last Plan Year ending before January 1, 2020, as the AFTAP for Plan Years which include calendar year 2020.
4) Foreclosure Moratoriums and Mortgage Payment Relief.
Borrowers experiencing a financial hardship due to the COVID-19 emergency may request forbearance on federally backed mortgage loans (regardless of delinquency status) by submitting a request to their servicer and attesting they are experiencing a financial hardship during the COVID-19 emergency. This applies to mortgages loans secured on residential real property (including individual units of condominiums and cooperatives; and properties comprising of up to 4 dwelling units). Forbearance shall be granted up to 6 months, and can be extended an additional 6 months at the borrower’s request. The servicer may not require additional documentation other than the borrower’s attestation of financial hardship due to COVID-19 and may not charge additional fees, penalties, or interest beyond the amounts scheduled or calculated as if the mortgage was paid timely and full under the terms of the mortgage contract.
In addition, servicers of a federally backed mortgage loan may not initiate foreclosure (judicial, non-judicial, judgement, or order of sale) or execute a foreclosure-related eviction or sale until at least May 17, 2020.
Multifamily borrowers (borrowers of a residential mortgage loan secured by a property comprising of 5+ dwelling units) with a federally backed multifamily mortgage loan may also request forbearance, so long as the borrower was current on its payments as of February 1, 2020, submits an oral or written request to its servicer, and affirms he/she/it is experiencing financial hardship during the COVID-19 emergency. The forbearance period for multifamily borrows is up to 30 days, which can be extended up to 2 additional 30-day periods upon request at least 15 days prior to the end of the original 30-day forbearance period. During the period of forbearance, multifamily borrowers may not evict a tenant or issue a notice to vacate solely for missed rent or other fees and charges, or charge tenants any late fees, penalties, or other charges for late rent payments.
Finally, the CARES Act places a 120-day nationwide eviction moratorium for renters for nonpayment of rent to landlords who have federally backed mortgages, regardless of whether the borrower requests forbearance as described above. During this time period landlords are forbidden to charge any late fees or penalties for delinquent rent payments.
5) REAL ID Extended Enforcement Deadline.
The CARES Act includes some relief for those of you who have not yet obtained your REAL Identification Card (“REAL ID”). The CARES Act directs the Department of Homeland Security (“DHS”) to extend the enforcement date to at least September 30, 2021. DHS has since announced the new enforcement deadline is October 1, 2021.
