As I’m sure all of you are aware, Congress passed legislation sending money to Americans, along with a lot of other tax related components. Here’s a summary.
The Stimulus: Each non-dependent will receive a $1,200 “Recovery Rebate” provided their Adjusted Gross Income (AGI) is $75,000 (single) or less; this doubles if married, and the phase-out begins at $112,500 if “Head of Household”. Above this level, it lowers by $50 per $1,000 earned. Thus, it phases out at $99,000 (single) and $198,000 (MFJ). There is an additional $500 for each child dependent.
The IRS will use 2019 AGI to determine the payment. If you have not filed 2019, the IRS will look at 2018. Let’s say you’re ineligible based on both 2018 and 2019, but this year’s income would make you eligible. You will get a refundable tax credit on your 2020 tax return.
The payment does not have to be paid back. Assume your AGI in 2019 is $70,000 (single), but in 2020 it’s $170,000; you do not have to pay back the $1,200.
The IRS will also look at social security records for seniors who don’t have a filing requirement.
UPDATE: The IRS announcement on how the payments will be made states that in order to obtain the stimulus payments, you must file a tax return. I have a short blog post on this lousy development.
UPDATE: The IRS reversed course, and now will look at social security records for senior and others who don’t normally file tax returns.
When will the stimulus come? Back in 2008 with stimulus checks, direct deposits were distributed from May 2 to May 16 with paper checks sent from May 16 to July 11. Note that the stimulus was passed in February, so it took ten weeks for distribution of checks. While Secretary of the Treasury Mnuchin is hoping to see distribution starting in April, I strongly suspect we’re looking at late May at the earliest, with June far more likely. (I will update this once a schedule is announced.)
UPDATE: In a press release today, the IRS states that the checks will begin to be distributed “in the next three weeks”. The IRS plans to offer a web based system for individuals to provide their banking information if it’s not on file. See the press release here.
Can I game the system? I made a lot more in 2019 than 2018. Yes, you can. You can file an extension on your 2019 taxes (paying the tax you owe by July 15th), and then file your return you owe later. The IRS will look at your 2018 return.
Unemployment Insurance: The legislation includes an expanded $600 per week of benefits for up to four months, and federal funding of benefits for those who are not normally eligible for unemployment (such as independent contractors and the self-employed). Additionally, the federal government will fund an additional 13 weeks of unemployment through year-end for those whose state benefits have ended.
I’m self-employed (or a professional poker player). Can I apply for unemployment? Yes, but don’t be surprised if there are issues. Unemployment is handled by each state (in Nevada, it’s by the Department of Employment, Training, and Rehabilitation). DETR has a special page for benefits for COVID-19 (I assume most states do). But remember, it may take a while for the bureaucrats to fully implement the new law.
Estimated Tax Deadline: The first three quarters of federal estimated tax payments are due on October 15, 2020.
UPDATE: The first quarter federal estimated tax payment is due on July 15th; second quarter is due on June 15th. I was sent the wrong version of the final legislation.
SBA Loans (Paycheck Protection Program). Small businesses may take out loans up to $10 million to cover payroll and other expenses from February 15 to June 30. Loans can be forgiven in certain situations.
Unfortunately, SBA loans are a pain. In good times these take many weeks to be processed. While I’m hopeful we’ll see a nimble SBA, don’t count on it.
SBA loans work through banks that have partnered with the SBA, so check with your financial institution to see.
UPDATE: SBA Paycheck Protection Program loans can be applied for beginning Friday, April 3rd for sole proprietors and small business owners and on Friday, April 10th for independent contractors and the self-employed.
Can a Professional Gambler Apply for an SBA Covid-19 Loan? No, the guidelines specifically prohibit loans to anyone who receive more than one-third gross annual revenue from legal gambling activities. (This provision also prohibits small casinos from such loans.) (My thanks to @NotWittyQuips on Twitter for pointing this out.)
Other Individual Tax Changes: There were some other changes that will benefit Americans:
- IRA Required Minimum Distribution rules are waived for 2020.
- There are no 10% early withdrawal penalties on most retirement account distributions for 2020.
- Some employer payments of up to $5,250 for student loans are not income for employees in 2020.
- There is a new up to $300 charitable contribution deduction that will be taken on the face of Form 1040 (likely as an “Adjustment to Income”) for those who do not itemize their deductions. This new deduction is permanent.
Net Operating Losses: Businesses (and it appears) individuals can take Net Operating Losses (NOLs) from 2018, 2019, or 2020 and fully carry them back two to five years. Note that this provision is retroactive, so a firm with an NOL in 2018 can amend their previous 2013 – 2016 return(s) to receive a refund. The 80% limit was suspended as part of this legislation.
I’m a professional poker player and had an NOL in 2018 from my business expenses. Can I take the NOL? No, the legislation did not change the 2017 provision that overrode the Mayo v Commissioner decision.
Other Business Provisions: There are many other business provisions contained in the legislation:
- Employers are eligible for a 50% refundable payroll tax credit on wages paid up to $10,000. The business must have a 50% (minimum) decrease in gross receipts as compared to the previous year (looked at by quarter). The credit is available for all wages for firms with 100 or fewer employees, and for employees retained but not working for employers with more employees.
- The Net Interest Deduction Limitation is changed from 30% of earnings before EBITDA to 50% of earnings before EBITDA.
- The excise tax on alcohol to produce hand sanitizer is waived for 2020.
- Employer payroll tax payments may be delayed until January 1, 2021 with 50% of the deferred amount due on December 31, 2021 and the other 50% due at the end of 2022.
- Corporation federal estimated taxes are delayed until October 15, 2020.
Pork: It’s Congressional legislation, so there’s pork in the bill. Someone else can talk about that, but I’d guess $200 billion is wasted on that.
I’m sure I’ve missed some items–the legislation is 880 pages long. There’s a four page summary of tax provisions. The Tax Foundation has a good summary of the legislation, too. Remember, federal legislation changes the federal tax code. Some states will conform with all of the legislation; some will not conform at all.
Tags: 2020.Tax.Season