CARES ACT – INDIVIDUALS

Recovery Rebates

The CARES Act provides a refundable income tax credit against 2020 income of up to $2,400 for married couples filing a joint return, while all other filers begin with a refundable credit of up to $1,200. The credit amount may increase by up to $500 for each child a taxpayer has under the age of 17.

The applicable Adjusted Gross Income (AGI) threshold amounts are as follows:

• Married Joint: $150,000

• Head of Household: $112,500

• All Other Filers: $75,000

For taxpayers with AGI above the thresholds, the rebate is reduced by $5 for every $100 over the threshold amount. Even though this is technically a 2020 refundable rebate, the AGI used to determine if you will receive a rebate is based on your most recent tax return, either 2018 or 2019. If the most recent return on file was over the threshold and disqualifies you for the rebate right now, it is possible that when you file your 2020 tax return, you could qualify at that time and receive the rebate after your 2020 taxes are filed. This lower 2020 income could be due the economic downturn, not having to take RMDs, realizing losses, or other strategies for reducing gross income.

While we do not know the date by which the IRS will determine the tax return filed (either 2018 or 2019), if your 2018 AGI was below the threshold but 2019 is projected to be over the threshold, you may want to talk to your tax professional about holding off filing taxes until the extended tax deadline. Conversely, if your 2018 AGI was over, but 2019 AGI will be under the thresholds, then you may want to file taxes sooner. If you receive a Recovery Rebate and you are later determined to be over the threshold based on your 2020 tax return, you are not going to be required to pay that rebate back.

If you receive Social Security, your Recovery Rebate will be sent to you the same way your Social Security check is sent – usually a direct deposit into your bank account. The exact timeline of when to expect rebates is not determined at this time, but could take several weeks before they are paid out to taxpayers.

The CARES Act and Unemployment

The CARES Act seeks to provide relief for both workers and employers impacted by COVID-19. One of the pieces of the CARES Act is the “Relief for Workers Affected by Corona Virus Act” (RWACA). RWACA provides additional support to states and individuals through unemployment benefits. The additional support is provided based on the unemployment “Tiers” listed below. Basically, an individual receives their calculated state unemployment benefit plus $600 in weekly Federal Pandemic Unemployment Compensation (FDUC) under the Act. The Act also allows for individuals that were previously ineligible for unemployment, such as the self-employed, independent contractors and gig workers to collect unemployment. As of April 6, 2020, States are still waiting on further details from the U.S. Department of Labor before they can implement the changes allowed for in the CARES Act.

Tier One: Emergency Increase in Unemployment

• If the individual qualifies for unemployment under state law, they also qualify for an additional $600 weekly through July 31, 2020

Tier Two: Extension of Emergency Unemployment Compensation

• If the individual qualifies for unemployment benefits under state law and has exhausted such available state benefits, then an individual may qualify for up to a 13-week extension

provided that the individual is available to work and actively seeking work, even if the state’s unemployment insurance program does not require it

• The benefit is the same as under Tier One: the state’s weekly unemployment benefit plus the $600 FDUC.

• The 13-week extended unemployment benefits under Tier Two are only available through December 31, 2020.

Tier Three: Pandemic Unemployment Assistance

• An individual who is not eligible for unemployment benefits under state law, or who has exhausted state unemployment benefits may still qualify for unemployment benefits under RWACA, under the same calculus of the state’s weekly unemployment benefit plus the $600 FDUC

Even if the individual is not actively seeking work, provided they qualify as a “covered individual” under RWACA.

• Generally, to be a “covered individual” qualified for unemployment benefits under RWACA, an individual must not be entitled to paid sick leave or other paid benefits and must be available to work but remain unemployed, partially employed, or unable to work (or telework) because:

1. The individual is diagnosed with COVID–19 or is experiencing symptoms of COVID–19 and seeking a medical diagnosis;

2. A member of the individual’s household has been diagnosed with COVID–19;

3. The individual is providing care for a family member or a member of the individual’s household who has been diagnosed with COVID–19;

4. A child or other person in the household for which the individual has primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of the COVID-19 public health emergency and such school or facility care is required for the individual to work;

5. The individual is unable to reach the place of employment because of a quarantine imposed as a direct result of the COVID-19 public health emergency;

6. The individual is unable to reach the place of employment because the individual has been advised by a health care provider to self-quarantine due to concerns related to COVID–19;

7. The individual was scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of the COVID-19 public health emergency;

8. The individual has become the breadwinner or major support for a household because the head of the household has died as a direct result of COVID–19;

9. The individual has to quit his or her job as a direct result of COVID–19;

10. The individual’s place of employment is closed as a direct result of the COVID–19 public health emergency; or

11. The individual is self-employed, seeking part-time employment, does not have sufficient work history or otherwise would not qualify for state or federal benefits but fits within one of the above categories.

The unemployment benefits under Tier Three apply to benefits beginning as early as January 27, 2020, and are only available through December 31, 2020 (capped at 39 weeks including any week in which the individual otherwise received benefits).

RWACA also provides assistance for states that waive the one-week waiting period for unemployment benefits. For those states, the federal government will refund states through December 31, 2020. This provision will further encourage states that are not already waiving the waiting period to do so. The Department of Labor will soon issue more guidance on RWACA.

Most of the above information came from this article: https://www.haynesboone.com/alerts/relief-for-employers-and-workers-under-the-cares-act