Ethan R. Okura
Hawai‘i Herald Columnist
Congress recently passed two very important federal laws that were signed into law by the president in response to the COVID-19/coronavirus outbreak. This column is a summary of key points that may be of benefit to you — my dear readers — and your family members.
The first law is called the “Families First Coronavirus Response Act,” or FFCRA. The second law is titled the “Coronavirus Aid, Relief and Economic Security Act,” or CARES.
What benefits do the FFCRA provide for my family and myself?
The primary benefit of the FFCRA is that it allows those directly affected by the coronavirus to receive sick leave pay for up to 12 weeks. If you are an employee who is unable to work or telework because you are either sick, quarantined or under a stay-at-home order related to COVID-19, then you can take up to two weeks (80 hours) of paid leave between April 1 and Dec. 31, 2020.
Employees can also receive an additional 10 weeks of paid leave at two-thirds their normal salary (or a total of 12 weeks if they are ineligible for the first two weeks at full pay) if they have to take time off to care for a child whose school or day care is closed, or if they need to care for a sick family member or a loved one who is quarantined or under a COVID-19-related isolation order by the government or their health care provider.
However, the FFCRA only applies to businesses with fewer than 500 employees. Companies with over 500 employees are exempt from the requirement to provide paid sick leave. Their employees cannot require it of the company.
If the company you work for has less than 50 employees, it is considered a “small business” and can apply for an exemption so that it, too, will be excluded from the requirements of this act.
The first two weeks of sick leave at “full” pay is capped at $511 per day, or a total of $5,110 for the two weeks. The 10 or 12 weeks leave at two-thirds pay to care for another sick individual or child who is out of school is capped at $200 per day, or $12,000 total, for a 12-week period.
If you are an employer, the good news is that you will not be stuck footing the bill on your own. The government is providing a 100 percent refundable tax credit to employers for salaries and health care (up to the aforementioned limits) paid under the FFCRA.
What About the CARES Act?
• Individual Tax Rebates Under CARES. The CARES Act provides a refundable tax credit as a recovery rebate economic stimulus “bonus.” It’s a bit confusing because this rebate applies to your 2020 tax return, but is being advanced now based on your 2019 or 2018 (if you haven’t yet filed your 2019) tax returns. An unmarried tax filer with an adjusted gross income, or AGI, of less than $75,000 will qualify for a $1,200 rebate. The only requirement for this rebate is that you have a Social Security number and that you not be a dependent of another taxpayer.
The AGI limits are $150,000 for married couples filing jointly and $112,500 for those filing as the head of a household. There is an extra $500 rebate for each of your dependent children. If your income is more than the limits mentioned above, your rebate phases out at a rate of $50 for every $1,000 of AGI above the limit. In other words, your rebate is reduced by $50 for each $1,000 in income you have above $75,000, $112,500 or $150,000, depending on your tax filing status.
Even if you had no income whatsoever, you are still eligible for the $1,200 rebate as long as you filed a tax return. Generally, you are not eligible to receive the rebate if you did not file a return unless you are a recipient of Social Security retirement, railroad retirement or Social Security Disability Insurance (SSDI). Low-income workers, certain veterans and individuals with disabilities, who are not required to file a return, can still qualify for the rebate, but may have to take extra steps if they do not file a return. The IRS hasn’t yet provided guidance on this, but we expect it soon.
If your 2019 AGI (or 2018 AGI for those who haven’t yet filed for 2019) exceeds the income limit and you are phased out, you will not receive an advance now. However, you may still qualify for the rebate on your 2020 tax return as long as your 2020 income is under the limit. This won’t provide immediate relief, but it will help those whose income dropped significantly in 2020 as a result of the current pandemic.
• Individual Retirement Account Benefits Under CARES. If you were over age 70 ½ in 2019 and would normally have been required to take a required minimum distribution, or RMD, from your IRA, 401(k) or other pretax retirement account, there’s good news: You are not required to take an RMD in 2020. You can if you need it, but those who don’t need it might be better off not cashing out their investments while the market is down. It could benefit you more to wait until the market recovers before liquidating stocks, mutual funds, ETFs or other investments that have been hurt by the current economic situation.
Additionally, if either you or your spouse were diagnosed with COVID-19 or have suffered economic hardship due to your being quarantined, laid-off, furloughed or unable to work due to a lack of child care as a result of COVID-19, you can take up to $100,000 from qualified retirement plans, including IRAs, without the 10 percent early withdrawal penalty.
This penalty normally applies if you are under age 59 ½ when you take out retirement funds. You will still owe the income tax on the distribution, but you can spread those taxes out over your returns for the next three years, or you can even return those funds to your retirement account over the next three years. If you do the latter, it will be considered an “eligible rollover” and no taxes will be owed on the returned portions of the distribution and the amounts can continue to grow tax-deferred in the retirement account once you have paid them back.
Employer Benefits Under CARES
The biggest benefit to employers is the Paycheck Protection Program loans under the Small Business Administration. It allows employers to receive a forgivable loan at 1 percent interest for two years. The amount of the loan is up to 2.5 times the business’ average monthly payroll expenses. As long as the loan is used for payroll costs — including health insurance, state taxes and other expenses directly related to payroll — the federal government will forgive the loan. Up to 25 percent of the loan amount can actually be used for rent, mortgage interest expense or utilities, and the loan is still forgivable. The loan does not require the business owner to make a personal guarantee and the federal government is guaranteeing this loan 100 percent so that banks are incentivized to issue these loans with minimal underwriting. Most banks are eligible to issue these loans if they already participate in the SBA’s “7(a) loan” program. These loans can be partially forgiven even if all requirements are not fully met. Additionally, there are certain restrictions regarding how much can be paid in payroll per employee. The employer must also maintain at least 75 percent of the historical payroll to qualify for full loan forgiveness.
As always, if you need help with any of these matters, do not hesitate to call our offices for appropriate guidance. Please stay safe and avoid leaving home and making contact with others as much as possible. It may save the life of an elderly or sick person you don’t even know.
© OKURA & ASSOCIATES, 2020
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Ethan R. Okura received his doctor of jurisprudence degree from Columbia University in 2002. He specializes in estate planning to protect assets from nursing home costs, probate, estate taxes and creditors.
This column is for general information only and is not tax or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.