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Coronavirus Relief – Sorting Through the CARES Act

On March 27, Congress passed the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, the third piece of relief legislation tied to the Coronavirus outbreak.  With an estimated $2.2 trillion cost, it is the largest fiscal stimulus in the history of the U.S.—more than twice as large as the 2009 American Recovery and Reinvestment Act.  The nearly 900-page bill provides for a wide range of emergency financial assistance to blunt the impact an unprecedented economic slowdown—the result of social distancing measures implemented to slow the virus' spread.  Below are some of the highlights applying specifically to workers, investors, retirees, and small business owners. 

Benefits for Individuals/Workers

Direct Cash Payments

Technically, this "Recovery Rebate" is a refundable tax credit based on reported income for 2018 (or 2019, if already filed).  The maximum rebate is $1,200 for individuals making less than $75K and $2,400 for married couples making less than $150K.  Additionally, taxpayers will receive up to $500 for each child under the age of 17.  The benefit phases out for higher-income filers (see chart below), but an estimated 90% of taxpayers should get at least some relief:

For the approximately 85% of taxpayers who e-file, relief rebates will be sent automatically via direct deposit beginning April 9.  Those without ACH instructions on file will receive a paper check (est. 6-8 weeks). To estimate the amount of your rebate, use this helpful calculator from the Tax Foundation

Expanded Unemployment Insurance (UI):  

The CARES Act extends the amount, duration, and eligibility criteria for UI.  For the first time, self-employed, independent contractors, and other "gig" workers are eligible to collect benefits. Moreover, the Federal government is adding an extra $600/week (for up to 4 months) on top of states' benefits. Finally, the CARES Act underwrites an additional 13 weeks of Federal unemployment insurance, once the state's expires.  

Postponement of Tax Filing Deadline:  

The deadline for filing and paying your 2019 Federal tax return has been pushed back to July 15.  Many states (including CA) have postponed their state filing deadline to match. 

Additionally, Q1 2020 estimated tax payments (ordinarily due April 15) can be deferred until 7/15, without penalty or interest.  (Note: Q2 Estimated Tax payments are still due 6/15, as of now). Finally, keep in mind that if you expect a refund on your 2019 return, it would be better to file as soon as possible. 

$300 Charitable Deduction

The 2017 Tax Cuts & Jobs Acts (TCJA) doubled the standard deduction, thereby reducing the number of filers who benefit from itemized deductions (including charitable deductions).  The CARES Act restores a limited $300 "above-the-line" charitable deduction—even for those who do not itemize.  A couple of caveats: donations must be made directly to a qualified charity (not to a donor-advised fund) and paid in cash, to be eligible for deduction. 

Benefits for Investors & Retirees

Coronavirus-Related Distributions:  

Those meeting any of several (generally broad) criteria in terms of negative impact from COVID-19 are eligible to withdraw up to $100K (in aggregate) during 2020 from their 401K or IRA accounts, while enjoying special tax benefits, including:

  • Waived 10% penalty for early withdrawals (for those under age 59.5)
  • Waived 20% mandatory minimum tax withholding on employer-sponsored plan distributions
  • Distributions can be paid back into the retirement account within three years

To the extent that 2020 distributions are not repaid, the associated taxable income can be spread over three tax years (2020-22).  (Reminder: if you expect to be in a much lower marginal tax bracket in 2020 due to COVID-19 disruptions, it may be worthwhile to front-load more of the taxable income this year)

2019 IRA Contribution Deadline

Consistent with the tax-filing deadline being postponed to 7/15, investors will also have an extra three months to make 2019 IRA contributions.  

RMD Waiver

Required Minimum Distributions (RMD) for 2020 are waived for both IRA and Inherited IRA accounts.  Moreover, any RMD amounts which have already been distributed in 2020 are eligible to be returned to the IRA account, within 60 days (or within the next three years, if the account holder fulfills the criteria for Coronavirus-Related Distributions, above).  

Benefits for Small Business

Paycheck Protection Program (PPP):  

Qualifying small businesses (those with < 500 employees) can obtain a low-interest loan through the Small Business Administration (SBA), for an amount equal to 2.5x their average monthly payroll (maximum: $10 million).  These loans carry a maximum interest rate of 4% and a 10-year term, with the first payment deferred for six months.  The loan can be used for a variety of operational expenses, including payroll/salary, group health insurance, mortgage interest, utilities, and rent. Even better, if the business maintains payroll for at least eight weeks following initiation of the loan, the debt can be forgiven (in whole or in part), without any of the forgiven amount being taxable income. For more details, read this frequently-updated FAQ from the Washington Post. For help finding an eligible SBA lender, consult the SBA PPP website.  

Economic Injury Disaster Loan (EIDL) Emergency Advance:  

Also administered by the SBA, this program allows small business owners in all 50 states impacted by COVID-19 to access an emergency loan advance of up to $10K (effectively a grant, since it does not need to be repaid). Apply for EIDL via the SBA website, here.

Employee Retention Payroll Tax Credit:  

A refundable tax credit for employers who continue to pay wages while their business is "fully or partially" suspended because of COVID-19 or whose gross receipts decline by more than 50%." The credit is calculated as 50% of wages, up to $10K of wages per employee.  Employers can immediately claim the credit by reducing the amount of payroll taxes withheld. Note: businesses availing themselves of one of the SBA relief programs above are ineligible for the Payroll Tax Credit.  More details here and here.      

Payroll Tax Deferral

Businesses can defer 50% of payroll taxes for the balance of 2020, with half of that amount delayed to 12/31/21 and the other half postponed to 12/31/22. 

Importantly, self-employed individuals are also eligible for this deferral (on the "employer" portion of their payroll taxes).  Note: Participants in the SBA Payment Protection Program are excluded from this benefit, so consider carefully whether that program—or others which eliminate or reduce payroll taxes, vs. simply deferring them—would have a greater benefit.

Additional Resources:

Tax Foundation Rebate FAQ:  https://taxfoundation.org/federal-coronavirus-relief-bill-cares-act
US Treasury Coronavirus Response: https://home.treasury.gov/coronavirus
IRS Coronavirus Tax Relief: https://www.irs.gov/coronavirus

If you’re not sure how these might apply to you, give us a call. We’ll help you review the available provisions.


One of Bristlecone Value Partners’ principles is to communicate frequently, openly and honestly. We believe that our clients benefit from understanding our investment philosophy and process. Our views and opinions regarding investment prospects are "forward looking statements," which may or may not be accurate over the long term. While we believe we have a reasonable basis for our appraisals, and we have confidence in our opinions, actual results may differ materially from those we anticipate. Information provided in this blog should not be considered as a recommendation to purchase or sell any particular security. You can identify forward looking statements by words like "believe," "expect," "anticipate," or similar expressions when discussing particular portfolio holdings. We cannot assure future results and achievements. You should not place undue reliance on forward looking statements, which speak only as of the date of the blog entry. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Our comments are intended to reflect trading activity in a mature, unrestricted portfolio and might not be representative of actual activity in all portfolios. Portfolio holdings are subject to change without notice. Current and future performance may be lower or higher than the performance quoted in this blog.

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