On Friday, March 27, after a lot of political jostling, late-night compromise, and a quick signature from the President, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed and implemented into law. This legislation contains a very broad spectrum of relief and I’ve done my best to summarize it below. While there is a lot of detail in the following paragraphs, please note that this is actually a very high level of summary and we are still awaiting guidance on how to enforce or enact many of these forms of relief.
One key component is the Paycheck Protection Program (PPP) designed to keep small businesses afloat during mandated closures caused by this pandemic. This program involves “potentially forgivable” loans extended to businesses to help them maintain payroll during this crisis. While a lot of the detail around this program will be coming from the Small Business Administration (SBA) over the next several weeks, here is what we know:
The CARES Act has also created a “deferral period” for payroll taxes that begins on March 27, 2020 and runs through the end of the year. The employer portion of the Social Security tax can be deferred. Note: This is a deferral only, not a tax waiver. These taxes must be paid in the following two years (2021 and 2022). Of course, this tax is only applicable to those who are subject to the Social Security tax withholding. Finally, this deferral is NOT available to any organization that has had a PPP loan forgiven. For this reason, our legal partners are advising any organization seeking a PPP loan to refrain from deferring these taxes.
The Act also allows self-employed individuals to defer payment of part of the Social Security taxes, and clergy are, by IRS code, considered self-employed for employment tax purposes. Since clergy generally pay SECA (self-employment) tax instead of sharing the Social Security tax payment with their employer, the Act will allow them to defer the “employer portion” of this tax (6.2%). They will still have to pay the “employee portion” (also 6.2%) in a timely manner. Again, if you are considering a PPP loan, it would be advisable to keep paying the full portion of taxes until further guidance arrives.
Finally, the Act also allows employers with 100 or fewer full-time employees access to a refundable credit against certain employment taxes of up to $5,000 per employee in 2020. The applicable taxes are, again, the employer portion of Social Security taxes, but reduced by varying factors such as paid sick leave or family leave.
Another area of focus in the CARES Act is a temporary Pandemic Unemployment Assistance Program (PUAP). This is designed to provide funds to those not generally eligible for unemployment benefits, but are unable to work due to the COVID-19 pandemic. It also enhances benefits for all workers eligible for unemployment aid. For churches, participation in State unemployment systems vary State-by-State. Some churches are able to opt into their State’s program and pay unemployment compensation taxes while others are exempt. To see how your particular State is affected and determine how to apply for benefits, visit this site from the Dept of Labor: careeronestop.org/WorkerReEmployment/UnemploymentBenefits/unemployment-benefits.aspx
If you are a church exempt from State unemployment tax and your employees are not eligible for unemployment benefits, those employees are covered under the PUAP, yet it remains to be seen how States will administer that assistance. Additionally, to be eligible and receive benefit, a worker must be unemployed, partially unemployed, or unable to work for a specific set of reasons. The list is lengthy, but primarily include testing positive for or having symptoms of COVID-19, caring for a family or household member diagnosed with COVID-19, unable to reach work due to an imposed quarantine, or the place of employment is closed due to the public health emergency. Employees able to tele-commute with pay or are receiving Emergency Paid Sick Leave or FMLA-Public Health Emergency Leave (or any other paid leave) are ineligible to receive these additional benefits.
Finally, the Act also provides funding for “short time compensation” programs that are already in force in many States today. My former state of residence, Oregon, has had this type of “work share” program for a number of years. This allows employers to reduce hours across the board for employees and those employees can receive partial, or pro-rated, unemployment benefits.
This provision of the Act encourages greater contribution to religious and non-profit organizations by creating a new tax deduction for up to $300 of annual contributions. This is an “above the line” deduction, meaning it is available even to those who take the standard deduction on their income tax form.
For individuals who itemize, the Act also increases the limit on deductions for charitable contributions. This increase is only for tax year 2020, however, and does not extend beyond this year.
This portion of the Act will allow an employer to provide a tax-free student loan repayment benefit to employees. An employer can contribute up to $5,250 per year toward an employee’s student loans. Additionally, principal and interest payments are deferred without penalty on federal student loans through the end of September, 2020.
A new type of retirement plan distribution has been created – A “Coronavirus Related Distribution.” This distribution type allows a qualified individual (those diagnosed with or financially impacted by COVID-19) to distribute up to $100,000 in a year. The distribution is, of course, taxable, however that tax is spread over 3 tax years, beginning with the year in which the distribution was taken. Regardless of the participant’s age, a 10% tax penalty will not apply with these types of distributions.
The CARES Act also waives required minimum distributions (RMDs) for retirement plans, such as the Alliance 403(b) Plan, for the calendar year 2020. This is a one-year waiver and an individual’s (who has yet to begin RMDs) required beginning date will not be impacted by this waiver.
Lastly, the most well-known portion of this Act is the rebate program designed to deliver aid to a vast majority of Americans. No action to receive the rebate will be required on the taxpayer’s part and the funds will be paid through direct deposit. For those who do not have direct deposit information accessible, there will be a web-based application released soon to accommodate those persons.
This rebate will be $1,200 per taxpayer ($2,400 for joint filers), beginning to phase out for those with adjusted gross income over $75,000 (for single filers), $112,500 (for head of household filers), or $150,000 (for joint filers). An additional $500 refund will be provided per qualifying children under 17 in the household. A letter will be mailed to the taxpayer’s last known address within 15 days following the payment of the rebate to confirm the payment was sent and with a phone number to call in case the payment was not received.
While my hope is that this article helps you gain a basic understanding of the impact of this legislation, I want to encourage you to utilize the expert resources available to you as part of the Alliance family and the greater faith-based community. I will be the first to tell you that these trusted partners have a much deeper knowledge of the legislative details than I do. Our partners at the Evangelical Council for Financial Accountability (ECFA) recently held a webinar covering important details of the CARES Act and its impact on churches and other religious organizations. I would highly recommend that you visit their COVID-19 resources page at: ecfa.org/Content/ECFA-COVID-19-RESOURCES and view this important webinar here: ecfa.org/ProductDownload.aspx?ProductID=305. I would also encourage you to bookmark the Alliance Benefits COVID-19 resource page found here: alliancebenefits.org/coronavirus-updates/.
While our physical offices are closed for safety during this health crisis, we are absolutely open for business remotely and equipped to serve you. If you are an Alliance Health Plan and/or Alliance 403(b) Plan employer and have not yet read my recent letter announcing relief we are providing during this time, I would encourage you to read it. You can find that letter here: alliancebenefits.org/2020/03/25/important-health-and-retirement-plan-updates/.
As always, I encourage you to contact us with questions and we are committed to serving you well throughout these difficult times.
Grace and peace,
Executive Director for Alliance Benefits
Curtis joined the Alliance Benefits team in September of 2017. Serving in the role as Executive Director, he is responsible for the overall administration and direction of all aspects of Alliance Benefits, including the health and retirement plans for Alliance workers in the United States and internationally.