The Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law by President Trump on March 27, 2020, provides trillions of dollars of economic stimulus money. There are many ways this stimulus plan could have an impact on individuals depending on their circumstances. Family law attorneys and their clients need to be aware of how the CARES Act may impact property and support issues, and Hoffman Divorce Strategies is intent on keeping abreast of the law to keep our clients informed.
Joint Stimulus Checks
Section 2201 of the CARES Act allows a credit against 2020 taxes of $1,200 ($2,400 in the case of individuals filing a joint return), plus $500 for each child under the age of 17. The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals. The credit is being paid in advance as a Recovery Rebate, based on the most recently filed tax return (2018 or 2019). When an individual’s 2020 return is filed the correct credit will be calculated and any Recovery Rebate Payment deducted from this credit. As an individual’s filing status is determined on December 31, 2020, checks will be made out jointly to individuals who will be divorced when filing their 2020 return. In this case the IRS will treat half of such refund or credit as having been made to each individual filing the return on which the check was calculated. It will be important for family law practitioners and their clients to make sure that the Rebate is equally divided either by direct payment or adjustment in a Property Partition.
Issues with Paycheck Protection Program Loans
The Paycheck Protection Program (PPP), which provides loans to eligible businesses to pay their employees during the pandemic, stipulates that the loan is 100% forgivable if the businesses spend at least 75% of the loan on payroll or payroll-related costs with no more than 25% of the loan spent on mortgage interest, rent, and utilities within 8 weeks of receiving the funds from the Small Business Administration. For businesses and self-employed individuals receiving a PPP loan, will the PPP loan money be a debt, or if forgiven will this be income or an increase in the value of the business? It will be important to keep track of the disposition of a PPP loan as part of a divorce settlement.
Retirement Plan Distributions and Loans
Under Section 2202 of the CARES Act, any distribution up to $100,000 from a retirement account between January 1, 2020 and December 31, 2020 that qualifies as a coronavirus related distribution is not subject to 20% federal tax withholding or the 10% early withdrawal penalty. The income from the distribution can be recognized over three years or repaid at any time during the three years. Also, the amount of a loan that can be made from a qualified plan during the 180 days from the enactment of the CARES ACT (September 23, 2020) has been increased from $50,000 to $100,000, repayment can be delayed for one year, and the amount of the loan has been increased from a maximum of 50% to 100% of the account balance. Existing loans can have repayments delayed for a year. Interest will accrue while repayments are delayed. This is a significant liquidity option, and something that divorcing couples needing cash should know.
If you would like more information or assistance with the financial implications of these changes in your or your clients’ divorce, contact Hoffman Divorce Strategies today at 985-674-1120 or check out our website at https://hoffmandivorcestrategies.com/contact/.