Update: CARES Act and the PPP

Allworth Co-CEO Scott Hanson outlines a few of the most important updates to the CARES Act and the Paycheck Protection Program.

Signed into law March 27th, 2020, the CARES Act is the federal government’s endeavor to bolster the economy by providing financial assistance and support to taxpayers, small businesses, students, the healthcare industry, and other sectors and entities.

While, I’m sorry to say, the worst of the economic fallout (from the pandemic) may still be in front of us, and while tens of millions of people have been financially (and emotionally) devastated, it’s still, nonetheless, widely believed that the CARES Act saved untold numbers of jobs and small businesses.

Along those lines, in the four months since March, there have been some changes and updates to the law, a few of which I’ll touch on here.

Vitamins, Minerals, RMDs

Have you been taking your RMDs?

A Required Minimum Distribution (RMD) is the amount that U.S. tax law stipulates you must withdraw each year from your traditional IRA, Roth 401(k), or employer-sponsored retirement plan such as a 401(k) or 403(b).

Not only did the CARES Act allow accountholders to skip their RMD in 2020, it even allowed individuals with inherited IRAs (including non-spouses) to follow suit. 

But what about those folks who took an RMD in January (or later), before the CARES Act was even a glimmer in Congress’s eye? Do they have any options?

Thankfully, with Notice 2020-51, the Internal Revenue Service realized an oversight in the CARES Act. The IRS has now stipulated that you can essentially “re-deposit” the distribution back into your retirement account (as long as the transaction is completed by August 31st, 2020).

Just remember, please speak with your advisor and your accountant before “recontributing.” While allowing that money to grow tax-deferred (for another year) may be ideal, everyone’s situation is unique and there may be other considerations or consequences.

*Unfortunately, the temporary CARES Act rule change regarding RMDs does not apply to defined-benefit plans such as pensions.

Updates on the Paycheck Protection Program

Established as part of the CARES Act, the Paycheck Protection Program (PPP) is the almost $700 billion loan program intended to induce small businesses to hang onto their employees.

While the program has been effective, there’s been lots of confusion.

For instance, who qualifies? What is the application process? And, four months later, is there any money left? 

When it comes to small businesses and the PPP, while there are often more questions than answers, the fact remains—while perhaps lacking the oversight one might have hoped for in such an important, big money program—it’s undeniably been a boon to a great number of businesses, and to their employees, who were able to stay afloat due to the loans.

If you’re a small business owner, here are four key things related to the PPP you should consider. 

First, there’s still a lot of money left. While over $500 billion has been given to small businesses to date, more than $100 billion remains in the kitty and available.

Apparently, many small business owners were frustrated with the initial loan application process and gave up (or they simply didn’t want to borrow money). But, over time, not only did the process become more streamlined, I know of a wide array of businesses that recently received loans. If you haven’t applied, you (or your accountant) should at least consider reviewing the application process. 

The second PPP consideration is that it seems increasingly possible that most of the loans will be forgiven (so long as the proper application protocols are taken).

Again, like the initial loan application, the loan forgiveness process is considered one big minefield of forms and eligibility considerations.  

The good news for those business owners who received money is that the Small Business Administration recently made the loan forgiveness application process easier. To be sure, I’m not saying it’s suddenly become automatic. Frankly, it’s hardly one-stop shopping. And only you can determine if you need the loan. But, if you took one and your business (and your employees and your supply chain allies) would benefit from not having to repay that loan, it may certainly be worth any hurdles.  

The third update concerns businesses and the newish Paycheck Protection Program Flexibility Act of 2020 (PPPFA), which gives borrowers more time and leeway regarding how the money can be spent, all while still retaining the possibility of total loan forgiveness.

Signed into law by President Trump on June 5th, 2020, the PPPFA of 2020:

• Gives business owners 24 weeks to spend the loan money (up from 8 weeks)
• Reduces the loan amount that business owners must spend on payroll to 60% (down from 75%)
• Adds exceptions to allow for more borrowers to obtain complete loan forgiveness
• Added three years (it’s now five) to the repayment deadline
• And, it allows businesses to delay paying payroll taxes

The fourth new (or little known) PPP consideration is that, as of July 4th, 2020, the loan filing deadline was extended by five additional weeks until August 8th, 2020.

In short, if you’re a small business owner, there’s still time to apply for a loan, but you need to hurry.

Lastly, more so than in any other year, for obvious reasons, there are more new laws and regulations pertaining to your taxes, savings, and investment accounts, than I’ve ever seen.

And these standards and guidelines are changing all the time.

In the strongest possible terms, I encourage you to work more closely than ever before with your advisor and your accountant. Simply, when it comes to your money, there is no margin for error in 2020, and the decisions you make now will likely impact you financially for the rest of your life.