Accessing Your Retirement Plan for Coronavirus Relief: How the CARES Act Amends 401K Rules for Plan Distributions and Loans

With a large portion of the workforce grappling with unemployment or reduced income as a result of the COVID-19 crisis, many Americans are looking to their retirement savings and pondering whether to use these funds as a fallback measure. With the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, the federal government has recognized the extraordinary strain facing many Americans and amended rules which were put in place to disincentivize plan withdrawals in times of economic hardship. 

Coronavirus-Related Distributions

Before the CARES Act’s special measures, premature distributions from a 401(K) plan were not only subject to ordinary income tax, but were also subject to an additional 10% early withdrawal penalty, with mandatory withholding. Under the CARES Act, an employee can receive a distribution from their retirement plan, or plans, of up to $100,000, any time in 2020. Distributions may be taken from multiple sources, such as a qualified retirement plan or an IRA, as long as they do not exceed $100,000.00 in aggregate. These distributions are exempt from the 10% early withdrawal penalty, can be included in the employee’s income tax over three years, and are not subject to mandatory 20% withholding typically applicable to direct plan distributions. 

In order to qualify, distributions taken pursuant to the CARES Act must be coronavirus-related, meaning that an employee must certify that a qualifying condition is the reason for taking the distribution. Plan sponsors are permitted to rely on employee certifications, provided they do not have knowledge that the representations therein are false. No documentation or record-keeping is required of the sponsor. Qualifying conditions are:

    1. the employee, or their spouse or dependent, was diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC), or
    2. the employee is experiencing adverse financial consequences related to COVID-19 as a result of:
      1. being quarantined;
      2. being furloughed, laid off, or having reduced work hours; 
      3. being unable to work due to lack of child care;
      4. closing or reducing hours of a business owned or operated by the employee; or
      5. other factors as determined by the Secretary of the Treasury. 

Unlike typical hardship withdrawals, coronavirus-related distributions may be repaid to the plan within three years and are not subject to taxation if repaid within that window of time. Amounts repaid are treated as a rollover contributions to the plan and are not subject to the employee’s annual contribution limit. Qualifying plan distributions are available through December 31, 2020. 

Modifications to Participant Loans

The CARES Act also modified the rules for participant loans to allow plan sponsors to permit a greater maximum amount of new plan loans, and to permit individuals with existing plan loans to defer their repayment obligations through the end of the year. 

Plan sponsors may permit participant loans taken on or before September 23, 2020, up to a maximum amount of $100,000 (up from $50,000.00), for those employees who certify a qualifying condition (as discussed above). While previous rules restricted an employee from borrowing more than 50% of their vested balance, the CARES Act permits loans of up to 100% percent of an employee’s vested balance, up to the $100,000.00 limit.

In addition, the CARES Act allows participants with outstanding 401(K) loans to delay repayments that would otherwise be due between March 27, 2020, and December 31, 2020, for one year, with the maximum 5-year repayment period of the loan also extended for one year.

Waiver of Required Minimum Distributions (“RMD”)

In recognition of the substantial impact the coronavirus has had on the stock market, the CARES Act also makes provisions to allow retirees who do not want to liquidate their investments at a low point to avoid taking the RMD mandated for individuals over the age of 70 ½ with qualified retirement plans or IRA accounts. 

For all retirement plan participants and IRA owners (not just those with a qualifying condition), the CARES Act eliminates the requirement that required minimum distributions be taken in 2020. The CARES Act also extends by 1 year the period over which distributions must be made due to an employee’s or IRA owner’s death.

If you have questions regarding how the CARES Act or other issues related to this ongoing pandemic may affect you or your business, contact the attorneys at Massey Law Group for a consultation.

The above is intended to inform firm clients and friends about recent developments in the law, including analysis of statutes and new case decisions. This update should not be construed as legal advice or a legal opinion, and readers should not act upon the information contained herein without seeking the advice of legal counsel.

The Third Wave of Coronavirus Relief – Will it Help You, and How? 

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, and represents the third major piece of relief legislation enacted in response to the coronavirus crisis.  After an $8.3 billion dollar emergency spending bill, and the Families First Coronavirus Response Act, (see our summary here), the CARES Act aims to soften the economic blow of COVID-19 through expanded SBA loan programs and direct payments to taxpayers and affected industries. Individuals and businesses struggling with the financial impact of this crisis need to know what help the CARES Act provides for them, and what they have to do to get it. We have reviewed the text of the bill, and here’s what we know about its key provisions: 


Recovery Rebates

Perhaps the most publicized provision of the CARES Act is its provision for direct payments to many taxpayers. These payments are technically advanced refundable tax credits for the 2020 tax year. However, because we are only one quarter into the year 2020, eligibility for payments and the amount of the benefit will be determined based on taxpayers’ 2019 or 2018 tax returns (if 2019 is not filed when the IRS begins calculating checks). 

How Much Will You Get? 

The Act provides for $1,200 payments to individual taxpayers and $2,400 to married taxpayers who filed jointly, with an additional $500.00 per child. Payments are reduced or phased out entirely for taxpayers whose income in the relevant tax year was above set thresholds. 

Individuals who had an adjusted gross income (AGI) up to $75,000 a year will be eligible for the full $1,200 check. For those with an AGI between $75,000 and $99,000, a reduced payment will be made. The reduction will be calculated as 5% of any amount over $75,000.00.  

So, for example, someone with an AGI of $85,000 and no children would receive a $700.00 rebate. ($85,000 – $75,000 = $10,000.00, the amount in excess of the threshold; $10,000.00 x .05 = $500.00, the amount the credit is reduced; $1,200 – $500.00 = $700.00, the amount of the rebate).  

At $99,000.00 the credit will be reduced to $0 and no rebate will be issued.  ($99,000.00 – $75,000.00 = $24,000.00; $24,000.00 x .05 = $1,200.00; $1,200 -$1,200 = $0.00). 

For married couples filing jointly, the rebate will be for $2,400.00 as long as their AGI is under $150,000.00 per year. The amount of the check will be reduced in the same way for income over $150,000.00. So at $198,000.00 a married couple without children would receive no refund.  ($198,000.00 – $150,000.00 = $48,000.00; $48,000.00 x .05 = $2,400.00; $2,400 – $2,400 = $0.00).  

Single parents filing as a head of household will also receive a $500 credit per child, and will have the threshold at which their rebate is reduced increased from $99,000.00 to $112,500.00. After this threshold, the rebate is reduced in the same manner described above for other individuals and married couples. 

So a head of household with one child would be eligible for a $1,700.00 credit ($1,200.00 + $500 child credit).  With one child, a single head of household with an AGI over $112,500 would receive a partial refund as long as their AGI is below $146,500.00. ($146,500.00 – $112,500.00 = $34,000.00; $34,000.00 x .05 = $1,700.00; $1,700 – $1,700 = $0.00).  

What Do You Need to Do?

The Act intends for the rebates to be issued automatically by direct deposit or mailed check depending on the information provided in the tax return used by the IRS to determine the rebate amount. Therefore the majority of people will not need to do anything to claim their rebate. But if you haven’t filed a 2019 return and your direct deposit account or physical address has changed since you filed a 2018 return, it would be advisable to file your 2019 return and update this information as soon as possible in order to avoid a delay in processing. If you made less money in 2019 than 2018 and you haven’t filed your return yet, you should definitely do so immediately in order to maximize your credit. 

What if Your Income Has Changed?

The rebates are technically an advanced credit on your 2020 taxes, so what happens if your income from 2020 winds up being significantly different than it was in the year used to calculate the rebate amount? 

Under the provisions of the Act, you will not have to repay the rebate amount, even if your 2020 AGI winds up being more than it was in the year that was used to calculate your rebate. 

An unfortunate consequence of using 2018 and 2019 returns to calculate rebate amounts is that individuals who have become unemployed or otherwise had their income reduced in 2020 may not receive the full rebate amount they would otherwise be entitled to. Unless the IRS adopts future implementing regulations to account for these individuals’ loss of income, they will not be eligible for a rebate check under this program. 

What if you Owe Back Taxes? 

The Act includes an exemption from the Treasury Department’s offset program, meaning the Rebate Refunds will not be reduced even if a taxpayer owes back taxes or is in default under student loans. 

When Will Checks Arrive? 

The Act directs the Treasury Department to advance rebates as quickly as possible, and early indications are that these checks may begin to issue as early as next week. Past stimulus programs have completed the process of issuing rebate checks in a period of approximately eight weeks, and it is reasonable to anticipate that this program will operate with a similar timeframe. 


SBA Loan Programs

The CARES Act creates two avenues for infusing capital into small businesses: the new Paycheck Protection Program and an expansion of the existing Economic Injury Disaster Loan Program. 

Paycheck Protection Program

The Paycheck Protection Program (“PPP”) authorized by the CARES Act makes loans of up to $10 million available to qualified small businesses. These loans are intended to be forgivable if the borrower maintains employees and otherwise complies with the CARES Act and they do not require collateral or personal guaranties. Loans will be made by SBA-approved lenders and 100% guarantied by the SBA. 

In order to be eligible for a PPP Loan, a business:

The maximum loan amount available will be the lesser of (1) the business’ average monthly payroll costs for the one-year period before the date of the loan multiplied by 2.5 and (2) $10 million. If an applicant was not in business from February 15, 2019 to June 30, 2019, the maximum loan amount is the lesser of (1) the business’ average monthly payroll costs from January 1, 2020 to February 29, 2020 multiplied by 2.5 and (2) $10 million.

This loan program provides significantly relaxed lending criteria and a number of other advantages over a conventional SBA loan. Beyond the loan forgiveness provisions and the waiver of collateral and guaranty requirements, the PPP program also waives all SBA administration fees, provides for deferred payments for 6-12 months, eliminates pre-payment penalties, and for any debt not forgiven under the program, allows a maximum 4% interest with up to a ten-year term. 

Debt forgiveness under the program will be available for amounts spent in the 8 weeks after origination of the loan on (i) rent, (ii) qualifying payroll costs, (iii) mortgage interest, and (iv) utilities, not to exceed the principal of the loan. The qualifying “payroll costs” under the act only include salaries for employees which are less than $33,333.00 during the four month period from March 1, 2020 through June 30, 2020 (the annualized equivalent of $100,000.00 salary) . Qualifying payroll costs also exclude any emergency paid leave or FMLA leave for which a business is otherwise able to obtain a credit under the Families First Coronavirus Response Act. 

The amount of loan forgiveness under the PPP program will also be reduced if an employer reduces the number of employees or cuts wages to employees in the eight week period after obtaining the loan. However, employers forced to make payroll cuts during this period may recover their loan forgiveness if they rehire terminated employees and restore their payroll prior to June 30, 2020. 

After the expiration of the eight week period, employers who comply with the provisions of the Act will be able to submit an application for loan forgiveness to the originating lender. The application must include documentation of all qualifying expenses and payroll which the borrower wants forgiven, including IRS payroll tax filings, state unemployment insurance filings, financial statements verifying the payment of debt obligations, and any other documentation which the SBA may require through subsequently issued regulations. 

Assuming all costs are appropriately documented and qualify, the SBA will provide a notification of forgiveness of the covered debt within 15 days, and will reimburse the lender as if the loan had defaulted. For the borrower, the forgiveness will be treated by the SBA as a cancellation of indebtedness, not a default; however the borrower will not be required to treat the cancellation of indebtedness as income for tax purposes.

Economic Injury Disaster Loan Program

Loans made by SBA under the expanded EIDL Program will not be eligible for forgiveness like PPP loans, but they allow for extended payment terms and lower interest rates. Businesses may apply for loans under both the EIDL and PPP programs, but may not “double dip,” meaning that they can not seek reimbursement for costs covered by their PPP loan with a loan under the EIDL program. 

Loans under the EIDL program are available to small businesses in order to cover economic injury and losses resulting from the coronavirus emergency, including loss of revenue costs related to interruption of operations. The CARES Act relaxes the typical requirements for EIDL Loans such that a borrower is no longer required to demonstrate that they have been unable to obtain credit elsewhere, and it is not required that the borrower have been in business for at least one year, only that the business must have been in operation on January 31, 2020. 

Unlike PPP loans, EIDL loans in excess of $200,000.00 must be guaranteed by each owner with more than a 20 percent interest in the borrower. The CARES Act eliminates the guaranty requirement for EIDL loans less than $200,000.00. Loans under this program have a maximum amount of $2 million, an interest rate of 3.75% and a 30 year term and 30 year amortization. 

Finally, the CARES Act provides that borrowers applying for an EIDL loan may also request an emergency cash advance of up to $10,000.00, to be paid by the SBA within three days of the request.  These advances are essentially cash grants, and do not need to be repaid by the applicant, even if their EIDL application is ultimately denied. Applicants must spend the $10,000 on allowed costs, such as maintaining payroll, making rent and mortgage payments or providing paid sick leave to employees. If an applicant obtains a PPP loan, amounts advanced under this program will count toward the limit of their loan forgiveness under the PPP program. 


Changes to Unemployment Programs

In addition to loans and direct payments, the CARES Act provides for the expansion of existing state-run unemployment programs and provides a Pandemic Unemployment Assistance Program for individuals who are otherwise ineligible for unemployment and who have been impacted by conditions related to the coronavirus. 

For employees already eligible to receive state unemployment benefits, the CARES Act will pay an additional $600/week on top of benefits paid by the state, through July of 2020. The Act also provides that it will pay 100% of the cost for states that waive any waiting period imposed before benefits are available. Finally, the Act provides that the federal government will pay $600/week in unemployment for 13 weeks after the expiration of state unemployment benefits. 

The Pandemic Unemployment Assistance Program creates a temporary federal unemployment system for individuals who are otherwise ineligible for state unemployment benefits, or who have exhausted their unemployment benefits. The program applies to individuals who are unemployed or unable to work (or telework) because of any of the following conditions:

Benefits under the Pandemic Unemployment Assistance Program are available retroactively for any period in which employees were affected, from January 27, 2020 through December 31, 2020, for a maximum of 39 weeks.  The amount of the benefit paid will be the lesser of the (i) employee’s regular weekly compensation and (ii) $600 per week. Benefits will be available immediately, without a one week waiting period, and without any requirement that a recipient is pursuing new employment. 


Other Provisions

The CARES Act also provides new rules for distributions and loans from retirement accounts, forbearance of certain federally-owned student loans, and expands limits on charitable deductions. If you have questions regarding how the CARES Act or other issues related to this ongoing pandemic may affect you or your business, contact the attorneys at Massey Law Group for a consultation. 


The above is intended to inform firm clients and friends about recent developments in the law, including analysis of statutes and new case decisions. This update should not be construed as legal advice or a legal opinion, and readers should not act upon the information contained herein without seeking the advice of legal counsel.

What Employers Need to Know About About Paid Leave and FMLA Provisions Passed for COVID-19

On March 18, 2020, the President signed the Families First Coronavirus Response Act. The act contains a broad range of measures aimed at combating the economic fallout from the current pandemic, but employers will be most affected by emergency provisions for paid sick leave and an expansion of the Family Medical Leave Act (FMLA). The new measures are set to take effect on April 2, 2020, leaving a narrow window of time for the Department of Labor to issue regulations detailing how the act will function, and for employers to prepare for compliance. For now, this is what we know:

Who is Covered

While employers with fewer than 50 employees are automatically exempt from the FMLA, they are NOT exempt from the emergency provisions of the new law. The law applies to all private employers with fewer than 500 employees. Businesses with fewer than 50 employees may be granted an exemption by the Department of Labor if compliance would threaten their continued viability. The criteria for this, and the process for seeking exemption are not yet defined by the law, which directs the Department of Labor to issue rules for implementing the exemptions before the act takes effect. The act does not apply at all to those employers with more than 500 employees.

FMLA Expansion for COVID-19-Related Childcare

The FMLA Expansion Act applies to employees of covered businesses who have been employed for more than 30 calendar days. The act gives these employees the right to take up to 12 weeks of job-protected FMLA leave if the employee is unable to work or telework because they need to provide care for a child under the age of 18 whose school has been closed due to COVID-19, or whose regular child-care provider is unavailable due to a declared COVID-19 Emergency. The right to take this expanded FMLA leave expires on December 31, 2020.

If the need to take leave is foreseeable, the employee must provide as much leave as practically possible, but with existing school closures throughout the State of Florida, employers should expect not to receive much advance notice. The initial 10 days of leave taken under this section will be unpaid. After 10 days, employees taking this type of leave must be paid 2/3 their regular rate of pay for the number of hours the employee would regularly be scheduled for. Each employee is capped at $200/day and $10,000.00 of leave in the aggregate. Employees who have accrued paid leave may opt to use their PTO during the initial ten-day period and must be paid accordingly.

Like the FMLA, the FMLA Expansion Act also provides that employees returning from leave must be restored to the same or an equivalent position. This requirement is relaxed for businesses with fewer than 25 employees, who are not required to restore a returning employee if (1) the employee’s position has been eliminated as a result of economic or operating conditions created by the coronavirus emergency, and (2) the employer makes reasonable efforts to restore the employee to an equivalent position over the course of a one-year period commencing from the end of the emergency situation – a date which will presumably be further defined by the Department of Labor in the future.

For businesses with fewer than 50 employees, violations of the FMLA Expansion Act will not be subject to private lawsuits, but will be subject to enforcement actions by the Department of Labor. The FMLA’s provisions imposing individual liability on business owners and successor liability will also continue to apply.

Paid Sick Leave

The Emergency Paid Sick Leave Act provides for paid leave to employees who must miss work for reasons related to the coronavirus emergency. Employees are eligible for this benefit immediately, regardless of how long they have been employed. There are two sets of eligibility for this paid leave. Under the first set, employees must be paid for up to 80 hours of sick leave at their full rate of pay, capped at $511 per day and $5,110.00 per employee in the aggregate. Criteria for fully paid leave are:

1. The employee is subject to a State, federal or local government order of isolation or quarantine related to COVID-19

2. The employee has been advised to self-quarantine by a health care provider due to concerns related to COVID-19

3. The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.

Under the second set of eligibility, employees must be paid for up to 80 hours of sick leave at 2/3 of their normal rate of pay, capped at $200/day and $2,000.00 in the aggregate

4. The employee is providing care for an individual subject to an order or advisement described in categories 1, or 2, above.

5. The employee is caring for a son or daughter whose school is closed due to COVID-19 precautions, and

6. The employee is experiencing a similar situation which may be further defined in the forthcoming Department of Labor regulations.

Employees will be paid according to the number of hours they would normally be scheduled to work. For employees with a variable schedule, the law provides a series of schedules to determine the appropriate amount of pay the employee will be entitled to in a given week.

Violations of the Emergency Paid Sick Leave Act will be subject to enforcement provisions of the FMLA, including violations related to retaliatory actions against an employee who requests paid sick leave or exercises other rights afforded by the act. These significant penalties include 2x damages for unpaid leave, attorneys fees and costs and injunctive relief, and reinstatement of terminated employees.

Tax Credits for Employers and the Self-Employed

The government’s intention is that the cost to employers of the emergency provisions outlined above will be offset by tax credits. Employers will receive a dollar for dollar tax credit for all sick leave and FMLA expansion leave paid, up to the caps specified above (employers who chose to pay more will not receive greater tax credits). Tax credits will also be capped at a total of $10,000.00 per employee for all quarters.

The credit will be applied to an employer’s total quarterly Social Security tax due for all employees. Employers will be refunded for any earned credits in excess of their social security payroll tax liability. Self-employed individuals will also be entitled to a tax credit if for period of time in which they were unable to work which would for reasons which would have qualified them for either paid sick leave or leave under the FMLA expansion. The qualified sick leave and qualified family leave equivalent amounts under the statute provide tax credits roughly equivalent to the benefits which will be received by employees under the act.

Please contact us for a telephonic consultation if you have questions about how the act’s emergency provisions for paid sick leave and an expansion of the Family Medical Leave Act impact your business.

The above is intended to inform firm clients and friends about recent developments in the law, including analysis of statutes and new case decisions. This update should not be construed as legal advice or a legal opinion, and readers should not act upon the information contained herein without seeking the advice of legal counsel.

Third DCA Clarifies the Law on Distribution of Surplus Proceeds Following a Tax-Deed Sale

The Third District Court of Appeal’s recent decision in Rahimi v. Global Discoveries, Ltd., Case No. 3D16-2756, (August 1, 2018) is a significant development worth noting by banking institutions in Florida, surplus recovery firms and attorneys whose practices involve tax deed sales. The ruling obtained on behalf of MLG’s client clarifies a long-standing ambiguity in the statutory scheme governing surplus funds by stating unequivocally that the determination of which parties are entitled to the surplus proceeds of a tax sale is to be made at the time of the sale.

The dispute in Rahimi arose after a condominium was sold for unpaid taxes at a tax deed sale. After the payment of the property tax bill for the property, a surplus remained in the Court registry of $92,519.89. Global Discoveries, a company which specializes in the recovery of surplus proceeds on behalf of mortgagees, received an assignment from Regions Bank to attempt to collect the surplus proceeds in partial satisfaction of Regions’ outstanding mortgage loan. Global filed a declaratory judgment action to recover the funds. However, the prior titleholder also filed a competing action claiming entitlement to the surplus funds.

The simple resolution to these competing claims became complicated when, while the two cases were pending, Regions Bank canceled and discharged the subject mortgage. The prior titleholder asserted that, because the mortgage had been released, the debt was eliminated, and prior titleholder should receive all surplus funds. Global responded that the release of mortgage did not eliminate the underlying debt and that regardless of the later release, Regions was entitled to the proceeds because its lien had priority on the date of the sale. The trial court agreed and granted Global’s motion for summary judgment.

In affirming the trial court’s ruling, the Third District Court of Appeal pointed to three points in the statutory framework which indicated that priority should be determined as of the sale date. First, the statute providing for presale notice provides that only those lienholders who hold liens twenty days prior to the sale are entitled to notice of the tax sale; second statute governing the post-sale notice of surplus proceeds which identifies those parties entitled to the benefit of the proceeds based on the pre-sale notice, and; third, the statute providing that no lien rights shall survive the issuance of the tax deed. As the court noted, these prior liens are extinguished at the time of the sale, in exchange for a claim against the proceeds.

Prior to the Court’s ruling, many individual prior titleholders were successful in obtaining all or some of the surplus proceeds from tax deed sales, even where their mortgages were released after a sale for reasons unrelated to a payoff of their loan. The Rahimi decision clarifies that this should not occur and provides a discrete point in time for trial courts to look to in evaluating the priority of competing surplus claims.

The above is intended to inform firm clients and friends about recent developments in the law, including analysis of statutes and new case decisions. This update should not be construed as legal advice or a legal opinion, and readers should not act upon the information contained herein without seeking the advice of legal counsel.

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