WASHINGTON – The US Senate on Wednesday night passed the massive $ 2.2 trillion COVID-19 aid bill that is expected to allow businesses to defer pension contributions and workers to access retirement savings without penalty.
The bill, which President Donald Trump has said he will sign, has yet to be passed by the House. The legislation would extend $ 1,200 to most American adults and $ 500 to most children, create a $ 500 billion loan program for businesses, cities, and states, and an employee retention fund of 367. billion dollars for small businesses. It would direct $ 130 billion to hospitals and provide, among other things, four months of unemployment insurance.
One of the key provisions that should be in the bill allows companies to defer required contributions to pension plans until the end of 2020, said Lynn Dudley, senior vice president of the American Benefits Council, which represents employers in matters of benefits.
“It gives companies flexibility,” even though they will have to pay interest, she said. “It puts money in the hands of businesses now. “
The centerpiece of the bill remains direct payments to households of up to $ 1,200 for individuals and $ 2,400 for joint filers, with an additional $ 500 per child.
These amounts gradually decrease by 5% of adjusted gross income above $ 75,000 for single filers and $ 150,000 for married couples. Thus, a family of four earning $ 200,000 would benefit from a credit of $ 900 instead of the maximum of $ 3,400.
Two drafting errors in the 2017 tax bill would be corrected to help retailers, which suffered from stiff competition from Amazon.com, and now see much less foot traffic due to people staying at home .
An error in the 2017 law prevents retailers and restaurants from writing off building improvements in a single year. Instead, these establishments must amortize the improvements over an embarrassing 39-year period.
This would be corrected in the stimulus package, at least according to the recent projects in circulation.
The bill includes an employee retention tax credit on wages of up to $ 10,000 per employee per quarter retained on an employer’s payroll until the end of 2020.
Companies eligible for the tax credit must have totally or partially suspended their activities due to a government decree and have suffered a significant drop in their income.
As an added incentive to keep workers on staff, the measure would allow companies to defer the 6.2% social security tax on all wages up to $ 137,700 for the rest of the year, though that they would have to repay it in equal installments in 2021. and 2022. What they owe, however, would be reduced by the tax credits earned by keeping employees on their payroll.
“This is about helping our workers keep their jobs,” Senate Finance Chairman Chuck Grassley, R-Iowa, said in a statement. “Our economic aid program contains provisions to help businesses so that they have the money to keep the doors open and continue to pay the payroll.”
401 (k) withdrawals
As it has done with other disasters, Congress will allow penalty-free withdrawals from 401 (k) and other pension plans as Americans struggle to find the money to survive the pandemic of coronavirus.
The bill contains relaxed rules for taking out loans against retirement savings, for deducting charitable contributions and for taking minimum distributions required from retirement plans.
The hardship section not only waives a pension plan’s 10 percent early withdrawal penalty, but gives those who make withdrawals three years to repay the money.
Another provision would relax the rules and increase the limits for those who wish to take out loans against their retirement savings. In the case of a loan, the individual remains invested in the market and would benefit from any potential bull market that may arise as a result of the crisis.
But those who make hard withdrawals would lose investment gains if the markets went up.
The draft also contains a provision to waive the minimum required distributions from the plans for one year. In a letter to Senate leaders last week, the benefits board argued that these distributions were suspended after the 2008 financial crisis and that this flexibility is no longer needed.
An example given was of an elderly retiree who has to withdraw 5% of the plan balance each year. If the required distribution is based on the balance as at December 31, 2019, that balance may have declined sharply since then. A balance of $ 100,000 may well have decreased to $ 80,000, but the retiree would still be required to withdraw $ 5,000.
The Washington Post contributed to this report.
President Donald Trump speaks on the coronavirus in the James Brady briefing room, Wednesday, March 25, 2020, in Washington. (AP Photo / Alex Brandon)