CARES ACT passed (Coronavirus Aid Relief and Economic Security Act)

On Friday, March 27th, 2020, Congress passed the Coronavirus Aid Relief and Economic Security Act (“CARES Act”). 

Below is a summary of the incentives passed that may affect you and your business.  This summary is not meant to be all-inclusive and many of the provisions have additional restrictions so please contact us with any questions so that we can assist you in determining your eligibility.

Individuals: 

• Expansion of unemployment assistance including but not limited to:

  • Supplementing regular state unemployment benefits, for those states that wish to participate, by adding $600 per week to the benefits received by each unemployment claimant between now and July 31, 2020 and removing the mandatory waiting week requirement for new unemployment claimants.
  • Extended unemployment benefits for individuals who have previously exhausted state and federal benefits and who are “directly” affected by the virus, for up to 39 weeks between now and December 31, 2020.
  • Directly meaning an individual or individual in the household that has been diagnosed with the virus and/or the individual is providing care for children or others in the household who are unable to attend school or another facility because of the virus and/or an individual who is under quarantine or stay at home order and unable to work because of the virus.
  • Temporary full funding of the first week of unemployment benefits (i.e. no waiting week) 

• Recovery Rebates (Credit) for Individuals

  • A credit against 2020 income tax equal to the sum of $1,200 ($2,400 in the case of joint returns), plus $500 for each qualifying child, subject to the following income limitations.
  • Limitation based on Adjusted Gross Income (AGI) – the credit is reduced by 5% of adjusted gross income over $75,000 for individuals, $112,500 for head of household and $150,000 for joint filers.   Thus, for example, the rebate is fully phased out and not available for single individuals at AGI of $99,000, head of household filers at $146,400 with one dependent child and joint filers at $198,000 with no dependent children.
  • Advanced payment will be based on 2018 tax return, unless your 2019 tax return has been filed and accepted at the time the payment process is initiated. If you used direct deposit for federal refunds in the most recent tax year filed, the advanced credit rebate will be directly deposited to that account.  If not, the rebate will be sent via mail. Receipt of the advance credit rebate will reduce the amount of credit available on the 2020 income tax return.

• Delay of Certain Individual Deadlines

  • The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.
  • Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.  This applies to both balances due on 2019 tax filings and 1st quarter 2020 estimated tax payments.
  • The deadline for making 2019 contributions to an Individual Retirement Account (IRA) or Health Savings Account (HSA) has been extended from April 15, 2020 to July 15, 2020.

• Special Rules for Use of Retirement Funds

  • Taxpayer’s may withdraw up to $100,000 until December 31, 2020 out of their qualified retirement account as a coronavirus-related distribution and avoid the 10% penalty for early withdrawal.  The taxpayer will recognize the income from the distribution over a three-year period unless recontributed as referenced below.
  • The taxpayer can at any time during the 3 year period beginning on the day after the date on which the distribution was received contribute up to the original distribution amount into an eligible retirement account and it will be treated as if the original distribution was a rollover and not taxable. 
  • In order to be eligible the individual must have been diagnosed with the virus, have a spouse or dependent who is diagnosed with the virus or be an individual who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to the virus. Being unable to work due to lack of childcare due to the virus also qualifies.  Other factors may qualify as determined by the Secretary of the Treasury.
  • The amount that you can borrow from your retirement account has been increased from $50,000 to $100,000. The term of repayment can be delayed up to one year. To be eligible you must be an individual as described above.
  • Temporary waiver of the 2020 required minimum distribution rules for certain retirement plans and accounts. 

• Charitable Contributions

  • If you do not already itemize you can contribute up to $300 to a qualified charitable organization and receive an above the line deduction against income for years after December 31, 2019.
  • Temporary suspension of the 50% Adjusted Gross Income limitation on charitable donations made in 2020.

• Temporary Relief for Federal Student Loan Borrowers

  • Suspension of all payments due through September 30, 2020.
  • No accrual of interest for the same time period.

 

Businesses:

The Paycheck Protection Program 

The paycheck protection program allows small businesses (including self-employed individuals) to receive an SBA loan to cover eligible costs if the “current uncertainty makes a loan necessary to support ongoing operations”.  Eligible costs are payroll costs which will include wages, group health benefits, retirement plan benefits, payroll taxes, and rent, utilities, and interest on mortgages. 

• • The maximum loan is the average of the prior 12 months of payroll costs (wages and salaries up to a $100,000 annual limit per employee, health insurance benefits, retirement benefits, and payroll taxes) times 2.5.  Different rules apply for seasonal employers. 
  • For the 8-week period following your SBA loan funding, if you’ve used the funds for qualified expenses and retained your workforce, the loan will generally be forgiven, federal income tax-free, subject to certain limitations.
  • Your amount of loan forgiveness is based on your number of average full-time equivalent employees retained.  This test is applied from February 15, 2020 through June 30, 2020, for most employers, and the retained employees are compared to one of two prior periods falling in 2019 or early 2020.
  • There will be required documentation of all payroll records and expense payments.
  • We expect banks to begin taking applications in the coming weeks, though the exact date is not yet known.  The U.S. Treasury and SBA have indicated funding could occur within 24 hours of an approved application.
  • Participation in this program precludes businesses from the new payroll tax deferral program and employee retention credit (both described later). 

• Employee Retention Credit for Employers Subject to Closure Due to the Virus.

  • A credit against federal employment taxes for each calendar quarter, equal to 50 percent of qualified wages with respect to each employee, with any excess being refundable.
  • Qualified wages with respect to any employee may not exceed $10,000 per calendar quarter.
  • To be eligible the employer’s trade or business must be fully or partially suspended during the calendar quarter due to orders of a governmental authority due to the virus or have gross receipts for the calendar quarter that are 50% less than the same calendar quarter in the prior year.  Once the 50% test is met the business may continue to claim the credit until the quarter after gross receipts reach 80% of the same calendar quarter in the prior year.
  • If an eligible employer receives funding under the Paycheck Protection Program, as described above, they may not take this credit. 

• Delay of Payment of Employer Payroll Taxes

  • Employers can defer their portion of social security and Medicare tax due on employee’s payroll for the remainder of 2020.  The deferred amount will be due and payable 50% on December 31, 2021 and the remaining 50% due December 31, 2022.
  • The eligible deferral period begins on March 27, 2020 and ends on January 1, 2021.
  • If an eligible employer receives funding under the Paycheck Protection Program, as described above, they may not defer or delay payment of employer payroll taxes.

• Net Operating Loss Modifications

  • Temporary repeal of the 80% taxable income limitation for C-corporations for years beginning before January 1, 2021
  • Net operating losses arising in a taxable year beginning after December 31, 2017 and before January 1, 2021 may be carried back 5 years instead of only allowed as a carry-forward deduction. 

• Delay of Certain C Corporation Deadlines

  • The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.
  • Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other non-corporate tax filers as well as those who pay self-employment tax. 
  • Retroactive technical amendment that includes qualified improvement property as 15-year property eligible for bonus depreciation.