On March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). This Bill provides a number of potential benefits for businesses and individuals impacted by the Coronavirus.
We are working to fully assess the impact of these provisions on the operations of our clients. Please contact us with specific questions regarding any of the items or for further discussions regarding the Act and how it will influence your operations.
Business Provisions
- Enhanced lending options from the US Small Business Administration to provide assistance for businesses trying to pay expenses such as payroll, rent, utilities and interest related to loan obligations. These options include provisions for loan forgiveness provided loan proceeds are spent on expenses designated in the Act. These loans are available to both for profit business and non-profit organizations.
- Employer payroll tax credits related to wages paid by companies with operations impacted due to COVID-19. This provision allows for credits against applicable employment taxes for up to 50% of $10,000 of qualified wages. This credit is limited to employment taxes reduced by any credits taken under the Families First Coronavirus Response Act (FFCRA). This provision is not available to employers who received a covered loan under paragraph (36) of section 7(a) of SBA and applies to wages paid after March 12, 2020 and before January 1, 2021.
- Employers may delay payment of up to 50% of certain employer payroll taxes until December 31, 2021 with payment of the other 50% by December 31, 2022. This delay is not available for any business which had debt forgiveness under SBA provisions.
- The 80% taxable income limit for utilization of net operating losses (NOLs) is suspended for 2018, 2019 and 2020. In addition NOLS generated in 2018, 2019 and 2020 may be carried back five years.
- Limitation on excess business losses and excess farm losses is suspended for three years which allows these losses to be used in 2018, 2019 and 2020.
- Refunds of corporation AMT credits are allowed until 2021 and the ability to recover credits has been accelerated.
- The limitation on interest deduction has been temporarily increased from 30% of adjusted taxable income to 50% of adjusted taxable income. This limitation only applies to taxpayers with annual revenues in excess of $25 million.
- The 10% charitable deduction for corporations is increased to 25% and the 15% limitation applicable to donations of food inventory is increased to 25%.
Individual Provisions
- Provides for enhanced unemployment benefits for certain individuals impacted by COVID-19 by providing assistance of $600 per week in addition to the weekly amount available under state unemployment compensation provisions. Assistance is available to covered individual for weeks of unemployment caused by COVID-19 beginning on or after January 27, 2020 and ending before December 31, 2020 as long the individual’s inability to work due to COVID-19 continues. This provision also applies to self-employed individuals.
- Provides for payments of income tax recovery rebates to individuals in the form of an advanced tax credit in the amount of $1,200 for an individual ($2,400 for joint returns) and $500 per qualifying child. The payment is reduced by 5% of the amount of adjusted gross income in excess of $150,000 if married filing jointly, $112,500 if head of household and $75,000 if not married filing jointly or head of household. The taxable income limited is based on 2019 tax return if filed or 2018 if not filed. If taxpayer has not filed a tax return for those years, it is based on Form SSA-199 or Form RRB-1099. The payment will be made electronically to the last account for which refunds were deposited or taxes were withdrawn. Within 15 days after payments, notices will be sent to taxpayers with amounts and method of payment.
- For withdrawals from retirement plans (and IRAs), the 10% early withdrawal penalty shall not apply to any coronavirus-related distribution up to $100,000. In addition, amounts may be repaid within 3 years including payments to another plan to which roll-overs are allowed A coronavirus-related distribution is defined as a retirement plan distribution made on or after January 1, 2020 and before December 2020 made to an individual who has been diagnosed with SARS-coV-2 or COVID-19 disease by test approved by CDC, whose spouse or dependent is diagnosed by such virus or disease by such test or who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or suffered reduced working hours, or who is unable to work due to lack of child care. The retirement plan is allowed to rely on a certification provided by the participant. To extent a distribution is not repaid, the income is reported ratably over a 3-year period.
- Loans allowed from certain qualified plans is increased from $50,000 to $100,000. In addition, the amount of the allowable loan is increased from 1/2 of the present value of the nonforfeitable accrued benefit of the employee to the full present value of the nonforfeitable accrued benefit of the employee. The loan repayment may be delayed for 1 year and repayments are adjusted to reflect the delay in the due date and any applicable accrued interest. The five year term limit on repayments does not include the one year delay.
- Temporary waiver in required minimum distributions (RMDs) for 2020. This includes 2019 distributions that must be taken by April 1, 2020. This does not appear to apply to defined benefits plans.
- For tax years beginning in 2020, there is now a charitable contribution deduction of $300 available to all individuals including those who don’t itemize.
- The 50% charitable deduction limitation on individuals is suspended.
- Expands the definition of employer-provided educational assistance that is excluded from gross income to include up to $5,250 in student loan payments made by an employer between the date of enactment and the end of 2020.
- Suspends involuntary collections on student loans, including by offsetting an income tax refund.
- Corrected an error from the Tax Cuts and Jobs Act that prevented 100 percent bonus depreciation for qualified improvement property