CARES Act Provides Coronavirus-related Aid to Individuals and Businesses

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed by President Trump on March 27th, providing $2.2 trillion in assistance to help individuals and businesses during the COVID-19 crisis.

In addition to direct payments to most Americans that are expected to start within the next three weeks, the legislation provides $350 billion in aid to small businesses, as well as $500 billion in loans and other assistance to large companies and besieged states and cities.

“I want to thank Democrats and Republicans for coming together and putting America first,” Trump said. In an effort to provide support to those who are financially struggling during this devastating outbreak, the following items that impact businesses and individuals are now in place.

‘Recovery Rebates’ for Individuals

Depending on income level, taxpayers will receive a one-time “recovery rebate,” which is an advance refund of a 2020 tax credit. Individuals will receive $1,200 ($2,400 for joint filers) plus $500 for each qualifying child age 16 or under. The recovery rebate payments will be reduced and phased out for taxpayers with adjusted gross income of more than $150,000 (for joint filers), $112,500 (for heads of household) and $75,000 for other individuals.

The recovery rebate checks will be based on the adjusted gross income shown on your 2019 tax returns, or your 2018 tax returns if you have not yet filed for 2019. For Social Security recipients who did not file tax returns, the IRS will determine your eligibility for a recovery rebate based on your Form SSA-1099, Social Security Benefit Statement.

The credit is not available to individuals who can be claimed as a dependent by another taxpayer, or estates and trusts. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.

Small Business Interruption Loans

Any business or non-profit that has less than 500 employees may be eligible to receive a loan to cover payroll, mortgage or rent, utilities, and outstanding debt. To qualify, an applicant must have been in operation on Feb. 15, 2020, and had employees to whom they paid salaries and payroll taxes. The loans under the CARES Act are an additional resource for businesses over and above the Small Business Administration Economic Injury Disaster Loans made eligible last week.

A loan may be used to cover the following:

  • Payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave
  • Employee salaries (up to a maximum of $100,000 per employee)
  • Mortgage payments
  • Rent (including rent under a lease agreement)
  • Utilities
  • Any other debt incurred before the covered period

The loans will have a maximum maturity of 10 years and a maximum interest rate of 4 percent. The standard borrower and lender fees are waived, and no personal guarantee is required by the business owner. Payments on these loans can be deferred for six to 12 months.

An employer with tipped employees may receive forgiveness for additional wages paid to those employees.

Small Business Interruption Loan Forgiveness

Recipients will be eligible for loan forgiveness if they continue payroll between March 1, 2020, and June 30, 2020. Payroll costs do not include compensation of an employee in excess of $100,000, or qualified sick or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act, enacted March 18, 2020.

The amount of loan forgiveness may be reduced if an employer reduces the number of employees or reduces compensation during certain periods of time, subject to specified calculations.

Businesses seeking loan forgiveness will need to provide documentation verifying the number of full time employees on payroll and pay rates, including:

  • Payroll tax filings reported to the IRS
  • State income, payroll and unemployment insurance filings
  • Financial statements verifying payment on debt obligations incurred before the covered period
  • Any other documentation determined necessary

Businesses must make a good faith certification that the uncertainty of current economic conditions justifies the loan request to support the ongoing operations and acknowledge the funds will be used to retain workers and maintain payroll.

Loans will be excluded from gross income. Anything not forgiven or repaid by Dec. 31, 2020, will convert to a maximum 10-year loan at a maximum interest rate of 4 percent. The loan will remain 100 percent guaranteed.

Employee Retention Credit

The bill creates an employee retention credit for employers that close because of COVID-19. Employers who were operating a trade or business during 2020 that is fully or partially suspended because of orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19 are allowed a credit against employment taxes equal to 50 percent of qualified wages (up to $10,000 in wages) for each employee.

Employers that have gross receipts that are less than 50 percent of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80 percent of their gross receipts for the same calendar quarter in the prior year.

For businesses with more than 100 employees, wages eligible for the credit are wages that the employer pays employees who are not providing services because of the suspension of the business or a drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.

Note: The credit isn’t available to employers receiving Small Business Interruption Loans under the new law.

Retirement Plans

Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the 10 percent additional tax for early distributions. Eligible distributions can be taken up to Dec. 31, 2020. COVID-19 related distributions may be repaid within three years.

Eligible taxpayers include those who have been diagnosed with SARS-CoV-2 virus or COVID-19 or whose spouse or dependent has been diagnosed with SARS-CoV-2 virus or COVID-19 disease. The relief also extends to taxpayers who experience adverse financial consequences from being quarantined, furloughed, laid off, work hours reduced, or who is unable to work because of lack of child care.

Any resulting income inclusion can be taken over three years. The bill also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.

The Act delays 2020 minimum required contributions for single-employer plans until 2021.

Charitable Deductions

A new above-the-line charitable deduction cannot exceed $300 for 2020. The AGI limitations on charitable contributions for 2020 have been raised to 100 percent of AGI for individuals and 25 percent of taxable income for corporations. The bill also increases the food contribution limits to 25 percent.

Estimated Tax Payments for Corporations

Estimated tax payments due between March 26, 2020, and Oct. 15, 2020, are not due until the latter date and can be paid at once.

Payroll Tax Delay

Payment of 50 percent of 2020 employer payroll taxes is delayed until Dec. 31, 2021. The other 50 percent will be due Dec. 31, 2022. For self-employment taxes, 50 percent will not be due until those same dates.

Payroll tax payments may not be delayed if they receive a small business loan, as explained above.

Payroll Tax Credit Refunds

Employers can receive an advance for payroll tax credits available under the Families First Coronavirus Response Act. The IRS, which will provide those forms soon, is instructed to waive any penalties for failure to deposit payroll taxes if the failure was because of an anticipated payroll tax credit.

Net Operating Losses

The 80 percent income limitation for net operating loss deductions for years beginning before 2021 is temporarily repealed. For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback).

Business Interest Limitation

For tax years beginning in 2019 and/or 2020, the adjusted taxable income percentage is increased to 50 percent from 30 percent. Taxpayers also can choose to use 2019 income in place of 2020 for the computation.

Qualified Improvement Property

The depreciable life of a QIP has been reduced from 39 to 15 years. This change is retroactive to Jan. 1, 2018.

Excess Loss Limitations

The bill repeals the Sec. 461(l) excess loss limitation. Sec. 461(l) was added to the Code by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, and it disallows excess business losses of noncorporate taxpayers if the amount of the loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).

Corporate Alternative Minimum Tax (AMT)

The AMT credit for corporations will be a refundable credit for 2018 tax years that can be claimed now.

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