On March 25th the Senate unanimously approved the Coronavirus Aid, Relief and Economic Security (CARES) Act which is the third congressional bill to address the crisis. The House passed it today and sent it to the President’s desk for his signature. Some provisions of the bill include small business loan-to-grants, expanded unemployment insurance, direct payments to those with wages in the middle-income level and below, deferrals of employer payroll tax liabilities, employee retention tax credits and modifications to the Tax Cuts and Jobs Act (TCJA) passed in 2017. The $2 trillion dollar CARES Act also provides $140 billion in emergency funding to Health and Human Services (HHS) and $1.32 billion in supplemental funding to community health centers.
Recovery checks: Each US individual will receive payment up to $1,200 ($2,400 for married couples) and an additional $500 for every child. The amount will be phased out for adjusted gross income above $75,000 for single tax filers, $112,500 for head of household and $150,00 for married couples who file a joint return. The amount will be completely phased out for adjusted gross income above $99,000 for single tax filers, $146,500 for head of household and $198,00 for married couples who file a joint return. The payments will be based on the adjusted gross income of the most recent filed tax return which would be the 2019 tax return if filed or the 2018 tax return if you haven’t filed yet for last year.
Unemployment Benefits: Unemployment insurance is extended by 13 weeks and includes a four-month enhancement of benefits. The unemployment compensation is immediately available for those not eligible for regular unemployment including those who may have exhausted benefits. To qualify an individual must provide certification that they are able and available to work but are unemployed for one of the following reasons: coronavirus diagnosis for self or family member, school or daycare closures and the individual is the primary caregiver, workplace shut-down, advice from a healthcare provider to self-quarantine, the individual was about to start a job that is no longer available, the individual is now head of household because someone died from coronavirus or the individual had to quit because of a circumstance resulting from coronavirus. These provisions do not apply to an individual who can telework for pay or are already getting paid under Expanded FMLA. The unemployment benefits are available from January 27 to December 31, 2020. Assistance cannot exceed 39 weeks and is covered 100% by the federal government. Upon agreement with a state, an additional $600 per worker per week is available through July 31, 2020.
Penalties removed for early withdrawal from retirement accounts: Coronavirus-related distributions from qualified retirement accounts up to $100,000 will not be subject to the 10% early withdrawal penalty. Eligible distributions can be taken up to December 31, 2020 for the following purposes: individual has been diagnosed with COVID-19, individuals spouse or dependent has been diagnosed with COVID-19 or who has experienced adverse financials consequences due to being quarantined, furloughed, laid off, had work hours reduced or is unable to work due to lack of childcare. The bill will also allow tax payments on these qualified distributions to be spread out over three years. It would also allow individuals to return the distributions to the retirement account over three years.
Required Minimum Distributions: RMD’s are waived for calendar year 2020.
Charitable Contributions: Individuals will be permitted to deduct up to $300 of cash contributions for 2020 regardless of whether they itemize or not.
Student Loans: The Secretary of Education will defer student loan payments (both principal and interest) through September 30, 2020 without borrower penalty or reporting to a credit agency. Collection of defaulted student loans, including wage garnishments and reductions in tax refunds are suspended.
Paycheck Protection Program: The SBA will administer forgivable loans to provide cash-flow assistance to employers who maintain their payroll during this emergency, help workers remain employed and enable affected small business to rebound after the crisis. Businesses with less than 500 employees, that were operational on February 15, 2020 and had employees for whom it paid salaries and payroll taxes are eligible. The maximum loan amount will be 250% of the employer’s average total monthly payroll costs, based on the one-year period before the loan is made. Payroll costs are defined as the sum of all payments for compensation including salary, wage, tips, paid time off, severance, healthcare benefits, and state or local taxes. The maximum interest rate is set at 4%. The loans can be used for paid leave, costs related to group healthcare benefits, employee salaries, mortgage payments, and any other debt obligations. The loans cannot be used for individual employee compensation over $100,000 per year, compensation of an employee whose residence is outside the US, sick and family leave wages under the Families First Coronavirus Response Act. A portion of the loan may be forgiven completely if employers maintain their payroll during the covered period of February 15, 2020 to June 30, 2020. See additional details below on this. During the covered period, no collateral or personal guarantee for the loan will be required. The bill allows for complete deferment of the loan payments for at least six months and not more than a year.
Expansion of the SBA Economic Injury Disaster Loan Program: The bill expands the SBA’s EIDL program for a covered period of January 31, 2020 to December 31, 2020 and authorizes additional funding. The expansion removes the requirement of a personal guarantee on advances and loans below $200,000 and the requirement that an applicant be unable to find credit elsewhere. The bill also created an Emergency Grant to let an eligible entity who has applied for an EIDL loan to due COVID-19 request an advance on that loan of not more than $10,000 which the SBA must distribute within three days. Applicants will not be required to repay the advance payment even if subsequently denied for an EIDL.
Loan Forgiveness: The borrow is eligible for loan forgiveness equal to the amount spent by the borrower during an 8 week period after the origination date of the loan on payroll costs, interest payments on mortgages, payments of rent on any lease and payments on any utility. Amounts forgiven may not exceed the principal amount of the loan. Eligible payroll costs do not include compensation above $100,000 in wages. Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8-week period compared to the previous year time period, proportionate to maintaining employees and wages. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to COVID-19, borrowers that re-hire employees previously laid off by June 30, 2020 will not be penalized for having a reduced payroll at the beginning of the period. Borrowers will verify through documentation to lenders their payments during the period. Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years and 4% interest.
Employee Retention Credit: Employers who suspended operations by orders issued in response to COVID-19 or that has suffered a more than 50% decrease year over year in gross receipts during the quarters affected during the pandemic are eligible for an employee retention credit. The eligible employers will receive a 50% credit on qualified wages. For employers with greater than 100 full-time employees, qualified wages are defined as wages paid to employees when they are not providing services due to the COVID-19 related circumstances. For employers with less than 100 full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation including health benefits paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020. The credits can be used to reduce the employer FICA employment taxes for each quarter with any excess credits eligible for refunds. This credit is not available to employers taking advantage of the SBA lending program.
Deferral of Employer Payroll Tax Liabilities: Employers will be able to delay payments of the employer share of Social Security payroll taxes (6.2% of wages) that would have otherwise been owed from the date of enactment of the legislation through December 31, 2020. The bill requires that the deferred taxes be paid over a two-year period, with half of the amount to be paid by December 31, 2021 and the other half by December 31, 2022.
Modifications for net operating losses: Taxpayers will be able to use net operating losses (NOLs) to offset income without the 80% taxable income limitation enacted by the TCJA to carry back NOLs to offset prior year income for 5 years. These are temporary provisions that apply to NOLs incurred in 2018, 2019 and 2020.
Interest Limitation: The interest deduction limitation, under section 163(j), will be increased from 30% of the adjusted taxable income under the TCJA to 50% for 2019 and 2020.
Technical amendments regarding qualified improvement property: Costs incurred to improve qualified property may now be deducted immediately after corrections were made to the TCJA. The technical correction is available for years after enactment of the TCJA, making it 15-year property.
This is a good deal of information. If you have questions, please reach out so we can be of assistance. Check our website often for on-going updates.