On March 27, 2020, President Trump signed into law the latest COVID-19 relief bill: Coronavirus Aid, Relief, and Economic Security (CARES) Act. The bill brings with it several elements of relief for businesses, employees, and families in an effort to maintain livelihoods throughout the crisis and after. The expected cost of the bill is nearly $2 trillion and includes nearly $500 billion in economic distress relief for companies.
For funding dedicated to taxpayers and businesses, the bill currently includes provisions related to taxes, unemployment, small business loans, and a large business lending program. Below is a summary of what we know so far about the bill. The bill is voluminous, so please watch for additional details from DHJJ.
Small Business Assistance in the CARES Act
The law includes $349 billion in loans for small businesses. The CARES Act allows the Small Business Association (SBA) to serve as a guarantor for 7(a) loans of up to $10 million for small businesses to maintain payrolls and pay off debts.
Paycheck Protection Program
Small employers (business with 500 or fewer employees), self-employed, and gig economy workers are eligible for the Paycheck Protection Program, which provides eight weeks of cash-flow assistance through 100% federally guaranteed loans for small businesses who maintain payroll. The portion of loans used for payroll, mortgage interest, rent, and utilities could be forgiven for small businesses that maintain payroll. Retroactive to February 15, 2020, this allows employers to bring back workers who have already been laid off.
Emergency Economic Injury Disaster Loans
The CARES Act expanded eligibility for access to Emergency Economic Injury Disaster Loans. This includes an increase of eligible businesses and not for profits as well as establishes an emergency grant procedure. In addition, the SBA shall waive personal guarantees on loans below $200,000, the requirement that the applicant needs to be in business for one year before the disaster, and the credit elsewhere requirement.
SBA Express Loans
The Act increases the maximum loan for SBA express loans from $350,000 to $1 million through the end of 2020.
Tax Provisions in the CARES Act for Businesses and Employers
The credit for paid sick leave and paid family leave in the Families First Coronavirus Response Act enacted last week is available for advance refunding via forms on the IRS website (not yet released as of this publication). Penalties for failure to deposit payroll taxes will be waived in the event of an anticipated payroll tax credit.
Employee Retention Credit
A refundable employee retention credit is available for eligible employers. Qualified employers are permitted to claim a 50% credit on eligible wages paid up to $10,000 per employee. Eligible employers, as currently defined, are limited to businesses that are fully or partially suspended because of a government order and employers whose gross receipts are less than 50% of their gross receipts for the same quarter the prior year. Employers that receive SBA 7(a) Paycheck Protection Program loans are not eligible for this credit.
Payroll Tax Payments Delayed
An employer may delay their share of payroll tax payments that would otherwise be due between the date of enactment and December 31, 2020. The first 50% is due by December 31, 2021, with the remaining 50% due by December 31, 2022. The same provisions exist for self-employment taxes.
Carry Back Tax Losses
Businesses suffering tax losses can carry back tax losses from 2018, 2019, and 2020 to the previous five years allowing for access to immediate tax refunds. Additionally, the 80% income limitation for net operating loss deductions is temporarily repealed for years beginning before 2021. It also repeals the excess loss limitation created by the Tax Cuts and Jobs Act, which disallowed excess business loss of noncorporate taxpayers if the amount exceeds $250,000 ($500,000 for MFJ).
Refundable AMT Credit for 2018
Corporate alternative minimum tax (AMT) is now a refundable credit for 2018 tax years.
Qualified Improvement Properties
Qualified Improvement Properties were made a 15-year property as a technical correction, retroactively to qualifying assets placed in service after December 31, 2017.
Business Interest Limitation
The business interest limitation under IRC Section 163(j), currently set at 30% of adjusted taxable income based on EBITDA, would be set at 50% for 2019 and 2020.
Charitable Contribution Deduction
Limitations for the charitable contribution deduction for corporations have been increased from 10% to 25%.
Tax Provisions in the CARES Act for Individuals and Families
Financial relief for American families is provided with direct payments of an advance 2020 tax credit that will be issued in the amount:
- Up to $1,200 per adult,
- $2,400 for married filing jointly,
- and $500 per child under the age of 17
Higher-earning taxpayers with Adjusted Gross Income (AGI) above $75,000 filing single or $150,000 filing married jointly will receive reduced amounts. The credit is reduced by 5% of the taxpayer’s AGI in excess of $75,000 for single filers and $150,000 for filing married filing jointly. Payments are based on 2019 returns, if filed, or 2018 returns, and a provision exists for those who don’t earn enough to file a return to still be able to claim the credit. The amount of credit available on a taxpayer’s 2020 return will be reduced by the amount of the advance refund payment they receive. It is the US Treasury Department’s goal to get these payments started as soon as possible.
The 10% tax for early distributions on retirement plans is waived for up to $100,000 in coronavirus-related distributions. Qualifying events include a coronavirus diagnosis, or adverse financial consequences as a result of the virus such as quarantine, furlough, lay off, reduced hours, or unable to work due to lack of childcare. Distributions can be taken up to December 31, 2020. In addition, the taxpayer can recontribute those funds within the three-year period without regard to the annual contribution cap.
Current retirement plan loan limits have doubled to the lesser of $100,000 or 100% of the participants’ vested account balance in the plan. In addition, individuals with a loan outstanding from their plan with repayment due from March 27, 2020, through December 31, 2020, can delay their loan repayment for up to one year.
Taxpayers can keep their retirement capital invested instead of taking required minimum distributions (RMD) for 2020 on IRAs and defined contribution plans.
Charitable Deduction Opportunities
The CARES Act provides enhanced charitable deduction opportunities in the form of a $300 above-the-line-charitable deduction. The 60 percent of adjusted gross income limitation is suspended for cash contributions to qualifying organizations made by individuals in 2020, excluding donor-advised funds.
Student Loan Payments
Student loan payments are suspended by the Department of Education on federally backed student-loans without penalty through September 30.
Telehealth Services for High Deductible Health Care Plans
Coverage for high deductible health care plans with HSAs can be used pre-deductible for telehealth services.
Unemployment Provisions of the CARES Act
The bill provides $600 per week in addition to state unemployment benefits and includes an additional four months of benefits. It also ensures state and local governments and nonprofits can provide employees with unemployment.
Self-employed individuals, independent contractors, and partially-employed individuals with limited work history who are unable to work as a direct result of a public health emergency will also qualify for unemployment benefits.
Residential Mortgage Relief
Federally backed mortgage loans are eligible for forbearance for up to 180 days with the opportunity for an additional 180 days if either the initial or extended forbearance period is shortened. Fees, penalties, and additional interest cannot be charged from delayed payments. For those with federally backed loans with tenants, eviction is not allowed for tenants who fail to pay rent for a 120-day period, and fees and penalties may not be charged.
How DHJJ Can Help
DHJJ is here to help provide guidance and resources during this uncertain time. We are continually getting new information during this ever-fluid time. Please check our DHJJ COVID-19 Tax Resources page for the latest tax information and guidance. If you have other questions, please fill out the form below.