Understanding the 2020 Coronavirus Relief Bill (the CARES Act)
Assistance for Employers and Businesses
By John Carney and Ehren Wade
March 28, 2020
On March 27, 2020, President Trump signed H.R. 748, the “CARES Act,” which provides a number of benefits to individual and business taxpayers who are adversely affected by the outbreak of COVID-19, otherwise known as the “coronavirus.” Below is a summary of the key provisions of the CARES Act. Please contact us if you have any questions or we can otherwise assist you with obtaining any of these benefits for you or your business.
Financial Assistance for Individuals:
- Individuals receiving unemployment benefits would be eligible for an additional $600 per week through July 31st, 2020.
- This additional unemployment income is to be disregarded when calculating an individual’s eligibility for CHIP, Medicaid, and other federal assistance programs.
- Eligible workers who have been employed for at least 30 days and are laid off on or after March 1, 2020, would be eligible to receive family leaves benefits if they’re rehired.
- Health Savings Accounts (HSAs) can be used for “telehealth” services and menstrual health products.
- Employers can contribute up to $5,250 annually toward repayment of employees’ student loans without that amount being included in employees’ income.
- All payments on federal student loans are suspended through September 30, 2020, and interest on all federal student loans is frozen during this period through this period at 0%.
- The Secretary of Education is required to treat this 6-month period as though borrowers continued to make payments under income-driven-repayment (IDR) plans and for public service loan forgiveness.
- Any involuntary collections actions that would otherwise be taken on unpaid student loan balances is suspended during this time.
Tax Benefits for Individuals:
- 2019 tax filing & payment deadlines are both delayed from April 15th to July 15th, 2020.
- Rebates for Eligible individuals—U.S. citizens or residents with a Social Security Number who
filed a 2019 tax return (or for individuals who haven’t filed their 2019 tax return, the 2018 tax
return or 2019 Social Security statements)—can claim a special “recovery rebate” of $1,200 for
single taxpayers (including married filing separately), or $2,400 for taxpayers filing a joint
return, as an advance tax credit against their 2020 personal income taxes. An additional $500
would be provided for each qualifying child.
- This rebate is reduced by 5% of each taxpayer’s adjusted gross income above $75,000 and is completely phased out for incomes exceeding $198,000 for joint filers, $146,500 for heads of households, and $99,000 for individual filers.
- Taxpayers who: (1) have been diagnosed with COVID-19, (2) are the spouse or dependent of someone diagnosed with COVID-19, or (3) experience adverse financial consequences from the loss of work or child care due to COVID-19, may bypass certain withdrawal limits on retirement plans up to $100,000 for coronavirus-related distributions with no early withdrawal penalty.
- Distributions can be spread over 3 years for inclusion in gross income.
- Taxpayers can recontribute funds to a retirement plan within three years without regard to the year’s contribution cap.
- The limit that retirement plan beneficiaries can borrow is increased from $50,000 to $100,000. Beneficiaries affected by COVID-19 who have borrowed against their retirement funds are given an additional 1 year to repay their loans.
- Required minimum distribution rules on certain retirement plans and accounts are temporarily waived for 2020.
- For charitable contributions-
- The limitation currently based on 60% of the adjusted gross income has been suspended in favor of a deduction up to 100% of adjusted gross income.
- Up to $300 of charitable contributions may be deducted above the line for taxpayers who do not itemize their deductions.
- Both the increased limitation and above the line deduction only apply to cash contributions made in 2020.
Financial Support for Businesses:
• Small Business Interruption Loans
- The Paycheck Protection Program (7(a) loans): Businesses with 500 or fewer employees, apart from nonprofit organizations who are eligible to receive Medicaid expenditures are now eligible to receive 10-year loans of up to the lesser of: (a)$10,000,000, or (b)250% of the average total monthly payments for payroll, rent, mortgage payments, or other debt obligations incurred during the one-year period ending on the date of the loan. Special rules apply to seasonal businesses.
- Loans receive a risk rate of 0% under banking capital rules.
- Interest rates are capped at a maximum of 4%.
- Loans can be used for employee salaries, paid sick & medical leave, mortgage & rent payments, utilities, or other debt obligations. Note: funds cannot be used to compensate individual employees at an annual rate above$100,000 or pay for emergency sick or family leave covered under the second coronavirus response law.
- Eligible businesses must be in operation on February 15th, 2020 and must have employees for whom the borrower has paid salaries and payroll taxes.
- Borrowers who also receive assistance from the SBA for COVID-19 related payroll support are not eligible for loans for the same purpose.
- Borrower & lender fees and collateral personal guarantee requirements are waived for the covered period (up to June 30th, 2020).
- Borrowers under this program must certify that they won’t outsource any jobs or relocate them outside the country or abrogate any existing collective bargaining agreements for the term of the loan plus 2 subsequent years. Borrowers must also certify that they won’t pay any dividends or repurchase stock for the same period.
- Loan Forgiveness: Forgiveness is available for SBA loans under the Paycheck Protection Program up to the amount of the loan that is used for payroll during the period between March 1st, 2020 and June 30th, 2020, up to a maximum of $33,333 for each employee. Normal rules regarding documentation apply.
- “Payroll” for this purpose does not include qualified sick leave and family leave eligible for a credit under the Families First Coronavirus Response Act
- The amount eligible for forgiveness is reduced pro rata based on the percentage of employees who are laid off or discontinued as a result of COVID-19-related business events.
- Canceled debt would be excluded from borrowers’ gross income for tax purposes.
Expansion of Other Small Business Loan Programs:
- SBA Express Loans: The maximum balance of an SBA express loan is increased from $350,000 up to $1 million.
- Emergency Economic Injury Disaster Loan (EIDL) Grants: Within 3 days after applying, borrowers may receive an emergency advance of up to $10,000. This $10,000 is not required to be repaid.
- Relief for Pre-Existing SBA Loans: The SBA will pay principal, interest, and associated fees for 6 months on pre-existing covered Chapter 7(a) loans that are not in deferment, beginning on the next payment due date.
- Other Support Programs for Businesses
- Expanded Bankruptcy Protection for Small Businesses:
- The $2.73 million debt limit for streamlined Chapter 11 bankruptcy procedures for small business debts is increased to $7.5 million.
- Any federal payments received by businesses from Coronavirus-related programs would be excluded from the income calculations in Chapter 11 bankruptcy proceedings.
- Special Excise Tax Benefits for Certain Industries:
- Aviation companies are granted an “excise tax holiday” from taxes on air transportation for both individuals and cargo.
- Distilled alcohol normally used for beverage consumption that is used to produce hand sanitizer is exempt from excise tax for 2020.
- Medical Providers:
- The annual 2% reduction in Medicare payments that had been scheduled due to sequestration has been suspended from May 1st through December 31st, 2020.
- Medicare payments are available for tele-health providers and the requirement for face-to-face physician visits for Medicare reimbursements is temporarily waived.
- Expanded Bankruptcy Protection for Small Businesses:
Business Tax Provisions
- The filing and payment deadline for calendar-year corporations is extended from April 15thto July 15th, 2020.
- Employers who are impacted by COVID-19 and either fully suspends operations or experience a decline of 50% or more in gross receipts in a given calendar quarter are eligible for a refundable employee retention tax credit up to a maximum of $5,000 against the employer portion of Social Security taxes and/or Railroad Retirement taxes.
- The credit is based on 50% of qualified wages—including expenses for qualified health plans.
- This credit applies to wages paid after March 12, 2020, and before January 1, 2021.
- The credit can be requested in advance from the IRS.
- Employers and self-employed individuals can defer payment of the employer portion of Social Security payroll tax through the end of 2020, with the first installment, not being due under December 31, 2021, and the second installment being due on December 31, 2022.
- Modifications to Net Operating Losses-
The 80% limitation on net operating losses for corporate taxpayers other than REITs incurred in, or applicable to, taxable years beginning before January 1st, 2021 is temporarily repealed, allowing those losses to be fully deductible.
- All net operating losses (NOLs) reported in years 2018, 2019, and 2020 would be allowed to be carried back for up to 5years for taxpayers other than REITs.
- For non-corporate businesses, the pre-2018 rules for excess business loss carrybacks have been extended to years through the year ending December 31st, 2020.
- Modifications to Net Operating Losses-
- The 10% taxable income limit on charitable deductions is increased to 25% for cash contributions for corporate taxpayers other than donor-advised funds or private foundations. The
15% taxable income limit on contributions of food inventory is also temporarily increased to 25% of taxable income.
- Minimum tax credits for corporate AMT from years 2017 and earlier are made refundable for 2018 and 2019 tax years.
- Qualified improvement property is now the 15-year property and is made eligible for bonus depreciation for 2019 and later tax years. (Note: this is a technical correction to the Tax Cuts
and Jobs Act that previously erroneously excluded certain interior property improvements from benefiting from the bonus depreciation benefits.)
- The 30% taxable income limit on business interest expense is increased to 50% for 2019 and 2020.
Other Federal Administrative Measures and Tax Incentives
- In addition, the IRS has rolled out additional administrative measures to help with the effort to combat the economic effects of COVID-19 under the People First Initiative:
- The due dates for all 2020 individual and corporate estimated tax payments through the 2nd quarter are delayed until July 15th, 2020.
- Individual taxpayers who are under an installment agreement with the IRS may voluntarily suspend payments from April 1st through July 15th, 2020.
- Interest will continue to accrue on unpaid balances.
- Taxpayers making an Officer in Compromise who have yet to file their 2018 returns will not be held in default as long as the 2018 returns are filed by July 15th, 2020.
Other tax benefits are available through the Families First Coronavirus Response Act, passed by Congress on March 18, 2020, including dollar-for-dollar payroll tax credits for providing paid sick and family medical leave to employers.
- The amount of the credit is limited to:
- $511 per day for each employee who is out of work because they are suffering from COVID-19 symptoms or are subject to a quarantine or isolation order related to COVID-19, up to a maximum of $5,110; or
- $200 per day for each employee who is out of work because they are caring for an individual for the reasons mentioned above, or for a child whose school or child care facility has been closed or whose child care provider is unavailable due to COVID-19 precautions, up to a maximum of $2,000.
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Given the recent timeframe in which this legislation has been enacted, we expect further guidance from the Treasury and other federal agencies on how individuals and businesses can take advantage of these programs to help themselves and their families in a post-COVID-19 economic environment.
Our entire Team at MillerMusmar CPAs is here to help you navigate through these programs. Please contact us if you require our assistance.
Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended or written by the practitioner to be used and cannot be used by the taxpayer for the purpose of avoiding penalties.
MillerMusmar CPAs is an established accounting firm with offices in Reston, Virginia and Manassas, Virginia. We have a twenty-five-year history of providing top quality auditing, tax and accounting services to clients throughout the Washington Metropolitan area and internationally. By combining the expertise of a mid-sized firm with the personal attention, we are both large and small enough to deliver a responsive service to our clients. For more information, please visit our website at www.MillerMusmar.com