The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
March 28, 2020
Dear Clients, Colleagues and Friends,
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was officially signed into law by President Trump yesterday. The legislation is the largest emergency aid package in US history. The CARES Act is intended to provide a massive financial injection into a struggling economy by helping American workers, small businesses and other industries currently dealing with tremendous economic disruption as a result of the COVID-19 pandemic.
The CARES Act is a vast piece of legislation that will have further guidance issued in the coming days, weeks and months. For now, we have provided a summary of the key provisions for both individuals and businesses. We will provide further guidance as it becomes available.
- Stimulus Payments-Up to $1,200 per person ($2,400 married joint) and $500 per child under 17. Eligibility is based on your 2019 tax filing (2018 if you have not filed 2019). Key summary points:
- Income limits are $75,000 & $150,000, for single and joint returns respectively with a total phaseout at $99,000 & $198,000 (limits increase by $10,000 for each child a taxpayer has). Head of household income limits are $112,500 with a total phaseout at $146,500 with one child.
- Dependents of another are not entitled to stimulus payments.
- Payments will be automatically deposited into taxpayer’s bank account that is on file with the Internal Revenue Service in a few weeks.
- Applies to taxpayers that receive social security, retirement and disability checks, unemployed people and veterans.
- If a taxpayer does not qualify for a full stimulus payment based on their 2018 or 2019 tax return, they may still be eligible to receive a credit on their 2020 tax return if the taxpayer’s income levels decrease to a level that makes them eligible.
- In the event the taxpayer’s income increases in 2020 and would result in a lower stimulus calculation, it appears the difference is not required to be paid back by the taxpayer.
- Children born in 2020 would not be included in the stimulus payment calculation now but would count towards the stimulus credit calculation on the taxpayer’s 2020 tax return.
- Federal Compliance and Tax Payment Due Dates – 2019 income tax returns and respective payments are due July 15, 2020. There is no cap on the amount of payments that can be postponed. Q1 2020 estimated tax payments are also due July 15, 2020. For now, Q2 2020 estimated tax payments are still due June 15, 2020.
- 2019 IRA & HSA Funding Due Date – The due date is now July 15, 2020.
- Unemployment Benefits – Increased federal benefit of $600 on top of state benefit. Four months of expanded unemployment benefits (increases overall benefit by $600 a week over that period) including those not usually eligible for unemployment insurance, such as the self-employed, independent contractors, gig workers and those with limited work history.
- Unemployment Benefits – Non-Eligible Recipients – Workers who can work from home, and those receiving paid sick leave or paid family leave would not be covered.
- Student Loans – Payments are suspended until September 30. Certain employer payments of student loans on behalf of employees are excluded from taxable income. Employers may contribute up to $5,250 annually toward student loans, and the payments would be excluded from an employee’s income.
- Retirement Accounts – Waives the 10 percent early withdrawal penalty on retirement account distributions for taxpayers facing virus-related challenges. Withdrawn amounts are taxable over three years, but taxpayers can recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps. Loans can be taken up to $100,000. Prior loans against retirement accounts have been extended an extra year for repayment.
- Required Minimum Distributions (“RMD”) – RMD’s are suspended for 2020.
- Charitable contributions – Creates a $300 partial above-the-line charitable contribution for filers taking the standard deduction and expands the limit on charitable contributions for itemizers. No limitation on cash charitable contribution deductions for individuals in 2020.
- Rent & Mortgage Relief – A temporary, nationwide eviction moratorium is in place. Certain landlords cannot charge any fees or penalties for certain nonpayment of rent for 120 days after bill is passed. Certain federally backed mortgages may not initiate foreclosure for a limited timeframe during the current crisis. Certain borrowers may request forbearance from making payments for up to 180 days with the option to request an additional 180 days of relief.
- Excess Business Loss Limitation– This is suspended for 2018, 2019 & 2020.
- Social Security Payments Due for Self-Employed Individuals– Self-employed individuals may defer 50% of their Social Security taxes that are incurred beginning March 27, 2020 through December 31, 2020. The payment may be deferred into equal installments due on December 31, 2021 and December 31, 2022.
- Paycheck Protection Loans– Key summary points:
- Available to certain businesses with fewer than 500 employees, including sole proprietors and non-profits.
- Loans are based on a formula to be the lesser of average monthly payroll costs during the prior year multiplied by 2.5 or $10 million.
- Maximum maturity of 10 years and interest not to exceed 4%.
- Loans have the potential to be forgiven if certain criteria are met.
- Loans will be available through SBA-certified lenders, which include banks and credit unions.
- Loan proceeds can be used for certain payroll costs, healthcare, rent, utilities and other debts incurred by the business.
- Employee Retention Tax Credit –
- Not available to businesses who receive Paycheck Protection Loans mentioned above.
- Available to employers whose operations were fully or partially suspended due to a Covid-19 related “shut-down order” or gross receipts declined by more than 50% when compared to the same quarter in the previous year.
- Employers would be eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 for each eligible employee. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.
- Rules and requirements change once an employer has more than 100 employees.
- Social Security Payments Due – Employers may defer their 6.2% portion of Social Security taxes that are incurred beginning March 27, 2020 through December 31, 2020. The payment may be deferred into equal installments due on December 31, 2021 and December 31, 2022.
- NOL’s – Businesses may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years.
- Business Interest Expense Limitation – Increases the limit from 30% to 50% of the taxpayer’s adjusted taxable income for 2019 and 2020.
- Qualified Improvement Property Technical Correction– Corrects an error in the 2018 Tax Cuts and Jobs Act that limited bonus depreciation rules for qualified improvement property.
- Defined Benefit Plan Contributions – Single-employer defined benefit plans with payments due in 2020 may now defer until January 1, 2021. Interest will be due on the delayed contributions.
If you have any questions or need further information, please contact your P&N professional directly, or dial 212-736-0055 for immediate help. Stay safe.
Presti & Naegele