COVID-19 relief: Overview of the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. In addition to funding the health care fight against the novel coronavirus (COVID-19), the roughly $2 trillion legislation provides much-needed financial relief to individuals, businesses, not-for-profit organizations, and state and local governments during the pandemic. Here are some of the key provisions for individuals and businesses.

Economic Impact Payments

The CARES Act provides one-time direct Economic Impact Payments of up to $1,200 for single filers or heads of households; married couples filing jointly can receive up to $2,400. An additional payment of up to $500 is available for each qualifying child under age 17.

Economic Impact Payments are subject to phaseout thresholds based on adjusted gross income (AGI). The phaseouts begin at $75,000 for singles, $112,500 for heads of household and $150,000 for married couples.

The payments are phased out by $5 for every $100 of AGI above the thresholds. For example, the payment for a married couple with no children is completely phased out when AGI exceeds $198,000. The payment for a head of household with one child is completely phased out when AGI exceeds $146,500. And, for a single filer, it’s completely phased out when AGI exceeds $99,000.

Note: The stimulus payments that are currently being sent out are advances of a credit that will be on your 2020 tax return. Therefore if you receive the advance now, then you will no longer get that credit when you file your 2020 taxes. To determine your stimulus advance, the IRS is looking at the most recently filed of your 2018 or 2019 taxes when they decide how much of this credit advance is due to you. However, even if you do not receive an advance on the credit you may still receive it when you file your 2020 taxes in spring of 2021.

A few commonly asked questions are as follows:

1) Will I have to pay this stimulus payment back if if my income is higher in 2020? —-The current statements from the IRS are that you will not have to pay this stimulus money back as there is no provision in the law requiring this.

2) Is this payment taxable to me as income in 2020? —- No, this is a credit against the tax owed. It will not reduce your refund nor will it increase the amount you owe. If you qualify for the credit advance based on your most recently filed 2018/2019 tax returns you get it early and if you don’t qualify for it based on those returns, but do qualify when filing your 2020 returns you will receive it then.

3) I qualify for the advance credit, how do i get the funds? — If you sent in your direct deposit information on your most recent tax return the IRS will use that to direct deposit your stimulus check. If you have not filed a tax return or did not give them your direct deposit information then you can go to the following website and update that info with them and track where your payment is. To be directed to the IRS website I have attached the hyperlink: IRS economic Impact payments.

4) Will the $500 per dependent under 16 affect my child tax credit in 2020? No, you will still be eligible to receive your $2,000 child tax credit for qualifying dependents like normal. The $500 economic impact payment is in addition to the normal child tax credit

Employee retention credit

The CARES Act creates a new payroll tax credit for employers that pay wages when:

  • Their operations are partially or fully suspended because of certain government orders related to the COVID-19 pandemic, or

  • Their gross receipts have declined by more than 50% compared to the same quarter in the prior year.

Eligible employers may claim a 50% refundable payroll tax credit on wages paid (including health insurance benefits) of up to $10,000 that are paid or incurred from March 13, 2020, through December 31, 2020.

For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.

Be aware that additional rules and restrictions apply.

Paycheck Protection Program (PPP)

This $349 billion loan program — administered by the Small Business Administration (SBA) — is intended to help U.S. employers keep workers on their payrolls. To potentially qualify, you must have fewer than 500 full- or part-time employees. PPP loans can be as large as $10 million. But most organizations will receive smaller amounts — generally a maximum of 2.5 times their average monthly payroll costs.

If you receive a loan through the program, proceeds may be used only for paying certain expenses, generally:

  • Payroll (including benefits),

  • Mortgage interest,

  • Rent, and

  • Utilities.

Perhaps the most reassuring aspect of PPP loans is that they can be forgiven — so long as you follow the rules. And many rules and limits apply. Because of the limited funds available, if you could qualify, you should apply as soon as possible.

The CARES Act expands business access to capital in additional ways. Many of the other loan programs are also being administered by the Small Business Administration (SBA).

NOTE: As of April 16, 2020 the initial funds provided by the CARES act have been used up, however more funds may become available if congress passes further relief. If your bank is willing to accept the application it may be worthwhile to submit it just in case. Should you need assistance our staff at BBE is available to assist businesses on this matter.

Modifications of TCJA provisions

The CARES Act rolls back several revenue-generating provisions of the Tax Cuts and Jobs Act (TCJA). This will help free up cash for some individuals and businesses during the COVID-19 crisis.

The new law temporarily scales back TCJA deduction limitations on:

  • Net operating losses (NOLs),

  • Business tax losses sustained by individuals,

  • Business interest expense, and

  • Certain itemized charitable deductions by individuals and charitable deductions for corporations.

The new law also accelerates the recovery of credits for prior-year corporate alternative minimum tax (AMT) liability.

Significant for the hard-hit restaurant and retail sectors, the CARES Act also fixes a TCJA drafting error for real estate qualified improvement property (QIP). Congress originally intended to permanently install a 15-year depreciation period for QIP, making it eligible for first-year bonus depreciation in tax years after the TCJA took effect. Unfortunately, due to a drafting glitch, QIP wasn’t added to the list of property with a 15-year depreciation period — instead, it was left subject to a 39-year depreciation period. The CARES Act retroactively corrects this mistake and allows you to choose between first-year bonus depreciation and 15-year depreciation for QIP expenditures.

Additional provisions under the CARES Act

The financial relief package under the CARES Act also includes provisions to:

  • Significantly expand unemployment benefits for workers,

  • Allow IRA owners and qualified retirement plan participants under age 59 ½ who suffer certain adverse effects due to the COVID-19 pandemic to withdraw in 2020 up to $100,000 and then recontribute the withdrawn amount within three years with no federal income tax consequences,

  • Waive required minimum distributions (RMDs) from IRAs and retirement plans that would otherwise have to be taken in 2020 to avoid an expensive penalty,

  • Provide an above-the-line charitable deduction of up to $300, generally for 2020 cash contributions to qualified charities, and

  • Exclude from an employee’s taxable income up to $5,250 of employer payments made on the employee’s student loans from the date of the CARES Act’s enactment through December 31, 2020.

  • The CARES Act also allows employers to defer their portion of payments of Social Security payroll taxes through the end of 2020 (with similar relief provided to self-employed individuals).

Need help?

Keep in mind that additional guidance could be released — or new legislation could be signed into law — that could affect these CARES Act provisions. And more relief measures may be forthcoming.

The COVID-19 pandemic has affected every household and business in some way. If you have suffered financial losses, contact us to discuss resources that may be available to help you weather this unprecedented storm.

This post is for informational purposes only and is not to be construed as legal advice. You should still consult a local tax or business attorney for questions related to your specific situation. To set up a telephone conference with one of our attorneys please click HERE.