U.S. President Signs H.R 748 (CARES Act) Economic Stimulus Package to Assist with COVID-19
U.S. President Signs H.R 748 (CARES Act) Economic Stimulus Package to Assist with COVID-19
Congress has passed, and the President has signed H.R. 748 – Coronavirus Aid, Relief and Economic Security Act, commonly known as the CARES Act. This law provides $2.2 trillion of support to the U.S. economy. It is the single most expensive piece of legislation ever passed. There is relief for both individuals and businesses in the Act.
Individual Relief:
Recovery Rebates
The bill provides for immediate cash refunds of credits against 2020 income taxes equal to $1,200 per adult and $500 per child.
These amounts are phased out by $5 for every $100 of Adjusted Gross Income (AGI) above the threshold as follows:
Single Filers: $75,000 - $99,000
Head of Household Filers: $112,500 - $136,500
Joint Filers: $150,000 - $198,000
To be eligible for the rebate the individual must:
Not be a non-resident alien,
Not be able to be claimed as a dependent on another person’s tax return,
Not be an estate or trust, and
Must have a valid social security number for all individuals claimed.
AGI will be measured using the taxpayers 2018 tax return or the 2019 return if already filed.
No action will be required on the part of the taxpayers to claim this rebate. Funds will be sent electronically to taxpayers who have provided banking information with their tax returns and paper checks to those who have not.
Enhanced Deduction for Charitable Giving (2020)
The bill provides an “above the line” tax deduction of $300 for cash charitable donations made by individuals in 2020 giving taxpayers that do not itemize their deductions an additional tax benefit.
It also eliminates the 50% of AGI limit on deducting charitable donations as an itemized deduction on Schedule A making 100% of the deductions immediately deductible.
Corporations, whose deduction is normally limited to 10% of taxable income, is now limited to 25% of taxable income.
Non-Cash donations of food inventory, normally limited to 15% of AGI, are now increased to 25%.
Student Loans Paid by Employers
Taxpayers, whose employers pay some, or all, of their student loan debt as part of their compensation will be able to exclude those payments from taxable income up to $5,250. The loan must have been incurred by the employee for the education of the employee only. Qualifying payments can be made to the employee or directly to the lender. Only payments made by the employer after the enactment of this Act through December 31, 2020 are eligible for this exclusion.
Waiver of the 10% Early Retirement Distribution Penalty on Coronavirus-Related Distributions
The normal 10% penalty for early withdrawal from retirement plans has been waived for distributions up to $100,000 directly related to the coronavirus. The distributions must be made in 2020 to an individual (or spouse of an individual) diagnosed with the COVID-19 virus by an approved CDC test or to an individual who experiences adverse financial consequences as the result of a quarantine, business closure, layoff or reduced work hours due to the virus. Any qualifying distribution also qualifies to be taxed over a 3-year period and may be re-contributed back to the retirement account without regard to annual contribution caps, if made within 3 years.
Temporary Waiver of Required Minimum Distributions for Certain Accounts
The bill waives all 2020 required minimum distributions regardless of whether the taxpayer has been impacted by the virus.
Unemployment Insurance Provisions
Benefit Expansion - Unemployment assistance programs have been expanded through December 31, 2020 to cover individuals who were not previously eligible for benefits. Self-employed, independent contractors, limited work schedule, and others who are unable to work as a direct result of the coronavirus are now eligible for benefits.
Emergency Increase in Unemployment Compensation Benefits – The federal government will add $600/per week to the maximum allowable state unemployment benefits for up to four months.
Business Relief:
Employee Retention Credit
Eligible employers who retain their employees will receive a credit against payroll taxes equal to 50% of the qualified wages paid to employees who are not working due to the employers full or partial cessation of business or a significant decline in gross receipts. These credits will be claimed quarterly with a maximum credit of $10,000 per employee in aggregate for all quarters. Wages paid between March 12, 2020 and December 31, 2020 are eligible for the credit and the requirement to be directly affected by the Coronavirus does not apply. Any employer that receives an SBA 7(a) loan under the terms of the Paycheck Protection Program will not be eligible for these credits.
Employer Payroll Tax Payments Delayed Through the End of 2020
Payroll taxes due for the pay period beginning on the effective day of the Act and ending on December 31, 2020 are deferred. This includes 100% of the employer portion of payroll taxes (Soc. Sec. & Medicare) and 50% of the self-employment taxes incurred by self-employed individuals. The amount of payroll taxes withheld from employees’ wages remains due on the normal due dates. 50% of the deferred taxes will be due December 31, 2021 with the balance due on December 31, 2022. Any employer that receives an SBA 7(a) loan under the terms of the Paycheck Protection Program, and the loan is forgiven, under that program will not be eligible for this deferment.
Modification of Business Net Operating Loss (NOL) Carry Back Rules
Corporate taxpayers that generate business net operating losses in tax years 2018, 2019, and 2020 are now eligible to carry those losses back 5 years. Taxpayers may amend or modify tax returns filed for tax years 2013 – 2018 to apply for refunds of taxes paid in the respective year.
Temporary Suspension of Section 461(I) Excess Business Loss Limit
Corporate taxpayers (including Sole-Proprietorships and pass-through entities) that generate business net operating losses are no longer subject to a maximum loss carryback/carryforward limit. The bill also allows losses arising in tax years 2020 and prior to fully offset income (no longer subject to the 80% limitation).
Temporary Increase of Section 463(J) Business Interest Deduction Limit
For business taxpayers that are subject to the business interest expense limitation (generally average annual gross receipts more than $26 million) the deduction limitation of 30% of taxable income (before interest expense) has been increased to 50%. This will allow a larger tax deduction for businesses that carry debt.
Minimum Tax Credits
Alternative Minimum Tax (AMT) Credit Carryforward’s from years prior to 2018 are allowed to be claimed as refundable credits up to 50% of the excess minimum tax in tax years 2018-2020. Any unused AMT credit through 2020 becomes fully refundable in 2021. This Act makes all unused AMT credits fully refundable in 2019 and allows taxpayers to claim these credits back in 2018, if beneficial.
Correction of Qualified Improvement Property Recovery Period
This bill allows property classified as “qualified improvement property” (recovery period of 20 years or less) now eligible for 100% bonus depreciation. Largely seen as an oversite in the original 2017 TCJA Act this provision has been on the list of needed corrections since. This change applies retroactively to property acquired after September 27, 2017 so there are opportunities to amend 2017 and 2018 tax returns to take advantage of this correction, if advantageous.
Exclusion of Forgiven Loan Debt from Taxable Income
Any small business loans, mortgage obligations, or other loan obligations that are forgiven by the lender during the applicable period are excluded from taxable income.
The CARES Act is a massive bill that contains many other provisions not covered above.
Please see our separate post related the SBA Loan Program Revisions under the Paycheck Protection Program section of the CARES Act.
FMD will continue to monitor and advise on the various aspects of this bill as they unfold. Feel free to reach out to your FMD professional advisor at any time.
Please visit our website for continuing updates on all COVID-19 related matters.
