The Coronavirus Aid, Relief and Economic Security (CARES) Act is a $2 trillion stimulus package that provides financial relief to individuals, families and businesses. The CARES Act was signed into law on Friday, March 27, and builds on two former pieces of legislation by providing more robust support to both individuals and businesses, including new federal loan programs, a host of other tax and nontax relief measures and cash rebates to individuals.
Help for Individuals
Stimulus Checks for Individuals and Joint Taxpayers will be issued for up to $1,200 for individuals, $2,400 for joint taxpayers and an additional $500 for each qualifying child. Known as Recovery Rebates, these checks will be based on information from your most recent tax filings, either 2019 or 2018 if you have not yet filed this season.
According to the Tax Policy Center, approximately 90% of Americans will be eligible to receive full or partial payments through the CARES Act. If you have adjusted gross income (AGI) of up to $75,000 ($150,000 married filing jointly, $112,500 head of household), you should be eligible for the full amount of the recovery rebate. The stimulus check rebate phases out at a rate of 5% for those with AGI above these thresholds, so it’s completely gone at AGI of $99,000 for single taxpayers and $198,000 for joint filers with no kids.
The stimulus check will be paid this year based on information from your most recent tax return and will be reconciled in tax year 2020 to ensure you received the correct rebate amount.
Increase in Unemployment Payments. Unemployment payments will be increased by $600 weekly for four months through July 31, and the bill also includes those who were previously not eligible for unemployment, including part-time employees, freelancers, independent contractors, gig workers, and self-employed persons. The Unemployment provisions do not apply to individuals who can telework with pay or who are getting paid sick or family leave.
Student Loan Payment Relief. Under the CARES Act, employers with educational assistance programs can make student loan payments on behalf of their employees on a tax-free basis, up to $5,250 annually. Such loan payments would be excluded from the employee’s income. The provision is applicable to loan payments made after the date of enactment (March 27, 2020) and before January 1, 2021.
Penalty Waived for Early Retirement Withdrawal. If you need to take money out of your IRA or company retirement plan ASAP, the 10 percent early withdrawal penalty will be waived on any “coronavirus-related distribution” of up to $100,000 taken in 2020. Covered distributions include those to individuals who have been diagnosed or whose spouse or dependent has been diagnosed with COVID-19, or those who have experienced adverse financial consequences related to COVID-19.
Additionally, income attributable to such distributions would be subject to tax over a 3-year period beginning with taxable year 2020. You can avoid income recognition by repaying the distribution to the retirement plan within three years of receipt.
Loans from Retirement Plans. The $50,000 limit for qualified plan loans is increased to $100,000 for 180 days starting March 27, and the 50 percent limitation has been lifted. You can borrow the lesser of $100,000 or the full value of the account. Repayment is also delayed for one year.
2020 Suspension of Required Minimum Distribution Rules. Minimum distribution rules are waived for calendar year 2020 for IRAs and certain defined contribution plans.
Cap Removed on 2020 Cash Contributions. For the 2020 tax year, any qualified contribution is allowed to the extent that the aggregate of such cash contributions does not exceed your AGI if you are itemizing your deductions. If taking the standard deduction, you will be allowed up to a $300 deduction for cash contributions made to a qualified tax-exempt organization.
Help for Businesses
New Federal SBA Loan Programs are now available to small businesses and non-profits, including 501(c)(6) organizations through the Small Business Administration Disaster Assistance Program. The Small Business Administration’s loan program is now accessible to more businesses and has an increased cap on loans. The CARES Act provides $349 billion for the Small Business Administration to distribute through a new loan program titled the Paycheck Protection Program (PPP), making non-profits (501(c)(3) and 501(c)(19) only), self-employed individuals and contractors eligible to receive assistance.
The Federal Reserve lending program will also receive $454 billion in support — loans from this fund will be for no longer than 5 years and will be aimed at aiding nonprofits (only those noted above) and businesses with around 500-10,000 employees with the goal of retaining at least 90 percent of their workforce with full compensation and benefits.
- Small Business “Paycheck Protection Program”. The CARES Act creates a new lending program, 100 percent guaranteed by the Federal government and modeled on the SBA 7(a) program, to help small businesses and nonprofits meet operating needs, especially payroll. Key details:
- Businesses of up to 500 employees are eligible, and businesses in the Accommodations and Food Services Sector are eligible if they have up to 500 employees at each location.
- 501(c)(3) and 501(c)(19) organizations with no more than 500 employees, sole proprietors, self-employed persons, and independent contractors are also eligible.
- All lenders can provide loans and the SBA’s usual requirement that businesses be unable to obtain credit elsewhere is waived.
- The loans can be for up to 2 ½ months of payroll costs, excluding the portion of compensation paid to any employee which exceeds an annual salary of $100,000, not to exceed $10 million.
- The borrower must certify that the loan will be used to retain workers, maintain payroll, make mortgage or lease payments, and pay utilities.
- No personal guarantee or collateral is required.
- The interest rate is 1 percent.
- Payments of all fees, principal, and interest is deferred for between 6 months and 1 year.
- The portion of the loan equal to payroll costs (subject to the above limit), mortgage interest, rent, and utility payments for eight weeks following the origination of the loan will be forgiven.The loan forgiveness will be proportionally reduced if the borrower reduces employment or salary and wages.
March 31 update: PPE Loan Applications are now available Borrower Paycheck Protection Program Application (v3).
Click here for a Fact Sheet from the U.S. Chamber of Commerce.
- SBA Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants. EIDLs are lower interest loans of up to $2 million, with potential for principal and interest deferment. They will be made solely based on credit scores and are available to all nonprofits, including 501(c)(6) organizations. EIDL borrowers can also receive a $10,000 cash advance (Emergency Economic Injury Grant) that will be forgiven if spent on the same categories as in the Payroll Protection Program, if such obligations cannot be met due to revenue losses.
Click here to apply for an EIDL Loan.
Click here for a summary from the U.S. Senate Committee on Small Business and Entrepreneurship.
- SBA Express Bridge Loan. This is a pilot program allowing small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loan or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. If a small business has an urgent need for cash while waiting for a decision and disbursement of an Economic Injury Disaster Loan, it may qualify for an SBA Express Bridge Loan.
– Up to $25,000
– Fast turnaround
– Will be repaid in full or in part by proceeds from the EIDL loan
You may find an Express Bridge Loan Lender via SBA’s Lender Match Tool.
- Washington, D.C. Metro Area State Funding. In response to the Coronavirus pandemic, there are state programs currently available to assist impacted businesses, and several more on the way. Click here for a full list of funding available in Maryland, Virginia and the District of Columbia.
Changes to Paid Leave Provisions. The CARES Act makes some technical corrections to the paid leave provisions enacted in the Families First Coronavirus Response Act (FFCRA) passed on March 18 (sometimes called the “Phase 2” bill; the CARES Act is “Phase 3”).
- Paid FMLA under FFCRA is capped at $200/day and $10,000 total.
- Paid sick leave under FFCRA is capped at $511/day and $5,110 total.
- The sick leave caps drop to $200/day and $2,000 total for sick leave taken to care for a family member or because of a school closure.
- Workers who were laid off after March 1 but then are rehired are eligible for paid FMLA.
Payroll Tax Credit. Employers are eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 per employee during the crisis. The credit would be available to employers whose businesses were disrupted due to virus shutdowns and those that had a decrease in gross receipts of 50 percent or more when compared to the same quarter last year. The credit can be claimed for employees who are retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees. Employers obtaining a loan under the expanded SBA program are not eligible for this credit.
Employer-side Social Security tax payments may be delayed through the end of 2020, with 50 percent to be paid on December 31, 2021 and the other half due on December 31, 2022. The Social Security Trust Fund will be backfilled by general revenue in the interim period. Deferral is not available to employers who have a loan forgiven under the Paycheck Protection Program.
Businesses with Net Operating Losses (NOLs) generated in tax years ending after December 31, 2017 and before January 1, 2021 can carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so businesses may use NOLs to fully offset their taxable income for tax years beginning before January 1, 2021. The bill also modifies loss limitations for non-corporate taxpayers, including rules governing excess farm losses.
The Excess Business Loss Limitation has been suspended retroactive to 2018. Taxpayers will not be subject to IRC section 461(l) limitation for 2018, 2019, or 2020.
Qualified Improvement Property can now be expensed. This long-awaited technical correction to the 2017 TCJA now allows for full expensing of certain improvements to the interior of a building, and is retroactive to 2018.
The Business Interest Expense Limitation, which currently limits the interest expense deduction to 30 percent of adjusted taxable income (ATI), has been expanded to 50 percent of ATI for 2019 and 2020. Businesses can also substitute 2019 income for 2020. The ATI calculation is similar to earnings before interest, tax, depreciation, and amortization (EBITDA). This will help businesses increase liquidity if they have debt or must take on more debt during the crisis.
Excise tax applied on alcohol used to produce hand sanitizer is temporarily suspended for tax year 2020.
Aviation excise taxes are suspended until January 1, 2021.
We will continue to update you as we get more information on Coronavirus legislation and guidance that may impact you. If you have more questions contact an MCB Advisor at 703-218-3600 or click here.
The information contained within this communication is provided for informational purposes only and is not intended as a substitute for obtaining accounting, tax, or financial advice from a certified professional. Continue to check back here for the most up to date tax information and changes in response to Coronavirus.
Subscribe to the MCB Blog and get all new MCB blog posts sent directly to your inbox.