CARES Act – The Federal Coronavirus Economic Relief Plan

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law in an effort to stimulate our weakened economy due to the COVID-19 pandemic. The Act provides various provisions for individuals and businesses. The following is a summary of some of the key provisions.

INDIVIDUALS

  • Rebate Checks for Individual Taxpayers:
    • Provides a refundable credit on individual’s 2020 tax. The credit will be advanced to eligible taxpayers during 2020.
    • How much is the rebate? $1,200 for individual taxpayers, $2,400 for joint taxpayers, plus $500 for each qualifying child.
    • Who qualifies for the advance rebate check? The rebate phases out at $75,000 for single taxpayers, $112,500 for head of household, and $150,000 for joint taxpayers. The phase-out is 5% per dollar of qualified income. Click here for phase-out examples.
    • Who does not qualify for the advance rebate check? Taxpayers over the above income limits, dependents over age 16, or anyone who does not have a social security number.
    • How will they determine how much I receive? Advance rebate checks will be based on the 2019 tax returns. If the 2019 tax return has not been filed, 2018 will be used. For low-income individuals that are not required to file, the SSA-1099 or RRB-1099 form will be used.
    • What do I need to do? Most taxpayers will not need to do anything. If direct deposit was used on your last tax return, the rebate will be deposited into your bank account. If banking information is not on your last tax return, the IRS plans to create an online portal for taxpayers to provide their information. For taxpayers that do not provide direct deposit information, a check will be mailed to the address on file with the IRS.
    • What if you haven’t filed your 2018 or 2019 tax return? You’ll want to file your tax returns as soon as possible. Rebate checks will be available for the rest of the year.
    • What if you have not yet filed our 2019 tax return but 2018 is filed? Contact one of HAS tax professionals to help you determine whether this would be a good time to file 2019.
    • Where do I go for more information? https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
  • Unemployment Provisions:
    • The CARES Act provides unemployment benefits for self-employed, independent contractors, and those with limited work history.
    • An additional $600 per week will be added to unemployment benefits through July 2020 for individuals that have been laid off due to COVID-19.
    • An additional 13 weeks of unemployment benefits during 2020 for those who remain unemployed after state unemployment benefits are no longer available.

  • Penalty waived on early retirement plan distributions
    • Certain taxpayers can withdrawal up to $100,000 before age 59 1/2 from their retirement plan penalty free in 2020. Any amount required to be included in gross income can be spread out over 3 years.
    • These distributions can be recontributed any time during the 3 years following the day the distribution is made without regard to that year’s cap on contributions.
  • Required Minimum Distributions (RMD) from retirement plans are waived for 2020.
  • The cap on qualified employer retirement plan loan has temporarily been increased to $100,000 (prior $50,000). The CARES Act also allows individuals to borrow the lesser of $10,000 or 100% of their account balance (prior rules only allowed individuals to borrow 50% of their account balances).
  • Individuals with existing retirement plan loan balances are allowed a one-year extension of the repayment term of the plan loan. The due date of the payments must be after the enactment of the CARES Act and before December 31, 2020.
  • New charitable contribution deduction for taxpayers using the standard deduction.
    • Taxpayers can now deduct up to $300 of cash contributions to charitable organizations. This change is permanent.
  • Limitations on charitable contributions during 2020 have been modified for individuals, corporations, and businesses that contribute food inventory.
  • A provision was added for 2020 that allows employers to contribute up to $5,250 toward an employee’s student loans. The employer payments would be tax-free to the employee.

BUSINESSES

  • The CARES Act created the Paycheck Protection Program (PPP) to provide federally guaranteed loans to primarily help cover payroll expenses and encourage employee retention. Under this program, loans would be forgiven to the extent the borrower uses the funds for payroll and other qualified expenses. The Act also expanded on the SBA Economic Injury Disaster Loan (EIDL) and added a $10,000 advance on the loan that does not require repayment. Click here for more details.
  • The Employer Retention Credit (ERC) provides a refundable tax credit for eligible employers against federal employment taxes equal to 50% of qualified wages paid to employees between March 12, 2020 and December 31, 2020. Click here for more details.
  • Employers and self-employed individuals are allowed to defer payment of the employer share of the Social Security tax they would otherwise be responsible for paying. The deferred employment tax payment can be paid over the next two years. Half of the required amount would be due by December 31, 2021 and the other half by December 31, 2022. Note: Self-employed individuals will want to contact their tax professional to adjust their tax estimates accordingly.
  • Qualified Leasehold Improvement Depreciation Correction – The long-awaited Tax Cuts and Jobs Act error regarding leasehold improvements have been corrected. Costs associated with improving facilities now qualify for bonus depreciation allowing an immediate write off instead of having to write those costs off over 39 years.
  • Temporary repeal of the Tax Cuts and Jobs Act Net Operating Loss changes –The TCJA’s removal of the NOL carryback and 80% of taxable income cap has been delayed until January 1, 2021. For NOLs arising in 2018-2020, businesses and individuals can carry back the loss 5 years. In addition, during this period the NOL can be used to offset 100% of taxable income.

OTHER PROVISIONS

  • The CARES Act postpones the effective date of the “excess business loss” rules until 2021. This change is retroactive to 2018.
  • Unused corporate alternative minimum tax (AMT) credits are available for an accelerated full recovery now to create additional cash flow.
  • The 30% limitation on the amount of business interest that taxpayers are allowed to deduct on their tax return has been increased to 50% of taxable income for 2019 and 2020.
  • Student loan payments, accrued interest on the balances, and collections on student loans held by the Department of Education are postponed until September 30, 2020.
  • The CARE Act provides relief for borrowers of federally-backed mortgages (Fannie Mae and Freddie Mac, HUD, VA, or USDA). Borrowers experiencing financial hardship related to COVID-19 can request forbearance from lenders for up to 180 days. The Act also provides 90 days forbearance for multifamily borrowers.
  • Menstrual care products are now considered “qualified medical expenses”.

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