Senate Passes the CARES Act
On Wednesday, March 25, the Senate passed the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” by a unanimous vote. As of this writing, the CARES Act is not yet law. The Act must be passed by the House and signed into law by the President. At this point, passage into law seems fairly certain. So let’s take a high-level look at the ACT. Take a deep breath because there is a ton of information.
- Direct Payments to Individuals (Recovery Rebates) – One of the most covered provisions in the Act is the direct payments to individuals. Those payments are expected to be up to $1,200 per adult with married couples receiving up to $2,400 plus $500 for each qualifying child. Like many items in our tax code, there are income phase-outs associated with the payments. The trigger appears to be adjusted gross income (AGI) levels from the 2018 tax returns on file with the IRS (2019 if already filed). The phase-out is set to begin at $75,000/$150,000 respectively and eliminate the payment if AGI reaches $99,000/$198,000 respectively. Register for the Mar 30 webinar on this topic.
- Enhanced Unemployment Benefits – The Act provides an estimated $250 billion to expand unemployment insurance benefits. The stimulus package will increase the amount of money jobless Americans can receive, extend the length of time they can receive it and include more workers previously not eligible for assistance including self-employed individuals and “gig” economy workers. Register for the Apr 2 webinar on this topic.
- Small Business Loans – The CARES Act amends the Small Business Act (SBA) to create a new Business Loan Program category. For the period from February 15, 2020 to June 30, 2020 (covered period), the law allows the Small Business Administration (Administration) to provide 100% federally-backed loans up to a maximum amount to eligible businesses to help pay operational costs like payroll, rent, health benefits, insurance premiums, utilities, etc. Subject to certain conditions, loan amounts are forgivable. Register for the Mar 31 webinar on this topic.
- Payroll Tax Credit Refunds – The bill provides for advance refunding of the payroll tax credits enacted last week in the Families First Coronavirus Response Act, P.L. 116-127. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms and instructions the IRS will provide. The IRS is instructed to waive any penalties for failure to deposit payroll taxes under Sec. 3111(a) or 3221(a) if the failure was due to an anticipated payroll tax credit.
- Employee Retention Credit – The bill creates an employee retention credit for employers that close due to the coronavirus pandemic. Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.
- Retirement Plans – Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the Sec. 72(t) 10% additional tax for early distributions. Eligible distributions can be taken up to Dec. 31, 2020. Coronavirus-related distributions may be repaid within three years
- Charitable Deductions – The bill creates an above-the-line charitable deduction for 2020 (not to exceed $300). The bill also modifies the AGI limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations. The bill also increases the food contribution limits to 25%.
- Payroll Tax Delay – The bill delays payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
- Additional Provisions– There are many additional items covered such as Net operating losses, Excess loss limitations, Interest limitations, Health plans, etc.