The highly anticipated economic stimulus bill to reverse the impact of the COVID-19 pandemic was overwhelmingly passed by Congress and has been signed by the President. The bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, includes the following highlights:
- Individual Stimulus Payments – checks (referred to as “recovery rebates”) of $1,200 per person ($2,400 if married filing jointly) plus $500 for each child under the age of 17 will be either mailed or direct-deposited by December 31, 2020. You must have a valid social security number to receive a check. Anyone with adjusted gross income (AGI) in excess of $75,000 if single ($150,000 if married filing jointly) will see their check reduced by $5 for every $100 that your AGI exceeds those thresholds.
- Small Business Loans – businesses with fewer than 500 employees (including nonprofits and sole proprietors) will have access to loans up to $10 million under Section 7(a) of the Small Business Act. Such loans will have a maximum maturity of 10 years with an interest rate not to exceed 4%. Furthermore, a portion of the loans may be forgiven on a tax-free basis.
- Emergency Government Disaster Loan and Grant – the CARES Act expands access to Economic Injury Disaster Loans up to $2 million under Section 7(b) of the Small Business Act to businesses with fewer than 500 employees, sole proprietors, and ESOPs. Businesses are also eligible for an immediate grant of up to $10,000 which can be used to cover payroll and is not required to be repaid even if the loan request is denied.
- Expanded Unemployment Benefits – the CARES Act increases the amount of unemployment benefits a person can receive by adding an additional $600 per week on top of any state benefits for as many as four months. It also adds an additional 13 weeks of benefits offered by the federal government after state benefits run out.
- Depreciation for Qualified Improvement Property – provides a technical correction to the depreciation of qualified improvement property (QIP). Retroactive to January 1, 2018, the depreciable life for QIP is being changed to its intended 15-year life.
- Retirement Funds for Coronavirus Costs – money taken out of a qualified retirement plan by someone under age 59 ½ will not be subject to the 10% early withdrawal penalty if the distribution does not exceed $100,000. The distribution must be made during 2020 to an individual who is, or has a spouse who is, diagnosed with SRS-COV-2 or COVID-19 by a test, or experiences adverse financial consequences as a result of being quarantined, furloughed or laid off, or having work hours reduced or being unable to work due to lack of child care.
- Distributions escape the penalty but are still subject to income tax. The income, however, may be spread over a 3-year period beginning with 2020.
- CARES Act also waives the requirement to take required minimum distributions from a retirement plan for 2020.
- Exclusion from Income of Employer Payment of Employee Student Loan Debt – employer can pay up to $5,250 in 2020 of an employee’s student loan obligation on a tax-free basis.
- Employee Retention Credit – employers receive a one-year credit against the employer’s 6.2% share of social security payroll taxes for any business that is forced to suspend or close its operations due to COVID-19 but that continues to pay its employees during the shutdown. Businesses are eligible if either (a) the operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from a government authority resulting from COVID-19, or (b) the business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of the same quarter in 2019. Credits will continue until the business’s receipts exceed 80% of what they were for the same quarter in 2019.
- The credit will be against the Company’s 6.2% share of social security taxes up to 50% of the qualified wages for each employee that quarter through December 31, 2020. Qualified wages vary depending on the number of employees the business employs and includes qualified health plan expenses (such as group health plan costs). Qualified wages may not $10,000 per employee for all quarters. The credit is refundable if it exceeds the Company’s payroll tax liability. No credit is allowed for wages taken into account under the Coronavirus Relief Act, or if the employer takes out a loan under Section 7(a) of the Small Business Act.
- Payment of Employer Payroll Tax and Self-Employment Tax – employer share of social security tax due from the date of enactment through December 31, 2020 would be paid 50% on December 31, 2021 and 50% on December 31, 2022. Likewise, half of the self-employment tax due from the date of enactment though December 31, 2020 would be paid 50% on December 31, 2021 and 50% on December 31, 2022. This deferral is not available to any Company that has taken out a loan under Section 7(a) of the Small Business Act and has that loan forgiven.
- Interest Limitations under Section 163(j) – limit on deductibility of interest expense increased from 30% of adjusted taxable income to 50% for 2019 and 2020. Furthermore, businesses can elect to use 2019 adjusted taxable income in computing its 2020 limitation.
- Net Business Loss Limitation – net businesses losses that were generated in 2018 or 2019 eligible to offset other sources of income had been limited to $250,000 if single and $500,000 if married filing jointly. The CARES Act removes this limitation retroactive to January 1, 2018. Therefore, taxpayers who had losses limited by this provision can file amended returns for 2018 and 2019 to claim a refund.
- Net Operating Losses – net operating losses from 2018, 2019 and 2020 will be permitted to be carried back up to five years. Losses carried to 2019 or 2020 can offset 100% of taxable income.
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