The Coronavirus Aid, Relief, and Economic Security Act (H.R. 748), the “CARES Act” is Law
Updated: Jul 12, 2020
The original bill included $500 billion in direct payments to Americans, $208 billion in loans for major industries that have been impacted by the coronavirus, and $300 billion for small businesses.
The bill is "Phase 3" of Congress's coronavirus response. The first phase "was an $8.3 billion bill spurring coronavirus vaccine research and development signed into law on March 6, 2020. The second phase was a $104 billion package focused on paid sick leave and unemployment benefits for workers and families (the “Families First Coronavirus Response Act” signed into law on March 18, 2020.
The Coronavirus Aid, Relief, and Economic Security Act contains the following provisions:
Key highlights for Individuals:
Stimulus Payments - All U.S. residents whose AGI is $75K or less will receive direct cash payments of $1,200. For married couples, the payment is $2,400 with an income threshold of $150K. There will be additional payments of $500 per child.
COVID-19 Testing - All testing for COVID-19 is covered in full by private health insurance companies.
Expanded Unemployment benefits – The Pandemic Unemployment Assistance (PUA) program extends unemployment benefits ($600 per week for up to 4 months) to those not typically eligible, including self-employed workers, independent contractors, and those with limited work history, who are unable to work due to the outbreak.
In addition, the traditional time frame for unemployment benefits is extended by 13 weeks (through end of 2020).
Student Loans- Federal student loan payments (interest and principal) are deferred for 6 months (through September 30, 2020) without penalty.
Charitable deductions expanded- Individuals will be allowed a $300 above-the-line tax deduction to incentivize individuals who do not itemize their taxes to receive a financial benefit from some of their charitable contributions.
Required Minimum Distributions- There is a temporary elimination of required minimum distributions for individuals who are 72 or older.
Early Retirement Plan distributions- The 10% early distribution penalty (for withdrawals of up to $100K for COVID-19 related purposes) is waived from qualified retirement accounts.
Key highlights for Businesses:
Payroll Tax Expense Deferment- Businesses can defer payment of their 2020 employer payroll taxes, with half the payment now due 12/31/2021 and the other half due 12/31/2022.
Employee Sick and Family Leave payments- Certain employers must provide their employees with paid sick leave and expanded family medical leave for specified reasons related to COVID-19.
Small Business Loans- The maximum loan amount for Small Business loans is increased to $10 million through the end of 2020. Loans can be used for payroll support, paid sick and medical leave for employees, insurance premiums, and overhead costs.
There are some provisions for loan forgiveness for amounts spent by the borrower during an eight-week period after the origination date of the loan for expenses such as payroll, rent, utilities and mortgages. Limitations apply.
Refundable Payroll Tax Credit- Certain employers are eligible for a refundable payroll tax credit in the amount of 50% of wages paid to employees from February 15 to June 30. Conditions include:
Operations fully or partially suspended due to COVID-19; OR
Gross receipts declined by more than 50% for the quarter, year-over-year
Net Operating Losses- Previously, NOLs could only be carried forward, not backward, and could shield up to 80% of taxable income. With the CARES Act, NOLs generated in 2018, 2019, and 2020 can be carried back, up to 5 years, and can shield 100% of taxable income in tax years before 2021.
Qualified Improvement Property- A technical correction was added to the Tax Cuts and Jobs Act allowing for a 15-year recovery period for Qualified Improvement Property (QIP), which is now eligible for bonus depreciation.
Business interest deduction limitations have temporarily been made more favorable by increasing the limitation from 30% to 50% of adjusted taxable income for 2019 and 2020.
Charitable Contributions- Corporations' charitable deduction limitation is increased from 10% to 25% of taxable income.
Employee Retention Credit- This credit grants eligible employers a credit against employment taxes equal to 50% of qualified wages paid to employees after March 12, 2020 and before January 1, 2021 who are not working due to the employer’s full or partial cessation of business or a significant decline in gross receipts. Limited to $10,000 in aggregate per employee.
We are closely monitoring the fast-moving developments and legislative changes relevant to the coronavirus pandemic and are here to answer your questions and be of assistance in any way we can. Reach out for more information.
Natalie C. Papagni, CPA