On March 27, 2020, the House of Representatives approved the Senate version of the CARES Act, or coronavirus stimulus bill. The bill now goes to President Trump for signing, who indicated he will do so as soon as it hits his desk.
Paycheck Protection Program
- Small businesses with 500 or fewer employees during the “covered period” – February 15 through June 30, 2020, are eligible. Some industries may qualify with more employees, depending on the Small Business Administration’s applicable industry size standards, accessible here.
- Offers a loan of up to $10 million based on a formula, which is essentially 2½ times the monthly payroll, plus certain other costs, up to $100,000 per employee.
- Employee count is calculated per location for businesses in the hospitality and restaurant industries and certain others.
- No personal guarantees are required.
- Also available for self-employed individuals.
- Loan may be used for salaries, paid sick or medical leave, insurance premiums, and mortgage, rent and utility payments.
- Loans will be made through eligible FDIC lenders.
- Loans may be forgiven if employment and wage levels are maintained. There is a cure period for reductions that occurs between February 15, 2020, and 30 days after date of enactment if released employees are rehired or salary reductions are reversed by June 30, 2020.
- Loan forgiveness is not taxable.
2020 Recovery Rebates for Individuals
- All U.S. residents with Adjusted Gross Income (AGI) up to $75,000 ($150,000 married filing joint) are eligible for a full stimulus payment of $1,200 ($2,400 for joint filers).
- If you made more than $75,000, your payment will be reduced by $5 for every $100 of income that exceeds the limits. The payment decreases to zero for an individual making $99,000 or more or a couple making $198,000 or more. If you’re a family of four, you’ll be eligible for a maximum of $3,400.
- Recipients cannot be a dependent of another taxpayer or a non-resident alien.
- Qualified taxpayers will receive an additional $500 per child.
- There is a phase-out to AGI of $198,000 for joint returns, who will receive a reduced stimulus payment.
- If you’ve gotten a tax refund in the last two years by direct deposit, the money will be deposited in your bank account directly. If not, you will receive your check in the mail.
- Will be based on 2019 return or, if not filed, 2018. Non-filers such as certain Social Security or Disability recipients are also eligible.
- Disabled vets who do not pay taxes qualify.
- Taxpayers do not need to apply. They will receive a rebate check.
- The cash payments are not taxable.
- The Treasury Secretary said the checks will be available in two to three weeks.
Enhanced Unemployment Insurance
- The bill makes benefits more generous by adding a $600/week across-the-board payment increase through the end of July. Also, for those who need it, the bill provides an additional 13 weeks of benefits beyond what states typically allow. The bill also makes sure self-employed and independent contractors, like Uber drivers and gig workers, can receive unemployment during the public health emergency.
Special Rules for the Use of Retirement Funds
The 10% early withdrawal penalty is waived for up to $100,000 of distributions from retirement plans for coronavirus-related purposes made on or after January 1, 2020. Coronavirus-related distributions are distributions made to an individual:
- Who is diagnosed with COVID-19;
- Whose spouse or dependent is diagnosed with COVID-19; or,
- Who experiences adverse financial conditions as a result of being quarantined, furloughed, or laid off; having work hours reduced; being unable to work due to lack of child care due to COVID-19; closing or reducing hours of a business owned or operated by the individual due to the virus.
The amount withdrawn may either be repaid over three years or included in taxable income with the recognition spread over three taxable years.
Temporary Waiver of Required Minimum Distribution Rules
- The required minimum distribution rules for certain defined benefit plans and IRAs are waived for the calendar year 2020.
- Applies to taxpayers who are required to take a distribution from their accounts during the economic slowdown caused by COVID-19.
Modification of Limitations on Charitable Contributions During 2020
- Individuals: The 50% AGI limitation for individuals will be suspended for 2020. This allows for an unlimited charitable contribution deduction in 2020.
- For corporations: the 10% limitation is increased to 25% of taxable income, allowing for a larger charitable contribution deduction.
Employee Retention Credit for Employers Subject to Closure Due to COVID-19
The bill provides a refundable payroll tax credit equal to 50% of wages paid by employers to employees during the COVID-19 crisis. Eligible employers are those:
- Whose operations were fully or partially suspended due to COVID-19 related shutdown orders, or
- Who had gross receipts decline by more than 50% as compared to the same quarter in the prior year.
- Qualifying based on credit amount and qualified wages criteria:
- For employers with more than 100 employees, qualified wages are wages paid to employees not providing services due to the COVID-19 related circumstances.
- For employers with 100 employees or less, all wages qualify for the credit.
- The credit is provided for the first $10,000 of compensation, including health benefits.
- Credit applies to wages paid between March 13, 2020, and December 31, 2020.
Delay of Payment – Employer Payroll Tax
- Applies to employers and self-employed individuals.
- Effective for payments as of the date of enactment of the legislation. Date of enactment is when the President signs the bill.
- Defers the payment of the 6.2% employer portion of Social Security Tax for two years.
- Half will be due December 31, 2021, with the other half due December 31, 2022.
Modification of Net Operating Losses (NOL) and Excess Business Loss Limitation
- 5-year carryback period for NOLS for the 2018, 2019, and 2020 tax years.
- The provision also temporarily removes the 80% taxable limitation for net operating losses.
- The excess business loss limitation for pass-through businesses and sole proprietors is suspended.
Modification of Limitation on Business Interest
- The amount of interest expense businesses are allowed to deduct on their tax returns is increased, from 30% to 50% of taxable income (with adjustments) for 2019 and 2020.
- The 2019 Adjusted Taxable Income may be used for the 2020 calculation, if more beneficial.
Technical Amendment Regarding Qualified Improvement Property
- The act corrects the error in the 2017 tax reform concerning qualified improvement property.
- The depreciable life is changed from 39 years to 15 years retroactive to the beginning of 2018.
- Taxpayers will now also be able to take bonus depreciation on qualified improvement property.
- No guidance yet on whether amended returns will be required.
What Education Professionals Should Know
- Department of Education: $30.9 billion Education Stabilization Fund: Flexible funding that will go directly to states, local school districts, and institutions of higher education to help schools, students, teachers, and families with immediate needs related to coronavirus.
- Elementary and Secondary Education: $13.5 billion in formula funding directly to states, to help schools respond to coronavirus and related school closures, meet the immediate needs of students and teachers, improve the use of education technology, support distance education, and make up for lost learning time.
- Higher Education: $14.25 billion for direct grants to higher education institutions, with priority given to schools with a high number of Pell Grant recipients and that were not enrolled in distance education before the outbreak. It would allow the continuation of work-study payments even if the student is unable to work. If a student had to drop out during the current term, they don’t have to pay back Pell grants and would not count toward their federal Pell Grant limits and consideration for subsidized loans. It would suspend monthly payments on federally held student loans through September, with no interest accruing during suspension, but continue to count these months towards requirements for federal loan forgiveness program.
- State Flexibility Funding: $3 billion in flexible formula funding to be allocated by states in the form of subgrants to individual schools based on the needs of their elementary and secondary schools and their institutions of higher education.
- Project SERV: $100 million in targeted funding for elementary and secondary schools and institutions of higher education to respond to the immediate needs of coronavirus and the effect on students (clean and disinfect schools, counseling, and distance learning).